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. 51
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 34
UNITED RETIREMENT SHARES, INC.
- --------------------------------------------------------------------------------
(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
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on August 31, 1999 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, 1999, will be filed on or about September 28, 1999.
================================================================================
<PAGE>
United Retirement Shares, Inc.
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 attempts to achieve its goal through a fully managed
investment policy.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
Prospectus
October 4, 1999
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.......................................................3
PERFORMANCE....................................................................
FEES AND EXPENSES.............................................................7
THE INVESTMENT PRINCIPLES OF THE FUND.........................................9
Investment Goal, Principal Strategies and Other Investments................9
Risk Considerations of Principal Strategies and Other Investments.........10
Year 2000 and Euro Issues..................................................8
YOUR ACCOUNT.................................................................24
Choosing a Share Class......................................................
Sales Charge Reductions and Waivers.......................................
Waivers for Certain Investors.............................................
Ways to Set Up Your Account...............................................24
Buying Shares.............................................................20
Minimum Investments.......................................................22
Adding to Your Account....................................................23
Selling Shares............................................................23
Telephone Transactions......................................................
Shareholder Services......................................................27
Personal Service........................................................27
Reports.................................................................28
Exchanges...............................................................28
Automatic Transactions for Class A, B and C Shareholders................28
Distributions and Taxes...................................................29
Distributions...........................................................29
Taxes...................................................................30
THE MANAGEMENT OF THE FUND...................................................32
Portfolio Management......................................................32
Management Fee............................................................32
FINANCIAL HIGHLIGHTS...........................................................
2
<PAGE>
An Overview of the Fund
Goal
United Retirement Shares, Inc. (the "Fund") seeks to provide the highest
long-term total investment return that is, in the opinion of the Fund's
investment manager, Waddell & Reed Investment Management Company ("WRIMCO"),
consistent with reasonable safety of capital.
Principal Strategies
The Fund seeks to achieve its goal through a fully managed investment policy.
The Fund invests primarily in common stock and debt securities (of any maturity
and mostly of investment grade) of U.S. issuers. The Fund generally owns equity
securities of medium to large, well-established companies while typically
emphasizing a blend of value and growth potential. Value stocks are those that
WRIMCO believes are currently selling below their true worth, and growth stocks
are those whose earnings WRIMCO believes are likely to grow faster than the
economy. Typically, the Fund's debt securities are either U.S. Government
securities or investment-grade corporate bonds (rated BBB & higher by Standard &
Poor's ("S&P") or Baa and higher by Moody's Investors Service ("MIS")).
In selecting securities for investment the Fund considers a security's potential
for:
o capital growth (equities);
o capital stability (equities and debt securities); and
o income (debt securities).
In determining whether to sell a security, WRIMCO will use the same type of
analysis it uses to buy securities. If a debt security no longer provides the
desired income or an equity security ceases to offer the expected growth
potential or becomes overvalued, the Fund may sell. As well, WRIMCO may wish to
take advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because the Fund owns different types of investments, a variety of factors can
affect its investment performance, such as:
o adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices
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of the Fund's holdings to fall as part of a broad market decline;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o an increase in interest rates, which can cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline; and
o the skill of WRIMCO in evaluating and selecting securities for the Fund and
in allocating the Fund's assets among different types of investments.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
The Fund is designed for investors seeking high total return consistent 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.
4
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Performance
The chart and table below provide some indication of the risks of investing in
the Fund by showing changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns for the periods shown compare with
those of a broad measure of market performance and a peer group average.
o The chart presents the total annual returns for Class A and shows how
performance has varied from year to year over the past ten years.
o The chart does not reflect any sales charge that you may be required to pay
upon purchase of the Fund's Class A shares. If the sales charge were
included, the returns would be less than those shown.
o The table shows Class A and Class Y average annual returns and compares
them to the market indicators listed. No performance information is
provided for Class B or Class C shares since those classes have not existed
for a full calendar year.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on the
Fund's fiscal year.
CHART OF THE YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
1989 24.20%
1990 1.10%
1991 22.33%
1992 13.25%
1993 12.74%
1994 -0.42%
1995 24.28%
1996 9.80%
1997 18.15%
1998 9.73%
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In the period shown in the chart, the highest quarterly return was 9.78%
(the second quarter of 1997) and the lowest quarterly return was -8.29%
(the third quarter of 1990). The Class A return for the year through June
30, 1999 was 10.42%.
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
1 Year 5 Years 10 Years Life of Class*
Class A Shares of the Fund 3.42% 10.68% 12.44%
S&P 500 Index 28.70% 24.08% 19.21% 28.16%
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index 9.45% 7.32% 9.37% 8.32%
Lipper Growth and Income Fund
Universe Average 15.82% 18.41% 15.50% 20.66%
Class Y Shares of the Fund 10.03% 12.47%
S&P 500 Index 28.70% 24.08% 19.21% 28.16%
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index 9.45% 7.32% 9.37% 8.32%
Lipper Growth and Income Fund
Universe Average 15.82% 18.41% 15.50% 20.66%
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goals of the Fund.
* Since February 27, 1996 for Class Y shares. Since the Class commenced
operations on a date other than at the end of a month, and partial month
calculations of the performances of the above indexes (including income)
are not available, index performance is from February 28, 1996.
6
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Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(1) None 5% 1% None
(as a percentage of
lesser of amount
invested or redemption
value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.70% 0.70% 0.70% 0.70%
Distribution and
Service (12b-1) Fees(3) 0.25% 1.00% 1.00% None
Other Expenses 0.20% 0.20% 0.20% 0.21%
Total Annual Fund
Operating Expenses 1.15% 1.90% 1.90% 0.91%
</TABLE>
Example: This example is intended to help you compare the cost of
- ----------
(1) The contingent deferred sales charge ("CDSC") which is imposed on
redemption proceeds of Class B shares declines from 5% in the first
calendar year of purchase, to 4% in the second calendar year, to 3% in the
third and fourth calendar years, to 2% in the fifth calendar year, to 1% in
the sixth calendar year and to 0% after the sixth full calendar year. For
Class C shares, a 1% CDSC applies to the proceeds of Class C shares
redeemed within 12 months.
(2) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999;
otherwise, expense ratios are based on the management fees and other
Fund-level expenses of the Fund for the fiscal year ended June 30, 1999,
and for Class B and Class C, the expenses attributable to each class that
are anticipated for the current year. Actual expenses may be greater or
less than those shown.
(3) It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees that are more than the maximum
asset-based sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
7
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investing in the shares of the Fund with the cost of investing in other mutual
funds. The example assumes that (a) you invest $10,000 in the particular Class
A, Class B, Class C or Class Y shares for each time period specified, (b) your
investment has a 5% return each year, and (c) the expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
If shares are redeemed
at end of period: 1 year 3 years 5 years 10 years
Class A shares $685 $919 $1,172 $1,892
Class B shares $593 $897 NA NA
Class C shares $293 $597 NA NA
Class Y shares $ 93 $290 $ 504 $1,120
If shares are not redeemed
at end of period: 1 year 3 years 5 years 10 years
Class A shares $685 $919 $1,172 $1,892
Class B shares $193 $597 NA NA
Class C shares $193 $597 NA NA
Class Y shares $ 93 $290 $ 504 $1,120
8
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The Investment Principles of the Fund
Investment Goal, Principal Strategies and Other Investments
The primary goal of the Fund is to provide the highest long-term total
investment return as is, in WRIMCO's opinion, consistent with reasonable safety
of capital. The Fund seeks to achieve its goal through a diversified portfolio
under a fully managed investment policy. Under this approach, the Fund will
typically invest substantially all of its assets in common stock and debt
securities of U.S. issuers. The Fund may also invest in preferred stock and
convertible securities. The Fund may invest varying proportions of its assets in
all of these securities, depending on WRIMCO's analysis of what types of
securities, or what proportions, are likely to achieve the Fund's goal. There is
no guarantee that the Fund will achieve its goal.
Since the Fund's goal is long-term total investment return, WRIMCO does 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 rather
attempts 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 seeks the
highest long-term total investment return.
The Fund may invest a limited portion of its assets (no more than 10% of its
total assets) in non-investment grade debt securities (rated BB and below by S&P
and Ba and below by MIS), which are more susceptible to the risk of non-payment
or default, and their prices may be more volatile, than higher-rated securities.
Also, the Fund can invest, to a limited extent, in foreign securities, which
present additional risks such as currency fluctuations and political or economic
conditions affecting the foreign country.
When WRIMCO believes that a temporary defensive position is
9
<PAGE>
desirable, the Fund may invest up to all of its assets in cash or money market
instruments. By taking a temporary defensive position, the Fund may not achieve
its investment objective.
The Fund may also invest in other types of investments and use certain other
instruments in seeking to achieve the Fund's goal. For example, the Fund may
also invest in options, futures contracts, asset-backed securities and other
derivative instruments if it is permitted to invest in the type of asset by
which the return on, or value of, the derivative is measured. At this time, the
Fund has limited exposure to derivative instruments. You will find more
information in the Statement of Additional Information ("SAI") about the Fund's
permitted investments and strategies, as well as the restrictions that apply to
them.
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. The Fund is subject to market risk, financial
risk and, in some cases, prepayment risk.
o Market risk is the possibility of a change in the price of the security
because of market factors, including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if
interest rates increase, the value of a bond with a longer maturity is more
likely to decrease. Because of market risk, the share price of the Fund
will likely change as well.
o Financial risk is based on the financial situation of the issuer of the
security. The financial risk of the Fund may depend, for example, on the
earnings performance of the issuer of stock held by the Fund. To the extent
the Fund invests in debt securities, the financial risk of the Fund may
also depend on the credit quality of the underlying securities in which it
invests.
o Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
before its expected maturity date.
Certain types of the Fund's authorized investments and strategies (such as
foreign securities and derivative instruments) involve special risks. Depending
on how much the Fund invests or uses these strategies, these special risks may
become significant. For example, foreign investments may subject the Fund to
restrictions on receiving the investment proceeds from a foreign country,
foreign taxes, and potential difficulties in enforcing contractual obligations,
as well as fluctuations in foreign currency values
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and other developments that may adversely affect a foreign country. Derivative
instruments may expose the Fund to greater volatility than an investment in a
more traditional stock, bond or other security.
Because the Fund owns different types of investments, its performance will be
affected by a variety of factors. In general, the value of the Fund's
investments and the income it may generate will vary from day to day, generally
due to changes in market conditions, interest rates and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments.
The Fund may actively trade securities in seeking to achieve its goal. Doing so
may increase transaction costs (which may reduce performance) and increase
distributions paid by the Fund, which may increase your taxable income.
Year 2000 and Euro Issues
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.
WRIMCO is taking steps that it believes are reasonably designed to address year
2000 computer-related problems with respect to the computer systems that it uses
and to obtain assurances that comparable steps are being taken by 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.
Similarly, the companies and other issuers in which the Fund invests could be
adversely affected by year 2000 computer-related problems, and there can be no
assurance that the steps taken, if any, by these issuers will be sufficient to
avoid any adverse impact on the Fund.
11
<PAGE>
Also, the Fund could be adversely affected by the conversion of certain European
currencies into the Euro. This conversion, which is underway, is scheduled to be
completed in 2002. However, problems with the conversion process and delays
could increase volatility in world capital markets and affect European capital
markets in particular.
12
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for the Fund: Class A, Class B,
Class C and Class Y. Each class has its own sales charge, if any, and expense
structure. The decision as to which class of shares is best suited to your needs
depends on a number of factors that you should discuss with your financial
advisor. Some factors to consider are how much you plan to invest and how long
you plan to hold your investment. For example, if you are investing a
substantial amount and plan to hold your shares for a long time, Class A shares
may be the most appropriate for you. If you are investing a lesser amount, you
may want to consider Class B shares (if investing for at least seven calendar
years) or Class C shares (if investing for less than seven calendar years).
Class Y shares are designed for institutional investors and others investing
through certain intermediaries, as described below. Since your objectives may
change over time, you may want to consider another class when you buy additional
Fund shares. All of your future investments in the Fund will be made in the
class you select when you open your account, unless you inform the Fund
otherwise, in writing, when you make a future investment.
General comparison of Class A, B and C shares
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on shares o A 1% deferred sales charge on
you sell within six calendar shares you sell within one
years year
o Maximum distribution and service o Maximum distribution and o Maximum distribution and
(12b-1) fees of 0.25% service (12b-1) fees of 1.00% service (12b-1) fees of 1.00%
o For an investment of o Converts to Class A shares by o Does not convert to Class A
$2,000,000 or more Waddell & the end of the seventh shares, so annual expenses do
Reed financial advisors will calendar year following the not decrease
recommend first year of
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
purchase of Class A purchase, thus
shares due to no sales charge reducing future annual
and lower annual expenses. expenses
o For an investment of $300,000 or more
Waddell & Reed financial advisors
typically recommend purchase of Class
A shares due to a reduced sales charge
and lower annual expenses.
</TABLE>
The Fund has adopted a Distribution and Service Plan ("Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940 for each of its Class A, Class B
and Class C shares. Under the Class A Plan, the Fund may pay Waddell & Reed,
Inc. a fee of up to 0.25%, on an annual basis, of the average daily net assets
of the Class A shares. This fee is to reimburse Waddell & Reed, Inc. for the
amounts it spends for distributing the Fund's Class A shares, providing services
to Class A shareholders and/or maintaining Class A shareholder accounts. Under
the Class B Plan and the Class C Plan, the Fund may pay Waddell & Reed, Inc., on
an annual basis, a service fee of up to 0.25% of the average daily net assets of
the class to compensate Waddell & Reed, Inc. for providing services to
shareholders of that class and/or maintaining shareholders accounts for that
class and a distribution fee of up to 0.75% of the average daily net assets of
the class to compensate Waddell & Reed, Inc. for distributing shares of that
class. Because a class's fees are paid out of the assets of that class on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Class A shares are subject to a sales charge when you buy them, based on the
amount of your investment, according to the table below. Class A shares pay an
annual 12b-1 fee of up to 0.25% of average Class A net assets. The ongoing
expenses of this class are lower than those for Class B or Class C shares and
higher than those for Class Y shares.
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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
Sales Charge Reductions and Waivers
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the funds
in the United Group, except shares of United Cash Management, Inc.
unless acquired by exchange for Class A shares on which a sales charge
was paid (or as a dividend or distribution on such acquired shares),
with the NAV of
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Class A shares already held ("Rights of Accumulation");
o Grouping all purchases of Class A shares made during a thirteen-month
period ("Letter of Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell & Reed
financial advisors.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
o The Directors and officers of the Fund, employees of Waddell & Reed,
Inc., employees of their affiliates, financial advisors of Waddell &
Reed, Inc. and the spouse, children, parents, children's spouses and
spouse's parents of each;
o Certain retirement plans and certain trusts for these persons; and
o A 401(k) plan having 100 or more eligible employees.
You will find more information in the SAI about sales charge reductions and
waivers.
Class B shares are not subject to a sales charge when you buy them. However, you
may pay a contingent deferred sales charge ("CDSC") if you sell your Class B
shares within six calendar years of their purchase, based on the table below.
Class B shares pay an annual 12b-1 service fee of up to 0.25% of average net
assets and distribution fee of up to 0.75% of average net assets. Over time,
these fees will increase the cost of your investment and may cost you more than
if you had bought Class A shares. Class B shares will automatically convert to
Class A shares at the end of the seventh calendar year following the first year
of purchase. Class A shares have lower on-going expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
Deferred
Date of Sales
Redemption Charge
- ---------- ------
anytime within 1st calendar year 5%
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<PAGE>
anytime within 2nd full calendar year 4%
anytime within 3rd full calendar year 3%
anytime within 4th full calendar year 3%
anytime within 5th full calendar year 2%
anytime within 6th full calendar year 1%
after 6th full calendar year 0%
The CDSC will be applied to the total amount invested during a calendar year to
acquire Class B shares or the value of the Class B shares redeemed, whichever is
less. All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC.
Class C shares are not subject to a sales charge when you buy them, but if you
sell your Class C shares within 12 months of buying them, you will pay a 1%
CDSC. For purposes of a CDSC, purchases of Class C shares within a month will be
considered as being purchased on the first day of the month. Class C shares pay
an annual 12b-1 service fee of up to 0.25% of average net assets and
distribution fee of up to 0.75% of average net assets. Over time, these fees
will increase the cost of your investment and may cost you more than if you had
bought Class A shares. Class C shares do not convert to any other class.
Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption
amount and paid to Waddell & Reed, Inc. (the "Distributor"), as further
described below. The purpose of the CDSC is to compensate the Distributor for
the costs incurred by it in connection with the sale of the Fund's Class B
shares. The CDSC will not be imposed on Class B shares representing payment of
dividends or distributions or on amounts which represent an increase in the
value of a shareholder's account resulting from capital appreciation above the
amount paid for Class B shares purchased during the CDSC period. The date of
redemption is measured, in calendar years, from the first calendar year of
purchase. For example, if a shareholder opens an account with an investment of
$1,000 on November 1, 1999, then redeems all shares which are now worth $1,2000
on March 1, 2000, the shareholder would pay a $40 CDSC ($1,000 times 4%, the
rate applicable to the second calendar year).
To keep your CDSC as low as possible, each time you place a request to redeem
shares the Fund assumes that a redemption is made first of shares representing
appreciation on shares other
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<PAGE>
than reinvested distributions, next of shares representing amounts not subject
to a deferred sales charge, including reinvested distributions, and then of
shares that represent the lowest sales charge.
Unless instructed otherwise, the Fund, when requested to redeem a specific
dollar amount, will redeem additional Class B or C shares equal in value to the
CDSC. For example, should you request a $1,000 redemption and the applicable
CDSC is $27, the Fund will redeem shares having an aggregate NAV of $1,027,
absent different instructions.
For Class C shares, the CDSC will be applied to the total amount invested that
is not at least twelve months old.
The CDSC will not apply in the following circumstances:
o redemptions of Class B or C shares requested within one year of the
shareholder's death or disability, provided the Fund is notified of the
death or disability at the time of the request and furnished proof of such
event satisfactory to the Distributor.
o redemptions of Class B or C shares made to satisfy required minimum
distributions after age 70 1/2 from a qualified retirement plan, a required
minimum distribution from an individual retirement account, Keogh plan or
custodial account under section 403(b)(7) of the Internal Revenue Code of
1986, as amended ("Code"), or a tax-free return of an excess contribution,
or that otherwise results from the death or disability of the employee, as
well as in connection with redemptions by any tax-exempt employee benefit
plan for which, as a result of a subsequent law or legislation, the
continuation of its investment would be improper.
o redemptions of Class B or C shares made pursuant to a shareholder's
participation in any systematic withdrawal service adopted for a Fund. (The
Service and this exclusion from the CDSC do not apply to a one-time
withdrawal.)
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<PAGE>
o redemptions the proceeds of which are reinvested in Class B or C shares
(must be reinvested in the same class as that which was redeemed) of the
Fund within thirty days after such redemption.
o the exercise of certain exchange privileges.
o on redemptions effected pursuant to the Fund's right to liquidate a
shareholder's Class B or C shares if the aggregate NAV of those shares is
less than $500.
o redemptions effected by another registered investment company by virtue of
a merger or other reorganization with the Fund or by a former shareholder
of such investment company of Class B or C shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time without
prior notice to shareholders, except with respect to redemptions effected
pursuant to the Fund's right to liquidate a shareholder's shares, which requires
certain notices.
Class Y shares are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
o participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Code , when the plan has 100 or more eligible employees and holds the
shares in an omnibus account on the Fund's records;
o banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an
omnibus account on the Fund's records;
o government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more;
and
o certain retirement plans and trusts for employees and account
representatives of Waddell & Reed, Inc. and its affiliates.
The different ways to set up (register) your account are listed below.
19
<PAGE>
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.
o Individual Retirement Accounts (IRAs) allow an individual under 70 1/2,
with earned income, to invest up to $2,000 per tax year. The maximum annual
contribution for an investor and his or her spouse is $4,000 ($2,000 for
each spouse) or, if less, the couple's combined earned income for the
taxable year.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o Roth IRAs allow certain individuals to make non-deductible contributions up
to $2,000 per year. Withdrawals of earnings may be tax-free if the account
is at least five years old and certain other requirements are met.
o Education IRAs are established for the benefit of a minor, with non
deductible contributions, and permit tax-free withdrawals to pay the higher
education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP - IRAs) provide small business
owners or those with self-employed income (and their eligible employees)
with many of the same advantages as a Keogh Plan, but with fewer
administrative requirements.
20
<PAGE>
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees' retirement
accounts and involve fewer administrative requirements than 401(k) or other
qualified plans generally.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with
a maximum of $30,000 per year.
o Pension and Profit-Sharing Plans, including 401(k) Plans, allow
corporations and non-governmental tax-exempt organizations of all sizes
and/or their employees to contribute a percentage of the employees' wages
or other amounts on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
- -------------------------------------------------
21
<PAGE>
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its financial
advisors. To open your account you must complete and sign an application. Your
Waddell & Reed financial advisor can help you with any questions you might have.
To purchase any class of shares 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.
To purchase Class Y shares 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, along
with the account number and registration, to UMB Bank, n.a., ABA Number
101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and Account
Number.
You may also buy Class Y 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 Class Y shares.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a share (price to buy one share of a particular class) is
the net asset value ("NAV") per share of that class plus, for Class A shares,
the sales charge shown in the table above.
In the calculation of the Fund's NAV:
o The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which approximates
market value.
o Other investment assets for which market prices are unavailable are valued
at their fair value by or at the direction of the Board of Directors.
22
<PAGE>
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 close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by the Fund may be priced at the close of the regular
session of any other securities or commodities exchange on which that instrument
is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on U.S. national business holidays when the NYSE is closed.
Consequently, the NAV of Fund shares may be significantly affected on days when
the Fund does not price its shares and when you are not able to purchase or
redeem the Fund's shares. Similarly, if an event materially affecting the value
of foreign investments or foreign currency exchange rates occurs prior to the
close of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair value
as determined in good faith by or under the direction of the Board of Directors.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
o The Fund does not issue certificates representing Class B, C or Y shares of
the Fund.
o If you purchase Class Y shares of the Fund 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 Class Y 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
shares of the Fund at that day's price.
23
<PAGE>
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Minimum Investments
For Class A, B and C:
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
For Class Y:
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
To Add to An Account Any amount
24
<PAGE>
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail the
check to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior purchase
or your year-to-date statement; or
o a letter stating your account number, the account registration and the
class of shares that you wish to purchase.
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
If you purchase Class Y 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 share of a particular class) is the NAV
per share of that class, subject to any CDSC applicable to Class B or Class C
shares.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
25
<PAGE>
o the dollar amount or number, and the class, of shares to be redeemed; and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a check
to the address on the account.
To sell Class Y 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 Class Y
shares and make payment by wire to your pre-designated bank account or by check
to you at the address on the account.
When you place an order to sell shares, your shares will be sold at the next
NAV, subject to applicable CDSC, calculated after receipt of a written request
for redemption in good order by Waddell & Reed Services Company at the address
listed above. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
o If you hold a certificate, it must be properly endorsed and sent to the
Fund.
o 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 you do not, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund can
verify that your purchase check has cleared and been honored.
o Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when
26
<PAGE>
trading on the NYSE is restricted, or as permitted by the Securities and
Exchange Commission.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
o If you purchased Class Y 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 Class Y shares when that firm (or its designee) has received your
order. Your order will receive the Class Y NAV 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 Class Y shares at that day's price.
27
<PAGE>
Special Requirements for Selling Shares
Account Type Special Requirements
------------ --------------------
Individual or Joint Tenant The written instructions must be signed by all
persons required to sign for transactions,
exactly as their names appear on the account.
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
UGMA, UTMA The custodian must sign the written
instructions indicating capacity as custodian.
Retirement Account The written instructions must be signed by a
properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the
trustee's name is not in the account
registration, provide a currently certified
copy of the trust document.
Business or Organization At least one person authorized by corporate
resolution to act on the account must sign the
written instructions.
Conservator, Guardian or The written instructions must be signed by the
Other Fiduciary person properly authorized by court order to
act in the particular fiduciary capacity.
The Fund may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
28
<PAGE>
The Fund reserves the right to redeem at NAV all your Fund shares if their
aggregate NAV is less than $500. The Fund will give you notice and a 60-day
opportunity to purchase a sufficient number of additional shares to bring the
aggregate NAV of your shares to $500.
You may reinvest, without charge, all or part of the amount of Class A shares
you redeemed by sending to the Fund the amount you want to reinvest. The
reinvested amounts must be received by the Fund within thirty days after the
date of your redemption. You may do this only once with Class A shares of the
Fund.
The deferred sales charge will not apply to the proceeds of Class B shares or
Class C shares which are redeemed and then reinvested in Class B shares or Class
C shares, as applicable, within thirty days after such redemption. You may do
this only once as to Class B shares of the Fund and only once as to Class C
shares of the Fund.
Payments of principal and interest on loans made pursuant to Waddell & Reed's
401(k) prototype plan may be reinvested, without payment of a sales charge, in
Class A shares of any United Group fund in which the plan may invest.
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 financial advisor is available to provide personal
service. Additionally, one toll-free call, 1-800-366-5465, connects you to a
Customer Service Representative or our automated customer telephone service.
During
29
<PAGE>
normal business hours, our Customer Services staff is available to answer your
questions or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or our
website, www.waddell.com, to:
o obtain information about your accounts;
o obtain price information about other funds in the United Group; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone number listed above for Customer Service if
you need copies of annual or semiannual reports or account information.
Exchanges
You may sell your shares and buy shares of the same class of other funds in the
United Group without payment of additional sales charge if you buy Class A
shares or a CDSC when you exchange Class B or Class C shares. For Class B and
Class C shares, the time period for the CDSC will continue to run. As well,
exchanging Class Y shareholders may buy Class A shares of United Cash
Management, Inc.
You may exchange only into funds that are legally permitted for sale in your
state of residence. Note that exchanges out of 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.
30
<PAGE>
Automatic Transactions for Class A, B and C Shareholders
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 or from 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 financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Amount 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 of the same class
Minimum Amount 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. Usually the Fund distributes net
investment income quarterly in March, June, September and December. Net capital
gains (and any net gains from foreign currency transactions) usually are
distributed in December.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividends, capital gains and other distributions
with respect to a class will be automatically paid in additional shares of
the same class of
31
<PAGE>
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 with
respect to a class will be automatically paid in shares of the same class,
but you will be sent a check for each dividend distribution. However, if
the dividend distribution is less than five dollars, the distribution will
be automatically paid in additional shares of the same class of the Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is equal to or greater than
five dollars. If the distribution is less than five dollars, it will be
automatically paid in additional shares of the same class of the Fund.
For retirement accounts, all distributions are automatically paid in additional
shares.
Taxes
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. For Federal income tax purposes, your
long-term capital gains (if you are a noncorporate shareholder of the Fund) may
be taxable at different rates depending on how long the Fund held the assets
generating the gains, but generally are taxed at a maximum rate of 20%.
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.
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
32
<PAGE>
dividends-received deduction are subject indirectly to the Federal alternative
minimum tax.
Withholding. The Fund must withhold 31% of all dividends, capital gains
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and capital gains
distributions also is required for shareholders subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the United Group generally will have similar tax consequences. However, special
rules apply when you dispose of Class A Fund shares through a redemption or
exchange within ninety days after your purchase and then reacquire Class A Fund
shares or acquire Class A shares of another fund in the United Group without
paying a sales charge due to the thirty-day reinvestment privilege or exchange
privilege. See "Your Account." In these cases, any gain on the disposition of
the original Class A 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 sale of those securities are
fully subject to those taxes. You should consult your tax adviser to determine
the taxability of dividends and other distributions by the 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; you will find
more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
33
<PAGE>
The Management of the Fund
Portfolio Management
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. WRIMCO and its predecessors have served as investment
manager to each of the registered investment companies in the United Group of
Mutual Funds, Waddell & Reed Funds, Inc. and Target/United Funds, Inc. since the
inception of the company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
Charles W. Hooper, Jr. is primarily responsible for the management of the
portfolio of the Fund. Mr. Hooper has held his responsibilities since April
1999. He is Vice President of WRIMCO and Vice President of the Fund. From August
1987 to December 1991, Mr. Hooper served as the portfolio manager for another
investment company managed by WRIMCO. From October 1984 to December 1991, Mr.
Hooper was Vice President of, and a portfolio manager for, Waddell & Reed Asset
Management Company, a former affiliate of WRIMCO. From December 1991 to July
1996, Mr. Hooper was a portfolio manager for Founders Asset Management Company,
and from July 1996 to April 1999, Mr. Hooper was the Chief Investment Officer
for Owen Joseph.
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.
Management Fee
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 in the SAI.
The management fee is payable by the Fund at the annual rates of: 0.70% of net
assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2
billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of
net assets over $3 billion.
Prior to June 30, 1999, the management fee of the Fund was calculated by adding
a group fee to a specific fee. The specific
34
<PAGE>
fee was 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 was
determined on the basis of the combined net asset values of all the funds in the
United Group and then allocated pro rata to the Fund based on its relative net
assets 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%
Management fees for the fiscal year ended June 30, 1999 were 0.54% of the Fund's
average net assets.
35
<PAGE>
Financial Highlights
The following information is to help you understand the financial performance of
the Fund's Class A* and Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased during each period, assuming
reinvestment of all dividends and distributions. This information has been
audited by Deloitte & Touche LLP, whose independent auditors' report, along with
the Fund's financial statements for the fiscal year ended June 30, 1999, are
included in the SAI, which is available upon request.
For a Class A share outstanding throughout each period.*
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
---------------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Class A Per-Share Data
Net asset value,
beginning of period ...................... $ 9.28 $ 9.14 $ 8.72 $ 8.26 $ 7.64
------- ------- ------- ------- -------
Income from investment
operations:
Net investment income .................... 0.19 0.24 0.27 0.26 0.24
Net realized and
unrealized gain
on investments ....................... 0.92 0.99 1.08 0.94 0.86
------- ------- ------- ------- -------
Total from investment
operations ............................... 1.11 1.23 1.35 1.20 1.10
------- ------- ------- ------- -------
Less distributions:
From net investment
income ............................... (0.18) (0.25) (0.27) (0.27) (0.22)
From capital gains ....................... (0.37) (0.84) (0.66) (0.47) (0.26)
------- ------- ------- ------- -------
Total distributions ........................... (0.55) (1.09) (0.93) (0.74) (0.48)
------- ------- ------- ------- -------
Net asset value,
end of period ............................ $ 9.84 $ 9.28 $ 9.14 $ 8.72 $ 8.26
======= ======= ======= ======= =======
Class A Ratios/Supplemental Data
Total return** ................................ 12.75% 14.45% 16.70% 14.93% 15.07%
Net assets, end of
period (in millions) ..................... $ 890 $ 825 $ 716 $ 607 $ 528
Ratio of expenses to
average net assets ....................... 0.99% 0.93% 0.92% 0.89% 0.89%
Ratio of net investment
income to average net
assets ................................... 2.04% 2.57% 3.12% 3.01% 3.04%
Portfolio turnover
rate ..................................... 122.58% 53.52% 39.55% 42.05% 48.62%
</TABLE>
* On October 7, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding during the periods
shown.
** Total return calculated without taking into account the sales load deducted
on an initial purchase.
36
<PAGE>
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the
For the fiscal year period
ended June 30, from 2/27/96*
---------------------------------------------- through
1999 1998 1997 6/30/96
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of period .......................... $ 9.28 $ 9.14 $ 8.72 $ 8.68
------- ------- ------- -------
Income from investment
operations:
Net investment
income .................................... 0.20 0.25 0.29 0.10
Net realized and
unrealized gain
on investments ............................ 0.94 0.99 1.07 0.06
------- ------- ------- -------
Total from investment
operations ................................... 1.14 1.24 1.36 0.16
------- ------- ------- -------
Less distributions:
From net investment
income .................................... (0.20) (0.26) (0.28) (0.12)
From capital gains ........................... (0.37) (0.84) (0.66) (0.00)
------- ------- ------- -------
Total distributions ............................. (0.57) (1.10) (.94) (.12)
------- ------- ------- -------
Net asset value,
end of period ................................ $ 9.85 $ 9.28 $ 9.14 $ 8.72
======= ======= ======= =======
Class Y Ratios/Supplemental Data
Total return .................................... 13.11% 14.62% 16.87% 1.91%
Net assets, end of
period (in
millions) .................................... $ 3 $ 3 $ 3 $ 2
Ratio of expenses
to average net
assets ....................................... 0.75% 0.79% 0.78% 0.71%**
Ratio of net
investment income
to average net
assets ....................................... 2.32% 2.71% 3.28% 3.36%**
Portfolio
turnover rate ................................ 122.58% 53.52% 39.55% 42.05%**
</TABLE>
* Commencement of operations.
** Annualized.
37
<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
38
<PAGE>
United Retirement Shares, Inc.
October 4, 1999
You can get more information about the Fund in--
o its Statement of Additional Information (SAI) dated October 4, 1999,
which contains detailed information about the Fund, particularly its
investment policies and practices. You may not be aware of important
information about the Fund unless you read both the Prospectus and the
SAI. The current SAI is on file with the Securities and Exchange
Commission (SEC) and it is incorporated into this Prospectus by
reference (that is, the SAI is legally part of the Prospectus).
o its Annual and Semiannual Reports to Shareholders, which detail the
Fund's actual investments and include financial statements as of the
close of the particular annual or semiannual period. The annual report
also contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during
the year covered by the report.
To request a copy of the current SAI or copies of the Fund's most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below. Copies of the
SAI, Annual and/or Semiannual reports may also be requested at
[email protected].
Information about the Fund (including its current SAI and most recent Annual and
Semiannual Reports) is available from the SEC's web site at http://www.sec.gov
and from the SEC's Public Reference Room in Washington, D.C. You can find out
about the operation of the Public Reference Room and applicable copying charges
by calling 1-800-SEC-0330.
The Fund's SEC file number is: 811-2263.
WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-366-5465
NUP2007(10-99)
39
<PAGE>
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
October 4, 1999
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with a prospectus ("Prospectus")
for the Class A, Class B, Class C and Class Y shares of United Retirement
Shares, Inc. (the "Fund") dated October 4, 1999, which may be obtained from the
Fund or its underwriter, Waddell & Reed, Inc., at the address or telephone
number shown above.
TABLE OF CONTENTS
Performance Information .......................................... 2
Investment Strategies, Policies and Practices .................... 4
Investment Management and Other Services ......................... 30
Purchase, Redemption and Pricing of Shares ....................... 35
Directors and Officers ........................................... 51
Payments to Shareholders ......................................... 57
Taxes ............................................................ 58
Portfolio Transactions and Brokerage ............................. 62
Other Information ................................................ 64
<PAGE>
Appendix A ....................................................... 65
Financial Statements ............................................. 69
2
<PAGE>
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 company organized as a Maryland
corporation on December 3, 1971.
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
Total return is the overall change in the value of an investment over a
given period of time. An average annual total return quotation is computed by
finding the average annual compounded rates of return over the one-, five-, and
ten-year periods that would equate the initial amount invested to the ending
redeemable value. Standardized total return information is calculated by
assuming an initial $1,000 investment and, for Class A shares, deducting the
maximum sales load of 5.75%. All dividends and distributions are assumed to be
reinvested in shares of the applicable class at net asset value for the class as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions on Class A shares. The formula used to
calculate the total return for a particular class of 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.
3
<PAGE>
The average annual total return quotations for Class A shares as of June
30, 1999, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
With Without
Sales Load Sales Load
Deducted Deducted
One-year period from July 1, 1998 to
June 30, 1999: 6.27% 12.75%
Five-year period from July 1, 1994 to
June 30, 1999: 13.42% 14.77%
Ten-year period from July 1, 1989 to
June 30, 1999: 12.10% 12.77%
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, 1999, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
Period from July 1, 1998 to
June 30, 1999: 13.11%
Period from February 27, 1996* to
June 30, 1999: 13.89%
* Date of inception.
No performance information is provided for Class B or Class C since neither
had commenced operations as of June 30, 1999.
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
4
<PAGE>
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. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
related, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or less
than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Fund's investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which the Fund may
invest, in pursuit of the Fund's goal. A summary of the risks associated with
these instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by the Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help the Fund achieve its goal. See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of the
Fund.
Securities - General
The Fund may invest in securities including common stock, preferred stock,
debt securities and convertible securities. Although common stocks and other
equity securities have a history of long-term growth in value, their prices tend
to fluctuate in the short term, particularly those of smaller companies. The
Fund may invest in preferred stock in any rating category that is rated by an
established rating service or, if unrated, judged by WRIMCO to be of equivalent
quality. Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of
5
<PAGE>
quality. As a general matter, however, when interest rates rise, the values of
fixed-rate securities fall and, conversely, when interest rates fall, the values
of fixed-rate debt rise. Similarly, long-term bonds are generally more sensitive
to interest rate changes than shorter-term bonds.
Lower quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. The market for lower-rated debt
securities may be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the former are sold.
Adverse publicity and changing investor perceptions may decrease the values and
liquidity of lower-rated debt securities, especially in a thinly traded market.
Valuation becomes more difficult and judgment plays a greater role in valuing
lower-rated debt securities than with respect to securities for which more
external sources of quotations and last sale information are available. Since
the risk of default is higher for lower-rated debt securities, WRIMCO's research
and credit analysis are an especially important part of managing securities of
this type held by 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 exercise its rights
as a security holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the Fund's shareholders.
The Fund may invest in debt securities rated in any rating category of the
established rating services, including securities rated in the lowest category
(such as those rated D by Standard & Poor's ("S&P") and C by Moody's Investors
Service, Inc. ("MIS")). Debt securities rated D by S&P or C by MIS are in
payment default or are regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt securities rated at least BBB by
S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. In addition,
the Fund will treat unrated securities judged by WRIMCO to be of equivalent
quality to a rated security having that rating.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the
6
<PAGE>
safety of principal and interest payments, not market value risk. Credit ratings
for individual securities may change from time to time, and the Fund may retain
a portfolio security whose rating has been changed.
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 invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or
different issuer within a particular period of time at a specified price or
formula. Convertible securities generally have higher yields than common stocks
of the same or similar issuers, but lower yields than comparable nonconvertible
securities, are less subject to fluctuation in the value that the underlying
stock because they have fixed income characteristics, and provide the potential
for capital appreciation if the market price of the underlying common stock
increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
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
7
<PAGE>
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") are high quality debt
instruments issued or guaranteed as to principal or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
securities include Treasury Bills (which mature within one year of the date they
are issued), Treasury Notes (which have maturities of one to ten years) and
Treasury Bonds (which generally have maturities of more than 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
8
<PAGE>
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.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit and other financial institution obligations. These instruments may carry
fixed or variable interest rates.
9
<PAGE>
Zero Coupon Securities
Zero coupon securities are debt obligations that do not entitle the holder
to any periodic payment of interest prior to maturity or that specify a future
date when the securities begin to pay current interest; instead, they are sold
at a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon securities do not pay current income, their
prices can be very volatile when interest rates change and generally are subject
to greater price fluctuations in response to changing interest rates than prices
of comparable maturities that make current distributions of interest in cash.
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"). 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 and includable in the dividends paid to its shareholders. 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.
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
10
<PAGE>
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Multi-class pass-through securities and collateralized
mortgage obligations are collectively referred to in this SAI as "CMOs." Some
CMOs are directly supported by other CMOs, which in turn are supported by
mortgage pools. Investors typically receive payments out of the interest and
principal on the underlying mortgages. The portions of the payments that
investors receive, as well as the priority of their rights to receive payments,
are determined by the specific terms of the CMO class.
The U.S. Government mortgage-backed securities in which 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,
11
<PAGE>
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
12
<PAGE>
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. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. However,
these effects may not be present, or may differ in degree, if the mortgage loans
in the pools have adjustable interest rates or other special payment terms, such
as a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed securities
is smaller and less liquid than the market for U.S. Government mortgage-backed
securities. CMO classes may be specifically structured in a manner that provides
any of a wide variety of investment characteristics, such as yield, effective
maturity and interest rate sensitivity. As market conditions change, however,
and especially during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of some CMO classes and the ability of the
structure to provide the anticipated investment characteristics may be reduced.
These changes can result in volatility in the market value and in some instances
reduced liquidity, of the CMO class.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and may carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from
13
<PAGE>
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 Currencies
The Fund may invest in the securities of foreign issuers, including
depositary receipts. In general, depositary receipts are securities convertible
into and evidencing ownership of securities of foreign corporate issuers,
although depositary receipts may not necessarily be denominated in the same
currency as the securities into which they may be converted. American depositary
receipts, in registered form, are dollar-denominated receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. International depositary receipts and European depositary receipts,
in bearer form, are foreign receipts evidencing a similar arrangement and are
designed for use by non-U.S. investors and traders in non-U.S. markets. Global
depositary receipts are designed to facilitate the trading of securities of
foreign issuers by U.S. and non-U.S. investors and traders.
WRIMCO believes that there are investment opportunities as well as risks in
investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Individual foreign companies
may also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. Thus, the value of securities denominated in or indexed to
foreign currencies, and of dividends and interest from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. WRIMCO believes that the Fund's ability to invest its assets
abroad might enable it to take advantage of these differences and strengths
where they are favorable.
However, foreign securities and foreign currencies involve additional
significant risks, apart from the risks inherent in U.S. investments. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be
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more difficult to obtain reliable information regarding an issuer's financial
conditions and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions and custodial costs, are
generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be greater possibility of
default by foreign governments or government-sponsored enterprises. Investments
in foreign countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
There is no assurance that WRIMCO will be able to anticipate these potential
events or counter their effects.
The considerations noted above generally are intensified in developing
countries. A developing country is a nation that, in WRIMCO's opinion, is likely
to experience long-term gross domestic product growth above that expected to
occur in the United States, the United Kingdom, France, Germany, Italy, Japan
and Canada. Developing countries may have relatively unstable governments,
economies based on only a few industries and securities markets that trade a
small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund may purchase and sell foreign currency and invest in foreign
currency deposits, and may enter into forward currency contracts, as described
in the Prospectus and this SAI. The Fund may incur a transaction charge in
connection with the exchange of currency. Currency conversion involves dealer
spreads and other costs, although commissions are not usually charged. See
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"Options, Futures and Other Strategies - Forward Currency Contracts" below.
Lending Securities
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing the Fund's income. If the Fund lends securities, the
borrower pays the Fund an amount equal to the dividends or interest on the
securities that the Fund would have received if it had not lent the securities.
The Fund also receives additional compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). At the
time of each loan, the Fund must receive collateral equal to no less than 100%
of the market value of the securities loaned. Under the present Guidelines, the
collateral must consist of cash, U.S. Government securities or bank letters of
credit, at least equal in value to the market value of the securities lent on
each day that the loan is outstanding. If the market value of the lent
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities lent.
If the market value of the securities decreases, the borrower is entitled to
return of the excess collateral.
There are two methods of receiving compensation for making loans. The first
is to receive a negotiated loan fee from the borrower. This method is available
for all three types of collateral. The second method, which is not available
when letters of credit are used as collateral, is for 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
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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
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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.
In either case payment and delivery for the securities take place at a future
date. 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. When purchasing securities on a when issued or
delayed-delivery basis, the Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. 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. 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. 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. 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.
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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.
Investment Company Securities
The Fund may purchase 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.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities generally can
be sold in privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, as amended, or in a registered
public offering. Where registration is required, 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. Certain
restricted securities, e.g., Rule 144A securities, may be determined to be
liquid in accordance with guidelines adopted by the Board of Directors. See
"Illiquid Investments."
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Illiquid Investments
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Investments currently
considered to be illiquid include:
(i) repurchase agreements not terminable within seven days;
(ii) securities for which market quotations are not readily available;
(iii) over-the-counter ("OTC") options and their underlying collateral;
(iv) bank deposits, unless they are payable at principal plus accrued
interest on demand or within seven days after demand;
(v) 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.
If through a change in values, net assets, or other circumstances, the Fund
were in a position where more than 10% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
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
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coupon rate is determined by reference to a specific instrument or statistic.
The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed and may also be influenced by interest rate changes in the United States
and abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying investments. Gold-indexed securities,
for example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies. Certain indexed securities that are not traded
on an established market may be deemed illiquid.
Options and Futures
General. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance the
Fund's income or yield or to attempt to hedge the Fund's 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.
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
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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,
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
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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 might not use any of these strategies, and there can be no
assurance that any strategy used will succeed. 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. In general,
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. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed, and use of Financial Instruments could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other 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.
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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.
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(5) 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. A call option gives the purchaser the right to buy, and obligates
the writer to sell, the underlying investment at the agreed-upon price during
the option period. A put option gives the purchaser the right to sell, and
obligates the writer to buy, the underlying investment at the agreed-upon price
during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the purchase of
put options can serve as a short hedge. Writing 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.
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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. Options offer large amounts of leverage,
which will result in the Fund's net asset value being
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more sensitive to changes in the value of the related instrument. 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
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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
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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.
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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.
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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
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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
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currencies (including the Euro), 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
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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 Euros, it could enter into a forward
currency contract to sell Euros in return for U.S. dollars to hedge against
possible declines in the Euro'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 Euro. 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
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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
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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.
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 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 WRIMCO will hedge at an
appropriate time.
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. The Fund may enter into swaps, caps,
collars and floors to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the Fund
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anticipates purchasing at a later date or to attempt to enhance yield. Swaps
involve the exchange by the Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed-rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling the cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling the floor. A collar combines elements of buying a
cap and selling a floor.
Swap agreements, including caps, collars and floors, can be individually
negotiated and structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap agreements may
increase or decrease the overall volatility of the Fund's investments and its
share price and yield because, and to the extent, these agreements affect 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. If a firm's creditworthiness declines,
the value of the agreement would be likely to decline, potentially resulting in
losses. If a default occurs by the other party to such transaction, 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
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not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to the Fund's borrowing restrictions. The Fund
understands that the position of the SEC is that assets involved in swap
transactions are illiquid and are, therefore, subject to the limitations on
investing in illiquid securities.
Investment Restrictions and Limitations
Certain of the Fund's investment restrictions and other limitations are
described in this SAI. The following are the Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's goal and the
types of securities in which the Fund may invest, cannot be changed without
shareholder approval. For this purpose, shareholder approval means the approval,
at a meeting of Fund shareholders, by the lesser of (1) the holders of 67% or
more of the Fund's shares represented at the meeting, if more than 50% of the
Fund's outstanding shares are present in person or by proxy or (2) more than 50%
of the Fund's outstanding shares. 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 to the extent allowed, and in accordance with
the requirements, under the 1940 Act and enter into repurchase
agreements except as indicated above (see "Repurchase Agreements"
above);
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(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. 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;
(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; or
(xi) Issue senior securities.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder
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approval:
(i) The Fund does not intend to invest in non-investment grade debt
if, as a result of such investment, more than 10% of its total
assets would consist of such investments.
(ii) The Fund may not invest more than 10% of its total assets in
foreign securities.
(iii) The Fund may not purchase a security if, as a result, more than
10% of its net assets would consist of illiquid investments.
(iv) The Fund does not currently intend to invest more than 5% of its
assets in the securities of other investment companies.
(v) 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 instrumentalities, or to
collateralized mortgage obligations, other mortgage-related
securities, asset-backed securities, indexed securities or OTC
derivative instruments.
An investment policy or limitation that states a maximum percentage of the
Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, the Fund's acquisition of an
asset. Accordingly, a subsequent change in the asset's value, net assets, or
other circumstances will not be considered when determining whether the
investment complies with the Fund's investment policies and limitations.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. The Fund's turnover rate may vary
greatly from year to year as well as within a particular year and
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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, 1999 was 149.06%, while the rate
for the remainder of the portfolio was 56.06%. The Fund's overall portfolio
turnover rates for the fiscal years ended June 30, 1999 and 1998 were 122.58%
and 53.52%, respectively. The significant increase in turnover from 1998 to 1999
is primarily due to a change in the portfolio manager. Charles Hooper, Jr. took
over the management of this Fund in April, 1999. It is anticipated that the
turnover rate will continue near the rate for the fiscal year ended June 30,
1999.
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.
Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell & Reed,
Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services, Inc., a
holding company. Waddell & Reed Financial Services, Inc., is a wholly owned
subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The
address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
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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 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 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.
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The management fees paid to WRIMCO during the fiscal years ended June 30,
1999, 1998 and 1997 were $4,420,589, $4,229,070 and $3,578,876, 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, 1999, 1998 and
1997 were $85,000, $80,000 and $70,000, respectively.
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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,
1999, 1998 and 1997 were $2,706,305, $3,494,973 and $2,917,026, respectively,
and the amounts retained by Waddell & Reed, Inc. for each fiscal year were
$1,136,635, $1,471,735 and $1,227,433, respectively.
No portion of the sales charge is reallowed to dealers. A major portion of
the sales charge for Class A shares and the contingent deferred sales charges
("CDSC") for Class B and Class C shares is paid to financial advisors and
managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its
financial advisors as to purchases for which there is no sales or deferred
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 the Distribution and Service Plan (the "Plan") for Class A shares
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
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<PAGE>
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, Class B and Class C shares, to make
distribution of shares also through other broker-dealers. In distributing shares
through its sales force, Waddell & Reed, Inc. will pay commissions and
incentives to the sales force at or about the time of sale and will incur other
expenses including for prospectuses, sales literature, advertisements, sales
office maintenance, processing of orders and general overhead with respect to
its efforts to distribute the Fund's shares. The Class A Plan permits Waddell &
Reed, Inc. to receive reimbursement for these Class A-related distribution
activities through the distribution fee, subject to the limit contained in the
Plan. The Class A Plan also contemplates that Waddell & Reed, Inc. may be
reimbursed for amounts it expends in compensating, training and supporting
registered financial advisors, 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 under the Class A
Plan for the fiscal year ended June 30, 1999 were $164,765 and $1,832,158,
respectively. To the extent that Waddell & Reed, Inc. incurs expenses for which
reimbursement may be made under the Plan that relate to distribution and service
activities also involving another fund in the United Group of Funds or Waddell &
Reed Funds, Inc., Waddell & Reed, Inc. typically determines the amount
attributable to the Fund's expenses under the Plan on the basis of a combination
of the respective classes' relative net assets and number of shareholder
accounts.
Under the Plans adopted by the Fund for Class B and Class C shares,
respectively, the Fund may pay Waddell & Reed, Inc., on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate Waddell & Reed, Inc. for providing services to shareholders of that
class and/or maintaining shareholder accounts for that class and a distribution
fee of up to 0.75% of the average daily net assets of the class to compensate
Waddell & Reed, Inc. for distributing the shares of that class. The Class B Plan
and the Class C Plan each permit
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Waddell & Reed, Inc. to receive compensation, through the distribution and
service fee, respectively, for its distribution activities for that class, which
are similar to the distribution activities described with respect to the Class A
Plan, and for its activities in providing personal services to shareholders of
that class and/or maintaining shareholder accounts of that class, which are
similar to the corresponding activities for which is it entitled to
reimbursement under the Class A Plan.
The only Directors or interested persons, as defined in the 1940 Act, of
the Fund who have a direct or indirect financial interest in the operation of a
Plan are the officers and Directors who are also officers of either Waddell &
Reed, Inc. or its affiliate(s) or who are shareholders of Waddell & Reed
Financial, Inc., the indirect parent company of Waddell & Reed, Inc. Each Plan
is anticipated to benefit the Fund and its shareholders of the affected class
through Waddell & Reed, Inc.'s activities not only to distribute the shares of
the affected class but also to provide personal services to shareholders of that
class and thereby promote the maintenance of their accounts with the Fund. The
Fund anticipates that shareholders of a particular class may benefit to the
extent that Waddell & Reed's activities are successful in increasing the assets
of the Fund, through increased sales or reduced redemptions, or a combination of
these, and reducing a shareholder's share of Fund and class expenses. Increased
Fund assets may also provide greater resources with which to pursue the goal of
the Fund. Further, continuing sales of shares may also reduce the likelihood
that it will be necessary to liquidate portfolio securities, in amounts or at
times that may be disadvantageous to the Fund, to meet redemption demands. In
addition, the Fund anticipates that the revenues from the Plan will provide
Waddell & Reed, Inc. with greater resources to make the financial commitments
necessary to continue to improve the quality and level of services to the Fund
and the shareholders of the affected class. Each 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 Class A Plan was also approved by the affected shareholders of
the Fund.
Among other things, each 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
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Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding shares of the affected class 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 auditors,
audits the Fund's financial statements.
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 sales charge is
paid to Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of
June 30, 1999, which is the most recent balance sheet included in this SAI, was
as follows:
Net asset value per Class A share (Class A net assets divided
by Class A shares outstanding) ............................... $ 9.84
Add: selling commission (5.75% of offering price) ............... .60
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) .................. $10.44
======
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class B, Class C or a Class Y share is its net asset value
next determined following acceptance of a purchase order. The number of shares
you receive 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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
Minimum Initial and Subsequent Investments
For Class A, Class B and Class C shares, initial investments must be at
least $500 with the exceptions described in this paragraph. A $100 minimum
initial investment pertains to certain exchanges of shares from another fund in
the United Group. A $50 minimum initial investment pertains to purchases for
certain retirement plan accounts and to accounts for which an investor 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;
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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
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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. All qualified
employee benefit plans of an employer who is a franchisor and those of its
franchisee(s) may also be grouped.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made
under both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping may
be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed,
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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.
Letter of Intent
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Letter of Intent. By signing a Letter of Intent
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 Letter of Intent is
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accepted by WRIMCO. Each purchase made from time to time under the Letter of
Intent 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 Letter of Intent 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 Letter of Intent, 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 Letter of Intent 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
Letter of Intent 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
Letter of Intent 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 Letter of Intent 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 Letter of Intent only if the
contractual plan has been completed.
The minimum initial investment under a Letter of Intent is 5% of the dollar
amount which must be invested under the Letter of Intent. An amount equal to 5%
of the purchase required under the Letter of Intent will be held "in escrow." If
a purchaser does not, during the period covered by the Letter of Intent, invest
the amount required to qualify for the reduced sales charge under the terms of
the Letter of Intent, he or she will be responsible for
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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 Letter
of Intent which is not completed will be collected by redeeming part of the
shares purchased under the Letter of Intent 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 Letter of Intent, the lower sales charge will apply.
A Letter of Intent does not bind the purchaser to buy, or Waddell & Reed,
Inc. to sell, the shares covered by the Letter of Intent.
With respect to Letters of Intent for $2,000,000 or purchases otherwise
qualifying for no sales charge under the terms of the Letter of Intent, 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 Letter of
Intent will be deducted in computing the aggregate purchases under the Letter of
Intent.
Letters of Intent 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 Class A shares of any of the funds in the United Group
subject to a sales charge. A purchase of Class A shares, or Class A shares held,
in any of the funds in the United Group subject to a sales charge will be
treated as an investment in the Fund in determining the applicable sales charge.
For these purposes, Class A shares of United Cash Management, Inc. that were
acquired by exchange of another United Group fund's Class A shares on which a
sales charge was paid, plus the shares paid as dividends on those acquired
shares, are also taken into account.
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, financial advisors of Waddell &
Reed, Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each such Director, officer, employee and financial advisor.
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"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. "Employees" also includes individuals who, on November 6, 1998, were
employees (including retired employees) of a company that on that date was an
affiliate of Waddell & Reed, Inc. "Financial advisors" includes retired
financial advisors. A "retired financial advisor" is any financial advisor who
was, at the time of separation from service from Waddell & Reed, Inc., a Senior
Financial Advisor. A custodian under the UGMA or UTMA purchasing for the child
or grandchild of any employee or financial advisor may purchase Class A shares
at net asset value whether or not the custodian himself is an eligible
purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Shares may also be issued at NAV in a merger, acquisition or exchange offer
made pursuant to a plan of reorganization to which the Fund is a party.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for 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 Letter of Intent 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
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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
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, Class B and Class C Shareholders
If you qualify, you may arrange to receive through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming on an ongoing basis Class A, Class B or Class C 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 Class A shares
while the Service is in effect because it would result in duplication of sales
charges. Class C shares purchased within the past year remain subject to the
CDSC; however, Class B shares redeemed under the Service are not subject to a
CDSC. Applicable forms to start the Service are available through Waddell & Reed
Services Company.
The maximum amount of the withdrawal for monthly, quarterly, semiannual and
annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50. The Service, and this exclusion from
the deferred sales charge, does not apply to a one-time withdrawal.
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To qualify for the Service, you must have invested at least $10,000 in
Class A, Class B or Class C shares which you still own of any of the funds in
the United Group; or, you must own Class A, Class B or Class C shares having a
value of at least $10,000. The value for this purpose is the value at the
offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to one-twelfth of
a percentage of the value of the shares in the Account (you select the
percentage); or
3. a monthly or quarterly payment, which will change each month or quarter,
by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 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 of a class you have made
available for the Service are paid in additional shares of that class. All
payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of shares you own will decrease. When all of the
shares in your account are redeemed, you will not receive any further payments.
Thus, the payments are not an annuity or 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.
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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, provided you already own Class A shares of the fund. The shares of
United Cash Management, Inc. which you designate for automatic exchange must be
worth at least $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.
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You may redeem your Class A shares of the Fund and use the proceeds to
purchase Class Y shares of the Fund if you meet the criteria for purchasing
Class Y shares.
Class B Share Exchanges
You may exchange Class B shares of the Fund for Class B shares of other
funds in the United Group without charge.
The redemption of the Fund's Class B shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class B shares of United Cash
Management, Inc. automatically exchanged each month into Class B shares of the
Fund or any other fund in the United Group, provided you already own Class B
shares of the fund. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100, which may be
allocated among different funds so long as each fund receives a value of at
least $25. Minimum initial investment and minimum balance requirements apply to
such automatic exchange service.
Class C Share Exchanges
You may exchange Class C shares of the Fund for Class C shares of other
Funds in the United Group without charge.
The redemption of the Fund's Class C shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class C shares of United Cash
Management, Inc. automatically exchanged each month into Class C shares of a
Fund or any other fund in the United Group, provided you already own Class C
shares of the fund. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100, which may be
allocated among different funds so long as each fund receives a value of at
least $25. Minimum initial investment and minimum balance requirements apply to
such automatic exchange service.
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Class Y Share Exchanges
Class Y shares of the 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
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
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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 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,
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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.
Pension and Profit-Sharing Plans, including 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.
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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 Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount of Class A shares you redeem
from the Fund by sending to the Fund the amount you wish to reinvest. The amount
you return will be reinvested in Class A shares at the net asset value next
determined after the Fund receives the returned amount. Your written request to
reinvest and the amount to be reinvested must be received within 30 days after
your redemption request was received, and the Fund must be offering Class A
shares at the time your reinvestment request is 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.
There is also a reinvestment privilege for Class B and Class C shares under
which you may reinvest all or part of any amount of Class B or Class C shares
you redeemed and have the corresponding amount of the deferred sales charge, if
any, which you paid restored to your account by adding the amount of that charge
to the amount you are reinvesting in Class B or Class C shares, as applicable.
If Class B or Class C shares of the Fund are then being offered, you can put all
or part of your redemption payment back into the Class B or Class C shares of
the Fund at the net asset value next determined after you have returned the
amount. Your written request to do this must be received within 30 days after
your redemption. You can do this only once as to Class B shares of the Fund and
only once as to Class C shares of the Fund. For purposes of determining future
deferred sales charges, the
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reinvestment will be treated as a new investment. You do not use up this
privilege by redeeming Class B or Class C shares to invest the proceeds at net
asset value in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the 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 majority of the
Directors are not affiliated with Waddell & Reed, Inc.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Vogel is a member of the 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.
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KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Principal Financial Officer and Director of Waddell & Reed Financial,
Inc.; President, Chairman of the Board of Directors and Chief Executive Officer
of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors
of WRIMCO, Waddell & Reed, Inc. and Waddell & Reed Services Company; formerly,
President of each of the funds in the Fund Complex; formerly, Chairman of the
Board of Directors of Waddell & Reed Asset Management Company, a former
affiliate of Waddell & Reed Financial, Inc. Date of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President, JoDill Corp., an agricultural company; President and Director of
Dillingham Enterprises Inc.; formerly, Director and consultant, McDougal
Construction Company; formerly, Instructor at Central Missouri State University;
formerly, Member of the Board of Police Commissioners, Kansas City, Missouri;
formerly, Senior Vice President-Sales and Marketing, Garney Companies, Inc., a
specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores Dori
Eccles Foundation. Director of First Security Corp., a bank holding company, and
Director of Fluor Corp., a company with interests in coal. Date of birth: March
24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Partner, Levy and Craig, P.C., a law firm. Date of
birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents and Adjunct Professor of Law at the
University of Oklahoma College of Law; formerly,
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Vice President for Executive Affairs of the University of Oklahoma; formerly, an
Attorney with Crowe & Dunlevy, a law firm. Date of birth: January 17, 1967.
JOHN F. HAYES
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the other
funds in the Fund Complex; Executive Vice President, Chief Operating Officer and
Director of Waddell & Reed Financial, Inc.; Vice President, Chief Operating
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and Treasurer of
WRIMCO; President, Chief Executive Officer, Principal Financial Officer,
Director and Treasurer of Waddell & Reed, Inc.; President, Director and
Treasurer of Waddell & Reed Services Company; formerly, Vice President of each
of the funds in the Fund Complex; formerly, Director and Treasurer of Waddell &
Reed Asset Management Company, a former affiliate of Waddell & Reed Financial,
Inc. Date of birth: November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund Complex;
President, Chief Investment Officer, Treasurer and Director of Waddell & Reed
Financial, Inc.; Vice President, Chief Investment Officer and Director of
Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.;
President, Chief Executive Officer, Chief Investment Officer and Director of
WRIMCO; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: December 8, 1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and subsidiaries. Date of birth: February 19, 1924.
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WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of each
of the funds in the Fund Complex then in existence. (Mr. Morgan retired as
Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company. Date of birth:
April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director of Network Rehabilitation Services; formerly, Employment
Counselor and Director of McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Professor of Business Administration, University of Missouri-Kansas City;
formerly, Chancellor, University of Missouri-Kansas City. Date of birth: January
1, 1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
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Helge K. Lee
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Secretary and General Counsel of Waddell & Reed
Financial, Inc.; Vice President, Secretary, General Counsel and Director of
Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary, General Counsel and Director of Waddell & Reed Services Company;
formerly, Executive Vice President, Secretary and Chief Compliance Officer of
LGT Asset Management, Inc. and affiliates; formerly, Senior Vice President,
General Counsel and Secretary of Strong Capital Management, Inc. and affiliates.
Date of birth: March 30, 1946.
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.
Charles W. Hooper, Jr.
Vice President of the Fund and Vice President of WRIMCO. Formerly,
portfolio manager with Founders Asset Management Company; formerly, Chief
Investment Officer for Owen Joseph. Date of birth: July 29, 1945.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be interested persons as defined in the
1940 Act of the Fund's underwriter, Waddell & Reed, Inc., or WRIMCO are
indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 70 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but he has no
authority or responsibility with respect to management of the Fund. Messrs.
Henry L. Bellmon, Jay B. Dillingham, Doyle Patterson, Ronald K. Richey and Paul
S. Wise 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
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attended plus reimbursement of expenses of attending such meeting and $500 for
each Committee meeting attended which is not in conjunction with a Board of
Directors meeting, other than Directors who are affiliates of Waddell & Reed,
Inc. The fees to the Directors who receive them are divided among the funds in
the United Group, Target/United Funds, Inc. and Waddell & Reed Funds, Inc. based
on their relative size.
During the Fund's fiscal year ended June 30, 1999, 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*
- -------- ------------ ------------
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 2,013 58,500
John A. Dillingham 2,013 58,500
David P. Gardner 1,419 41,500
Linda K. Graves 2,013 58,500
Joseph Harroz, Jr. 1,409 41,500
John F. Hayes 2,013 58,500
Glendon E. Johnson 2,030 59,000
William T. Morgan 2,013 58,500
Ronald C. Reimer 1,402 41,500
Frank J. Ross, Jr. 2,013 58,500
Eleanor B. Schwartz 2,030 59,000
Frederick Vogel III 2,030 59,000
* No pension or retirement benefits have been accrued as a part of Fund
expenses.
Mr. Gardner was elected as a Director on August 19, 1998. Messrs. Harroz,
Hechler, Herrmann and Reimer were elected as Directors on November 18, 1998. The
officers are paid by WRIMCO or its affiliates.
Shareholdings
As of July 31, 1999, 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 July 31, 1999,
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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 %
Financial, Inc.
Savings & Investment Plan
6300 Lamar Avenue
Overland Park KS 66201
Torchmark Corporation Class Y
Savings & Investment Plan
2001 Third Avenue South
Birmingham AL 35202
Morrissey Inc. Class Y
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
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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. However, a total dividend and/or distribution amount
less than five dollars will be automatically 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
The Fund has qualified for treatment as a regulated investment company
("RIC") under the Code, so that it is relieved of Federal income tax on that
part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gains and net gains from certain
foreign currency transactions) that is distributed to its shareholders. To
continue to qualify as a RIC, the Fund must distribute to its shareholders for
each taxable year at least 90% of the sum of its investment company taxable
income ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Fund must derive
at least 90% of its gross income each taxable year from dividends, interest,
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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.
If the Fund failed to qualify for treatment as a RIC for any taxable year,
(a) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year (even if it distributed that income to its
shareholders) and (b) the shareholders would treat all distributions out of its
earnings and profits, including distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), as dividends (that
is, ordinary income). In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying for RIC treatment.
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
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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
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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
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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 in the 15% marginal tax bracket)
maximum tax rate on net capital gains enacted by the Taxpayer Relief Act of
1997. Section 1256 contracts also may be marked-to-market for purposes of the
Excise Tax and other purposes. The Fund may need to distribute any
mark-to-market gains to its shareholders to satisfy the Distribution Requirement
and/or avoid imposition of the Excise Tax, even though it may not have closed
the transactions and received cash to pay the distributions.
Code section 1092 (dealing with straddles) 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
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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
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or sells. However, sometimes a better negotiated commission is available through
combined orders.
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 seek "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding but
is expected to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund. Subject to review by the Board of Directors,
such policies include the selection of brokers which provide execution and/or
research services and other services, including pricing or quotation services
directly or through others ("research and brokerage services") considered by
WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO has investment discretion.
Research and brokerage services are, in general, defined by reference to
Section 28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities and purchasers or sellers, (ii) furnishing
analyses and reports, or (iii) effecting securities transactions and performing
functions incidental thereto (such as clearance, settlement and custody).
"Investment discretion" is, in general, defined as having authorization to
determine what securities shall be purchased or sold for an account, or making
those decisions even though someone else has responsibility.
The commissions paid to brokers that provide such research and/or brokerage
services may be higher than another qualified broker would charge for effecting
comparable transactions if a good faith determination is made by WRIMCO that the
commission is reasonable in relation to the research or brokerage services
provided. Subject to the foregoing considerations, WRIMCO may also consider
sales of 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
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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, 1999, 1998 and 1997, it paid
brokerage commissions of $1,529,589, $721,927 and $524,052, 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, 1999, the transactions, other
than principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $859,769,203 on which $1,088,542 in
brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
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 four classes of shares: Class A, Class B, Class C 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 distribution and/or service
fee; Class B and Class C are subject to a CDSC and to ongoing distribution and
service fees; Class B shares convert in the eighth year to Class A shares; and
Class Y shares, which are designated for institutional investors, have no sales
charge
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nor ongoing distribution and/or service fee; each class may bear differing
amounts of certain class-specific expenses; and each class has a separate
exchange privilege. The 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 B shares
and Class C shares are expected to be lower than for Class A shares, which in
turn 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. Shares are fully paid and nonassessable when purchased.
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 fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the bylaws are met. There will normally be no meeting of the
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
time which 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.
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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.
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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.
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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:
83
<PAGE>
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.
84
<PAGE>
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.
85
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS
Apparel and Other Textile Products - 1.03%
Tommy Hilfiger Corporation* ............................................ 125,000 $ 9,187,500
Building Materials and Garden Supplies - 0.95%
Lowe's Companies, Inc. ................................................. 150,000 8,503,125
Business Services - 14.90%
America Online, Inc.* .................................................. 90,000 9,945,000
BMC Software, Inc.* .................................................... 150,000 8,095,313
Citrix Systems, Inc.* .................................................. 125,000 7,042,969
Computer Sciences Corporation* ......................................... 125,000 8,648,438
Compuware Corporation* ................................................. 275,000 8,739,844
Electronic Data Systems Corporation .................................... 125,000 7,070,312
Microsoft Corporation* ................................................. 200,000 18,025,000
Oracle Corporation* .................................................... 200,000 7,425,000
Parametric Technology Corporation* ..................................... 500,000 6,953,125
SunGard Data Systems, Inc.* ............................................ 200,000 6,900,000
Teradyne, Inc.* ........................................................ 150,000 10,762,500
USWeb Corporation* ..................................................... 300,000 6,665,625
Veritas Software Corp.* ................................................ 100,000 9,496,875
Wind River Systems, Inc.* .............................................. 300,000 4,809,375
Young & Rubicam Inc. ................................................... 275,000 12,495,312
Total ............................................................... 133,074,688
Chemicals and Allied Products - 11.28%
Abbott Laboratories .................................................... 200,000 9,100,000
Biogen, Inc.* .......................................................... 120,000 7,721,250
Forest Laboratories, Inc.* ............................................. 150,000 6,937,500
Lilly (Eli) and Company ................................................ 150,000 10,743,750
Merck & Co., Inc. ...................................................... 175,000 12,950,000
Pfizer Inc. ............................................................ 80,000 8,780,000
Pharmacia & Upjohn, Inc. ............................................... 175,000 9,942,187
Schering-Plough Corporation ............................................ 225,000 11,925,000
SmithKline Beecham plc, ADR ............................................ 160,000 11,100,000
Warner-Lambert Company ................................................. 175,000 11,560,938
Total ............................................................... 100,760,625
Communication - 4.70%
AT&T Corporation ....................................................... 175,000 9,767,188
Comcast Corporation, Class A ........................................... 200,000 7,687,500
SBC Communications Inc. ................................................ 250,000 14,500,000
USA Networks, Inc.* .................................................... 250,000 10,023,437
Total ............................................................... 41,978,125
Depository Institutions - 2.29%
Bank of America Corporation ............................................ 150,000 10,996,875
Citigroup Inc. ......................................................... 200,000 9,500,000
Total ............................................................... 20,496,875
</TABLE>
See Notes to Schedule of Investments on page .
1
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Eating and Drinking Places - 1.72%
McDonald's Corporation ................................................. 200,000 $ 8,262,500
Wendy's International, Inc. ............................................ 250,000 7,078,125
Total ............................................................... 15,340,625
Electronic and Other Electric Equipment - 10.82%
ADC Telecommunications, Inc.* .......................................... 200,000 9,106,250
Analog Devices, Inc.* .................................................. 250,000 12,546,875
General Electric Company ............................................... 140,000 15,820,000
General Instrument Corporation* ........................................ 175,000 7,437,500
Intel Corporation ...................................................... 300,000 17,840,625
Micron Technology, Inc.* ............................................... 200,000 8,062,500
Nokia Corporation, Series A, ADR ....................................... 140,000 12,818,750
Texas Instruments Incorporated ......................................... 90,000 13,050,000
Total ............................................................... 96,682,500
Food and Kindred Products - 3.53%
Pepsi Bottling Group, Inc. ............................................. 500,000 11,531,250
Ralston-Ralston Purina Group ........................................... 325,000 9,892,187
Seagram Company Ltd. (The) ............................................. 200,000 10,075,000
Total ............................................................... 31,498,437
General Merchandise Stores - 0.94%
Wal-Mart Stores, Inc. .................................................. 175,000 8,443,750
Heavy Construction, Except Building - 1.01%
Halliburton Company .................................................... 200,000 9,050,000
Holding and Other Investment Offices - 0.75%
Berkshire Hathaway Inc., Class B* ...................................... 3,000 6,720,000
Industrial Machinery and Equipment - 5.91%
Apple Computer, Inc.* .................................................. 225,000 10,434,375
Applied Materials, Inc.* ............................................... 200,000 14,768,750
Dell Computer Corporation* ............................................. 375,000 13,863,281
EMC Corporation* ....................................................... 250,000 13,750,000
Total ............................................................... 52,816,406
Instruments and Related Products - 1.70%
Boston Scientific Corporation* ......................................... 200,000 8,787,500
Guidant Corporation .................................................... 125,000 6,429,688
Total ............................................................... 15,217,188
Insurance Carriers - 3.21%
Chubb Corporation (The) ................................................ 100,000 6,950,000
Equitable Companies Inc. (The) ......................................... 150,000 10,050,000
Hartford Financial Services Group
Inc. (The) .......................................................... 200,000 11,662,500
Total ............................................................... 28,662,500
</TABLE>
See Notes to Schedule of Investments on page .
2
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Motion Pictures - 1.65%
AT&T Corp. - Liberty Media Group,
Class A* ............................................................ 200,000 $ 7,350,000
Time Warner Incorporated ............................................... 100,000 7,350,000
Total ............................................................... 14,700,000
Nondepository Institutions - 2.83%
Fannie Mae ............................................................. 200,000 13,675,000
Freddie Mac ............................................................ 200,000 11,600,000
Total ............................................................... 25,275,000
Oil and Gas Extraction - 4.32%
Apache Corporation ..................................................... 200,000 7,800,000
Basin Exploration, Inc.* ............................................... 250,000 5,039,062
Burlington Resources Incorporated ...................................... 300,000 12,975,000
Schlumberger Limited ................................................... 200,000 12,737,500
Total ............................................................... 38,551,562
Petroleum and Coal Products - 2.74%
Exxon Corporation ...................................................... 200,000 15,425,000
Royal Dutch Petroleum Company .......................................... 150,000 9,037,500
Total ............................................................... 24,462,500
Printing and Publishing - 0.69%
McGraw-Hill Companies, Inc. (The) ...................................... 115,000 6,202,813
Security and Commodity Brokers - 2.57%
Charles Schwab Corporation (The) ....................................... 100,000 10,987,500
Merrill Lynch & Co., Inc. .............................................. 150,000 11,990,625
Total ............................................................... 22,978,125
Transportation by Air - 1.89%
Northwest Airlines Corporation,
Class A* ............................................................ 200,000 6,487,500
UAL Corporation* ....................................................... 160,000 10,400,000
Total ............................................................... 16,887,500
Transportation Equipment - 0.89%
General Motors Corporation ............................................. 120,000 7,920,000
Wholesale Trade -- Nondurable Goods - 1.44%
Cardinal Health, Inc. .................................................. 200,000 12,825,000
TOTAL COMMON STOCKS - 83.76% $748,234,844
(Cost: $604,001,642)
</TABLE>
See Notes to Schedule of Investments on page .
3
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES
Communication - 0.54%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ................................................... $ 3,000 $ 3,393,270
Southwestern Bell Telephone Company,
5.77%, 10-14-2003 ................................................... 1,500 1,456,320
Total ............................................................... 4,849,590
Depository Institutions - 0.27%
Wachovia Corporation,
6.25%, 8-4-2008 ..................................................... 2,500 2,383,875
Electric, Gas and Sanitary Services - 0.11%
California Infrastructure and Economic Development
Bank, Special Purpose Trust PG&E-1,
6.42%, 9-25-2008 .................................................... 1,000 994,480
Food and Kindred Products - 0.56%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-2036 .................................................... 5,000 5,041,550
Miscellaneous Manufacturing Industries - 0.27%
Tyco International Group S.A.,
6.375%, 6-15-2005 ................................................... 2,500 2,445,325
Nondepository Institutions - 0.38%
General Electric Capital Corporation,
8.3%, 9-20-2009 ..................................................... 3,000 3,355,620
Transportation by Air - 0.43%
Southwest Airlines Co.,
7.875%, 9-1-2007 .................................................... 3,650 3,821,441
United States Postal Service - 0.25%
Postal Square Limited Partnership,
8.95%, 6-15-2022 .................................................... 1,868 2,226,953
TOTAL CORPORATE DEBT SECURITIES - 2.81% $ 25,118,834
(Cost: $24,581,319)
</TABLE>
See Notes to Schedule of Investments on page .
4
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
OTHER GOVERNMENT SECURITY - 0.35%
Supranational
International Bank for Reconstruction and
Development,
9.25%, 7-15-2017 .................................................... $ 2,500 $ 3,143,825
(Cost: $2,498,292)
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
6.51%, 5-6-2008 ..................................................... 7,500 7,313,700
6.19%, 7-7-2008 ..................................................... 5,000 4,789,850
Government National Mortgage Association,
6.5%, 8-15-2028 ..................................................... 13,100 12,596,260
National Archives Facility Trust,
8.5%, 9-1-2019 ...................................................... 4,161 4,780,051
United States Treasury:
7.875%, 11-15-2004 .................................................. 10,000 10,937,500
6.5%, 10-15-2006 .................................................... 40,000 41,300,000
0.0%, 2-15-2019 ..................................................... 20,000 5,814,800
7.25%, 8-15-2022 .................................................... 8,000 8,957,520
TOTAL UNITED STATES GOVERNMENT SECURITIES - 10.80% $96,489,681
(Cost: $96,723,673)
TOTAL SHORT-TERM SECURITIES - 1.54% $ 13,738,000
(Cost: $13,738,000)
TOTAL INVESTMENT SECURITIES - 99.26% $886,725,184
(Cost: $741,542,926)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.74% 6,610,392
NET ASSETS - 100.00% $893,335,576
</TABLE>
See Notes to Schedule of Investments on page .
5
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1999
Notes to Schedule of Investments
*No dividends were paid during the preceding 12 months.
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.
6
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(In Thousands, Except for Per Share Amounts)
<TABLE>
<S> <C>
Assets
Investment securities - at value
(Notes 1 and 3) ....................................................................... $886,725
Cash ..................................................................................... 7
Receivables:
Investment securities sold ............................................................ 26,577
Dividends and interest ................................................................ 2,017
Fund shares sold ...................................................................... 1,007
Prepaid insurance premium................................................................. 9
--------
Total assets ........................................................................ 916,342
--------
Liabilities
Payable for investment securities purchased .............................................. 21,339
Payable to Fund shareholders ............................................................. 1,230
Accrued service fee (Note 2) ............................................................. 165
Accrued transfer agency and
dividend disbursing (Note 2) .......................................................... 125
Accrued distribution fee (Note 2) ........................................................ 23
Accrued management fee (Note 2) .......................................................... 17
Accrued accounting services fee (Note 2) ................................................. 7
Other .................................................................................... 100
--------
Total liabilities ................................................................... 23,006
--------
Total net assets ................................................................. $893,336
========
Net Assets
$1.00 par value capital stock
Capital stock ......................................................................... $ 90,743
Additional paid-in capital............................................................. 566,647
Accumulated undistributed income:
Accumulated undistributed net investment income ....................................... 1,633
Accumulated undistributed net realized
gain on investment transactions ..................................................... 89,131
Net unrealized appreciation in value of
investments ......................................................................... 145,182
--------
Net assets applicable to outstanding
units of capital ................................................................. $893,336
========
Capital shares outstanding
Class A ............................................................................... 90,403
Class Y ............................................................................... 340
Capital shares authorized ................................................................... 300,000
Net asset value per share (net assets divided
by shares outstanding)
Class A ............................................................................... $9.84
Class Y ............................................................................... $9.85
</TABLE>
See notes to financial statements.
7
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1999
(In Thousands)
<TABLE>
<S> <C>
Investment Income
Income (Note 1B):
Interest and amortization ............................................................. $ 18,187
Dividends ............................................................................. 6,568
--------
Total income ........................................................................ 24,755
--------
Expenses (Note 2):
Investment management fee ............................................................. 4,421
Service fee - Class A.................................................................. 1,832
Transfer agency and dividend disbursing - Class A...................................... 1,226
Distribution fee - Class A............................................................. 165
Accounting services fee ............................................................... 85
Custodian fees ........................................................................ 59
Audit fees ............................................................................ 13
Legal fees ............................................................................ 12
Shareholder servicing - Class Y ....................................................... 5
Other ............................................................................... 249
--------
Total expenses ...................................................................... 8,067
--------
Net investment income ............................................................ 16,688
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities .......................................................... 89,901
Realized net loss on foreign currency
transactions .......................................................................... (12)
--------
Realized net gain on investments ...................................................... 89,889
Unrealized depreciation in value of investments
during the period ..................................................................... 2 (5,039)
--------
Net gain on investments ............................................................. 84,850
--------
Net increase in net assets resulting
from operations ............................................................... $101,538
========
</TABLE>
See notes to financial statements.
8
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the fiscal year ended
June 30,
------------------------------
1999 1998
-------- --------
<S> <C> <C>
Increase in Net Assets
Operations:
Net investment income ........................................... $ 16,688 $ 19,939
Realized net gain on investments ................................ 89,889 65,705
Unrealized appreciation
(depreciation) ................................................ (5,039) 18,773
-------- --------
Net increase in net assets
resulting from operations .................................. 101,538 104,417
-------- --------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ....................................................... (15,950) (20,761)
Class Y ....................................................... (74) (88)
Realized gains on securities transactions:
Class A ....................................................... (32,461) (66,648)
Class Y ....................................................... (138) (271)
-------- --------
(48,623) (87,768)
Capital share transactions: -------- --------
Proceeds from sale of shares:
Class A (10,309,331 and 10,522,139
shares, respectively) ...................................... 93,629 96,683
Class Y (230,169 and 61,007
shares, respectively) ...................................... 2,066 570
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (5,446,253 and
9,995,667 shares, respectively) ............................ 48,028 87,119
Class Y (24,055 and 41,126
shares, respectively) ...................................... 212 359
Payments for shares redeemed:
Class A (14,310,457 and 9,861,351
shares, respectively) ...................................... (129,651) (90,559)
Class Y (242,942 and 107,103
shares, respectively) ...................................... (2,200) (990)
-------- --------
Net increase in net assets
resulting from capital
share transactions ...................................... 12,084 93,182
-------- --------
Total increase .......................................... 64,999 109,831
Net Assets
Beginning of period ................................................ 828,337 718,506
-------- --------
End of period, including undistributed
net investment income of $1,633
and $981, respectively .......................................... $893,336 $828,337
======== ========
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
9
<PAGE>
UNITED RETIREMENT SHARES, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
----------------------------------
1999 1998 1997 1996 1995
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period .......................... $9.28 $9.14 $8.72 $8.26 $7.64
------ ----- ----- ----- -----
Income from investment
operations:
Net investment
income ....................... .19 .24 .27 .26 .24
Net realized and
unrealized gain
on investments ............... .92 .99 1.08 .94 .86
------ ----- ----- ----- -----
Total from investment
operations ...................... 1.11 1.23 1.35 1.20 1.10
------ ----- ----- ----- -----
Less distributions:
From net investment
income ....................... (0.18) (0.25) (0.27) (0.27) (0.22)
From capital gains............... (0.37) (0.84) (0.66) (0.47) (0.26)
------ ----- ----- ----- -----
Total distributions................. (0.55) (1.09) (0.93) (0.74) (0.48)
------ ----- ----- ----- -----
Net asset value,
end of period ................... $9.84 $9.28 $9.14 $8.72 $8.26
====== ===== ===== ===== =====
Total return* ...................... 12.75% 14.45% 16.70% 14.93% 15.07%
Net assets, end of
period (in millions)............. $890 $825 $716 $607 $528
Ratio of expenses to
average net assets............... 0.99% 0.93% 0.92% 0.89% 0.89%
Ratio of net
investment income
to average net
assets .......................... 2.04% 2.57% 3.12% 3.01% 3.04%
Portfolio turnover
rate ............................ 122.58% 53.52% 39.55% 42.05% 48.62%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
10
<PAGE>
UNITED RETIREMENT SHARES, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the
For the fiscal period
year ended June 30, from 2/27/96*
--------------------- through
1999 1998 1997 6/30/96
------ ----- ----- -------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.............. $9.28 $9.14 $8.72 $8.68
------ ----- ----- -----
Income from investment
operations:
Net investment
income ....................... .20 .25 .29 .10
Net realized and
unrealized gain
on investments ............... .94 .99 1.07 .06
------ ----- ----- -----
Total from investment
operations....................... 1.14 1.24 1.36 .16
------ ----- ----- -----
Less distributions:
From net investment
income........................ (0.20) (0.26) (0.28) (0.12)
From capital gains............... (0.37) (0.84) (0.66) (0.00)
------ ----- ----- -----
Total distributions................. (0.57) (1.10) (0.94) (0.12)
------ ----- ----- -----
Net asset value,
end of period ................... $9.85 $9.28 $9.14 $8.72
====== ===== ===== =====
Total return ....................... 13.11% 14.62% 16.87% 1.91%
Net assets, end of
period (in
millions) ....................... $3 $3 $3 $2
Ratio of expenses
to average net
assets........................... 0.75% 0.79% 0.78% 0.71%**
Ratio of net
investment income
to average net
assets........................... 2.32% 2.71% 3.28% 3.36%**
Portfolio
turnover rate.................... 122.58% 53.52% 39.55% 42.05%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
11
<PAGE>
UNITED RETIREMENT SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
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. 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, 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
12
<PAGE>
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 business day following
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,
1999, $12,239 was reclassified between accumulated undistributed net
investment income and accumulated undistributed net realized gain on
investment transactions. Net investment income, net realized gains and
net assets were not affected by this change.
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. Until June
30, 1999, the fee consisted 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 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. Beginning
June 30, 1999, the fee is payable by the Fund at the annual rates of: 0.70% of
net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2
billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of
net assets over $3 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
13
<PAGE>
pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
<S> <C>
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
</TABLE>
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
$2,706,305, out of which W&R paid sales commissions of $1,569,670 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 paid Directors' fees of $30,133, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding
company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a
holding company.
NOTE 3 -- Investment Securities Transactions
Purchases of investment securities, other than U.S. Government
obligations and short-term securities, aggregated
14
<PAGE>
$850,375,395 while proceeds from maturities and sales aggregated $730,709,860.
Purchases of short-term and U.S. Government securities aggregated $1,440,556,364
and $146,118,239, respectively. Proceeds from maturities and sales of short-term
and U.S. Government securities aggregated $1,529,115,090 and $203,784,741,
respectively.
For Federal income tax purposes, cost of investments owned at June 30,
1999 was $741,707,108, resulting in net unrealized appreciation of $145,018,076,
of which $151,524,368 related to appreciated securities and $6,506,292 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $89,301,916 during its fiscal year ended June 30, 1999, which will be
distributed to Fund's shareholders.
NOTE 5 -- Multiclass Operations
On October 7, 1995, the Fund was authorized to offer investors two
classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. 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.
15
<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, 1999, and the related statement of operations for the fiscal year
then ended, the statements of changes in net assets for each of the two fiscal
years in the period then ended, and the financial highlights for each of the
five fiscal years in the period then ended. These financial statements and the
financial highlights are the responsibility of the 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 as of June
30, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of United
Retirement Shares, Inc. as of June 30, 1999, the results of its operations for
the fiscal year then ended, the changes in its net assets for each of the two
fiscal years in the period then ended, and the financial highlights for each of
the five fiscal years in the period then ended in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 6, 1999
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: United Retirement Shares, Inc.
(a) Articles of Incorporation, as amended, filed by EDGAR on
September 28, 1998 as EX-99.B1-charter to Post-Effective
Amendment No. 49 to the Registration Statement on Form N-1A*
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*
Articles Supplementary filed by EDGAR on July 2, 1999 as
EX-99.B(a)rsartsup to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
(b) 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*
Amendment to Bylaws filed by EDGAR on July 2, 1999 as
EX-99.B(b)rsbylaw2 to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement, as amended, filed by EDGAR on
August 7, 1995 as EX-99.B(d)-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*
Fee Schedule (Exhibit A) to the Investment Management Agreement,
as amended, filed by EDGAR on July 2, 1999 as EX-99.B(d)rsimafee
to Post-Effective Amendment No. 50 to the Registration Statement
on Form N-1A*
(e) 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*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on July 2, 1999
as EX-99.B(g)-rsca to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
<PAGE>
(h) 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*
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*
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*
Shareholder Servicing Agreement, filed by EDGAR on September 28,
1998 as EX-99.B(9)-rsssa to Post-Effective Amendment No. 49 to
the Registration Statement on Form N-1A*
Compensation Table (Exhibit B) to the Shareholder Servicing
Agreement, as amended, filed by EDGAR on July 2, 1999 as
EX-99.B(h)rsssacom to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
Fidelity Bond Coverage (Exhibit C) to the Shareholder Servicing
Agreement, as amended, attached hereto as EX-99.B(h)rsssafid
Fund Class A, B and C application (Non-Retirement Plan), as
amended, attached hereto as EX-99.B(h)rsappnon
Fund Class A, B and C application (Retirement Plan) attached
hereto as EX-99.B(h)rsappabc
(i) Opinion and Consent of Counsel attached hereto as
EX-99.B(i)rslegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B(j)-rsconsnt
(k) Not applicable
(l) Not applicable
(m) 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*
<PAGE>
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*
Distribution and Service Plan for Class B shares filed by EDGAR
on July 2, 1999 as EX-99.B(m)rsdspb to Post-Effective Amendment
No. 50 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class C shares filed by EDGAR
on July 2, 1999 as EX-99.B(m)rsdspc to Post-Effective Amendment
No. 50 to the Registration Statement on Form N-1A*
(n) Not applicable
(o) Multiple Class Plan, as amended, filed by EDGAR on July 2, 1999
as EX-99.B(o)rsmcp to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. Indemnification
---------------
Reference is made to Article TENTH Section 10.2 of the Articles of
Incorporation, as amended, filed on September 28, 1998 as EX-99.B1-charter
to Post-Effective Amendment No. 49 to the Registration Statement on Form
N-1A*; 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.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those
<PAGE>
registered investment companies described in Part A and Part B of this
Post-Effective Amendment and to other investment advisory clients.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant. The address of the officers is
6300 Lamar Avenue, 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.
27. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
United 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 Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Waddell & Reed Funds, Inc.
(b) The information contained in the underwriter's application on Form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
<PAGE>
Hechler and Ms. Kristen A. Richards, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
29. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to items 23.(h) and
23.(m) hereof.
30. Undertakings
-----------
Not applicable
- ---------------------------------
*Incorporated herein by reference
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC., UNITED
SMALL CAP FUND, INC., TARGET/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC.
(each hereinafter called the "Corporation"), and certain directors and officers
for the Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and KRISTEN A. RICHARDS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his/her behalf as such director or
officer as indicated below opposite his/her signature hereto, to any
Registration Statement and to any amendment or supplement to the Registration
Statement filed with the Securities and Exchange Commission under the Securities
Act of 1933 and/or the Investment Company Act of 1940, as amended, and to any
instruments or documents filed or to be filed as a part of or in connection with
such Registration Statement or amendment or supplement thereto; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: November 18, 1998 /s/ Robert L. Hechler
----------------------------
Robert L. Hechler, President
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Keith A. Tucker Chairman of the Board November 18, 1998
- ------------------ -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal November 18, 1998
- -------------------- Financial Officer and -----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and November 18, 1998
- -------------------- Director -----------------
Henry J. Herrmann
/s/Theodore W. Howard Vice President, Treasurer November 18, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------- and Principal Accounting -----------------
Theodore W. Howard Officer
/s/James M. Concannon Director November 18, 1998
- --------------------- -----------------
James M. Concannon
/s/John A. Dillingham Director November 18, 1998
- --------------------- -----------------
John A. Dillingham
/s/David P. Gardner Director November 18, 1998
- ------------------- -----------------
David P. Gardner
/s/Linda K. Graves Director November 18, 1998
- ------------------ -----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director November 18, 1998
- --------------------- -----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director November 18, 1998
- ---------------- -----------------
John F. Hayes
/s/Glendon E. Johnson Director November 18, 1998
- --------------------- -----------------
Glendon E. Johnson
/s/William T. Morgan Director November 18, 1998
- -------------------- -----------------
William T. Morgan
/s/Ronald C. Reimer Director November 18, 1998
- ------------------- -----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr. Director November 18, 1998
- -------------------- -----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director November 18, 1998
- ---------------------- -----------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Eleanor B. Schwartz
/s/Frederick Vogel III Director November 18, 1998
- ---------------------- -----------------
Frederick Vogel III
</TABLE>
Attest:
/s/Kristen A. Richards
- ----------------------
Kristen A. Richards
Assistant Secretary
<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 30th day of August, 1999.
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.
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Title
---------- -----
/s/Keith A. Tucker* Chairman of the Board August 30, 1999
- ------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President August 30, 1999
- --------------------- (Principal Financial Officer) ----------------
Robert L. Hechler and Director
/s/Henry J. Herrmann* Vice President and Director August 30, 1999
- --------------------- ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer August 30, 1999
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director August 30, 1999
- ---------------------- ----------------
James M. Concannon
/s/John A. Dillingham* Director August 30, 1999
- -------------------- ----------------
John A. Dillingham
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/David P. Gardner* Director August 30, 1999
- -------------------- ----------------
David P. Gardner
/s/Linda K. Graves* Director August 30, 1999
- ------------------- ----------------
Linda Graves
/s/Joseph Harroz, Jr.* Director August 30, 1999
- ---------------------- ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director August 30, 1999
- ----------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director August 30, 1999
- ---------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director August 30, 1999
- --------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director August 30, 1999
- -------------------- ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director August 30, 1999
- ---------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz* Director August 30, 1999
- ---------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director August 30, 1999
- ----------------------- ----------------
Frederick Vogel III
</TABLE>
*By
Robert L. Hechler
Attorney-in-Fact
ATTEST:
<PAGE>
Kristen A. Richards
Assistant Secretary
EX-99.B(h)rsssafid
<TABLE>
<CAPTION>
EXHIBIT C
<S> <C> <C> <C>
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015199B 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
Phone-Initiated Transactions 20,400,000
Total Limit 20,400,000
Directors and Officers/ 87015199D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $10,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
</TABLE>
<TABLE>
<S> <C> <C>
Waddell & Reed, Inc. United Group of Funds Division Office Stamp
P.O. Box 29217 APPLICATION
Shawnee Mission, KS
66201-9217 (NON-RETIREMENT PLAN) Trans Code:________________________
Date Transmitted:__________________
</TABLE>
1 ------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
REGISTRATION TYPE (check one only)
<TABLE>
<S> <C>
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable (Attach CUF 0022)
TOD (Transfer On Death) [ ] Yes [ ] No NOT AVAILABLE IN ILLINOIS
[ ] Uniform Gifts (Transfers) To Minors (UGMA/UTMA) [ ] Other:_______________________________________
[ ] Dated Trust Date of Trust_________________
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
__________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT | |
(must have same ownership): |__________________|
</TABLE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------
Individual Name (exactly as desired)/Trustee/Custodian (Tax-responsible party)
------------------------------------------------------- ------------------------------
[ ] Social Security # or [ ] Taxpayer Identification # Date of Birth (Month/Day/Year)
--------------------------------------------------------------------------------------
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA)
------------------------------------------------------- ------------------------------
[ ] Social Security # or [ ] Taxpayer Identification # Date of Birth (Month/Day/Year)
</TABLE>
-----------------------------------------------------------------------------
Name of Trust
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
City/State/Zip
-----------------------------------------------------------------------------
Telephone (home) Telephone (work) Citizenship (Required in VA)
------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
Monthly Div/C.G. Distr*
Fund Amount AIS (Assumes RR)
(enter code) Enclosed (If Any) RR CC CR
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES ____________
(ONLY ONE) | |
|____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
A [ ] B [ ] C [ ] |____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
IF NOT CHECKED, |____________| $_______ $_______ [ ] [ ] [ ]
ASSUME A ____________
| |
|____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
|____________| $_______ $_______ [ ] [ ] [ ]
Total $_______ Total $_______
</TABLE>
* RR = Reinvest Div/Cap Gain CC = Cash Div/Cap Gain CR = Cash Div/Reinvest
Cap Gain All Dividends/Capital Gains under $5.00 will be Reinvested. See
Section 12 if you wish your distribution to go to another Fund or Account.
<TABLE>
<CAPTION>
FUNDS CODES A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income 621 121 321 High Income 628 128 328 Asset Strategy 684 184 384
Science & Technology 622 122 322 Vanguard 629 129 329 Cash Management 750 150 350
Accumulative 623 123 323 New Concepts 630 130 330 Government Securities 753 153 353
Bond 624 124 324 High Income II 634 134 334 Municipal Bond 760 160 360
International Growth 625 125 325 Small Cap 677 177 377 Municipal High Income 762 162 362
Continental Income 627 127 327 Retirement Shares 680 180 380
</TABLE>
------------------------------------------------------------------------------
CLASS A ONLY
This purchase is entitled to a reduced sales load charge for the following
reason:
<TABLE>
<S> <C>
[ ] Letter of Intent To Invest $_____________ LOI Number____________
[ ] Cumulative discount number____________ or Rights of Accumulation With Existing Accounts____________
[ ] Identify Other New Accounts Established At This Time:________________________
</TABLE>
------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
LETTER OF INTENT (CLASS A SHARES ONLY) I agree to the terms of the Letter of
Intent conditions set forth in the Statement of Additional Information
(including the escrowing of shares). Although I am not obligated to do so, it
is my intention to invest over a 13-month period in shares of one or more
United funds in an aggregate amount at least equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
[ ] $100,000 [ ] $200,000 [ ] $300,00 [ ] $500,00 [ ] $1,000,000 [ ] $2,000,000 See Section 9
</TABLE>
------------------------------------------------------------------------------
CAP1 Page 1 of 6
<PAGE>
3 ------------------------------------------------------------------------------
BENEFICIARY: For TOD (Transfer On Death) Accounts Only
To designate contingent beneficiaries or per stirpes distribution,
use MRP-0972 or MRP-1588
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
</TABLE>
------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management A [ ] B [ ] C [ ]
<TABLE>
<S> <C>
-------------------------------------------------- -------------------------------------------------
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
-------------------------------------------------- -------------------------------------------------
Street Customer's Bank Account Number
-------------------------------------------------- -------------------------------------------------
City/State/Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc.
is authorized to honor any requests from anyone for redemption of fund shares
as long as the proceeds are transmitted to the identified account. All wires
must be transmitted exactly as registered on the UCM Account.
------------------------------------------------------------------------------
5 ------------------------------------------------------------------------------
CHECK SERVICE (CLASS "A" SHARES ONLY)
(Complete signature card)
[ ] United Government Securities [ ] United Cash Management (UCM)
SIGNATURE CARD FOR UNITED CASH MANAGEMENT/GOVERNMENT SECURITIES CLASS "A"
SHARES ONLY
The payment of funds on the conditions set forth below is authorized by the
persons signing below (the Shareholder).
UMB BANK, N.A. (the Bank) is authorized by the Shareholder to honor any
checks for not less than $250 presented against this account and is directed
to forward said checks to the redemption agent of United Cash Management,
Inc. and United Government Securities, Inc. (the "Mutual Funds") as authority
to pay the checks. Checks will be paid by redeeming a sufficient number of
shares for which share certificates have not been issued in the Shareholder's
account with the Mutual Funds.
Checks will be subject to the Bank's rules and regulations governing such
checks, including the right of the Bank not to honor checks in amounts
exceeding the value of the Shareholder's account with the Mutual Funds at the
time the check is presented for payment.
Shareholder hereby authorizes the Mutual Funds or their redemption agent to
honor redemption requests presented in the above manner by the Bank.
It is further agreed as follows:
1. Shareholder(s) below waive the right to receive the cancelled check(s)
after each check is processed and the underlying shares of the Mutual
Funds have been redeemed.
2. The account may not be used for any purpose other than the presentment,
forwarding and payment of checks relating to an account in the Mutual
Funds.
3. The Bank reserves the right to change, modify or terminate this agreement
at any time upon notification mailed to the address noted on the reverse
side of this card.
BY SIGNING BELOW, THE SIGNATOR(S) SIGNIFIES HIS (THEIR) AGREEMENT TO BE
SUBJECT TO THE RULES AND REGULATIONS OF UMB BANK, N.A. PERTAINING THERETO AND
AS AMENDED FROM TIME TO TIME, AND TO THE CONDITIONS PRINTED ABOVE.
Authorized Signature(s) "A" SHARES ONLY [ ] Check box if more than one
signature required on checks
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
6 ------------------------------------------------------------------------------
Establish NEW Automatic Investment Service
REGISTRATION INFORMATION
------------------------------------------------
Individual Name (exactly as registered)
------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
Fund Draft Is To Begin On
(Enter code) (Month/Day/Year) Draft Amount Special Instructions
<S> <C> <C> <C>
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
</TABLE>
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge
to my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to
pay the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry. I agree
that your rights in respect to any debit entry shall be the same as if it
were a check signed personally by me. I further agree, that if any such debit
entry be dishonored, whether intentionally or inadvertently, you shall be
under no liability whatsoever.
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
<TABLE>
<S> <C>
----------------------------------------------------- -------------------------
NAME OF DEPOSITOR (as shown on bank records(s)) Bank Account Number
----------------------------------------------------- See Section 10
BANK NAME
-----------------------------------------------------
BANK ADDRESS
-----------------------------------------------------
CITY/STATE/ZIP
</TABLE>
------------------------------------------------------------------------------
7 ------------------------------------------------------------------------------
Establish NEW Funds Plus Service
<TABLE>
<S> <C> <C> <C>
___________
REGISTRATION INFORMATION [ ] NEW ACCOUNT W/UCM or [ ] EXISTING ACCOUNT W/UCM |___________|
</TABLE>
-----------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
FUNDS PLUS Service
Account(s) to RECEIVE Fund If new, Is To Begin On FUNDS PLUS
FUNDS PLUS Investment (Enter code) mark box (Month/Day/Year) Investment Amount
<S> <C> <C> <C> <C>
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
</TABLE>
------------------------------------------------------------------------------
Page 3 of 6
<PAGE>
8 ------------------------------------------------------------------------------
Establish NEW Flexible Withdrawal Service (See Section 11)
<TABLE>
<CAPTION>
Fund Changes To Be
(See Reverse Effective Beginning Amount
for Codes) (Month) (Year) Indicate dollars, shares or percentage Frequency Make Payable
<S> <C> <C> <C> <C>
____________ _________________ ______________
| | | | 20 | | | |
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] monthly [ ] To registered owner(s)
____________ _________________ ______________
| | | | 20 | | | | [ ] quarterly [ ] To Alternate Payee
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] %
____________ _________________ ______________ [ ] semi-annually [ ] To registered owner(s)
| | | | 20 | | | | at alternate address
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] annually
____________ _________________ ______________
| | | | 20 | | | | (If left blank,
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % annual payments
will be assumed)
</TABLE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Designate Alternate Payee or Address (for Electronic Deposits of FWS, see
section 10)
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE
(other than as registered) or SENT TO AN ALTERNATE ADDRESS. If sending FWS to
another fund/account please indicate account/fund. Must be same class.
<TABLE>
<CAPTION>
Alternate Payee Alternate Address (check will be payable as registered and sent to the following)
<S> <C>
---------------------------------------------- ----------------------------------------------
Name or institution C/O Name
---------------------------------------------- ----------------------------------------------
Street Street
---------------------------------------------- ----------------------------------------------
City/State/Zip City/State/Zip
---------------------------------------------- ----------------------------------------------
Bank Account Number (if applicable) Bank Account Number (if applicable)
</TABLE>
------------------------------------------------------------------------------
9 ------------------------------------------------------------------------------
LOI TERMS AND CONDITIONS
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc.
to sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked
on the front of this Agreement as described in the prospectus of the fund
or funds being purchased.
4. If the amount invested during the 13-month period covered by this
Agreement exceeds the required amount and is large enough to qualify for a
sales charge lower than that available under this Agreement, the lower
sales charge will be applied to the amount invested. Upon termination of
this Agreement, a price adjustment will be made to give effect to the
lower sales charge and the amount of the price adjustment will be
reinvested in additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this
Agreement is less than the required amount, the sales charge for the
investments reverts back to that outlined in the Fund Prospectus, as if
the Agreement had not been executed. Waddell & Reed, Inc. will subtract
shares equal in value to the amount of the additional sales charge due
from escrowed shares. The investor hereby irrevocably appoints Waddell &
Reed, Inc. or its successors or assigns, as attorney to surrender for
redemption shares in an amount equal to the additional sales charge owed
on the purchases made. This appointment and the authority granted herein
shall be binding on the heirs, legal representatives, successors and
assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held
by the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for there purposes.
------------------------------------------------------------------------------
Page 4 of 6
<PAGE>
10------------------------------------------------------------------------------
BANK ACCOUNT OR CREDIT UNION INFORMATION (optional)
This information will be used for
[ ] Div / Cap gain distributions taken in cash (Sec. 1)
[ ] Systematic investments (Sec. 6)
[ ] Flexible withdrawals (Sec. 8)
<TABLE>
<S> <C> <C>
--------------------------------------- ---------------------------------------
Checking account Bank or credit union's ABA route number Bank or credit union account number
--------------------------------------- ---------------------------------------
Savings account Bank or credit union's ABA route number Bank or credit union account number
</TABLE>
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals to your checking account, please tape a voided
check so we may get bank or credit union account information.
For deposits or withdrawals to a savings account, please tape a preprinted
deposit slip. (Do not staple the slips.)
------------------------------------------------------------------------------
11------------------------------------------------------------------------------
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a
business day, on the preceding business day.
2. Allow five days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds/or W&R Funds combined accounts should
exceed $10,000. You may add to your account by additional investments of
at least $1,000, except in United Cash Management, Inc., which has no
minimum additional investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If withdrawals are to be made monthly, 1/12th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made quarterly, 1/4th of the indicated percentage of
the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Dividends and capital gains distributions are automatically reinvested.
Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
------------------------------------------------------------------------------
12------------------------------------------------------------------------------
ALTERNATE PAYEE/ADDRESS
To send systematic withdrawals (Section 8) or distributions (Section 1) to a
third party, or to another United Fund account, please fill in the
appropriate information below.
This address will be used for (check one):
[ ] Flexible Withdrawals
[ ] Div/Cap Gains
<TABLE>
<S> <C>
------------------------------------------------------------- To another United Fund
Name
------------------------------------------------------------- ---------------------------------
Address (including apartment or box number) Account # Fund #
Must be to same class of shares
-------------------------------------------------------------
City/State/Zip
</TABLE>
------------------------------------------------------------------------------
Page 5 of 6
<PAGE>
13------------------------------------------------------------------------------
CONFIDENTIAL DATA (Required)
1. Marital Status:__________
(Required in VA)
2. Gross Family Income: $__________
3. Taxable Income: $__________
4. Number of Dependents:__________
5. Occupation:______________________________________________________________
6. Employer Name:___________________________________________________________
7. Employer Address:________________________________________________________
8. Savings and Liquid Assets: $__________
9. Other Assets (excluding home, furnishings, cars): $__________
10. Net Worth (Assets minus liabilities): $__________
11. Are you associated with an NASD Member? [ ] Yes [ ] No
12. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Reserves [ ] College Funds [ ] Buy Major Asset
[ ] Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:__________________________________________
_____________________________________________________________________________
14. Residence Address:_______________________________________________________
(if different from Street City State Zip
Mailing Address
on reverse side)
<TABLE>
<S> <C> <C>
(Required in CT)
15. Was this investment solicited by a W&R Advisor/Representative? [ ] Yes [ ] No
(Required in CT)
16. Has any beneficial owner of this account conducted any prior investment activity? [ ] Yes [ ] No
If yes, which owner(s)?_________________________________________________________________________
17. Are proceeds from the sale of another security being used to open this account? [ ] Yes [ ] No
If yes, specify:________________________________________________________________________________
________________________________________________________________________________
</TABLE>
------------------------------------------------------------------------------
14------------------------------------------------------------------------------
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds
selected, and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 is correct (or I
am waiting for a number to be issued to me) and (strike the following if
not true) that I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report
all interest and dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
o I (we) understand that there maybe a deferred sales charge upon the
redemption of any Class B or C shares held in the account for less than
the time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- --------------------
(Advisor/Representative Signature) (Date)
</TABLE>
_____________________________
| |
Advisor/Representative Number |_____________________________|
------------------------------------------------------------------------------
-----------------------------------------------|
Check Any Items Enclosed With Application |
|
[ ] Declaration Trust Revocable (CUF0022) |
|---------------|
[ ] Additional Applications______ |OSJ: |
|(H.O. USE) |
[ ] Check enclosed #______ | |
| |
[ ] Other:______ | |
-----------------------------------------------|---------------|
Page 6 of 6
<TABLE>
<S> <C> <C>
Waddell & Reed, Inc. United Group of Funds Division Office Stamp
P.O. Box 29217 APPLICATION
Shawnee Mission, KS
66201-9217 RETIREMENT PLAN Trans Code:________________________
ACCOUNT Date Transmitted:__________________
</TABLE>
1 ------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
PLAN TYPE -- DOCUMENT SPONSORED BY: [ ] W&R [ ] NON-W&R
PLEASE SELECT ONE OF THE FOLLOWING:
<TABLE>
<S> <C> <C>
[ ] IRA (701/050) [ ] Simplified Employee Pension -- SEP (702/050) [ ] 401(k) (401-801) [ ] Simple 401(k) (340)
(CRP0005) (MRP1166KT-Employer and CRP0005-Employee) (MRP0720-Non Inventory)
[ ] Rollover (703/050) [ ] Simple IRA (765/050) [ ] Owner-Only Profit Sharing (132)
(CRP0005) (MRP1659KT-Employer and MRP1699-Employee) (MRP0651 and MRP0651 AP)
[ ] Roth IRA (791/050) [ ] Non Title-1 TSA (773-050) [ ] ORP (773) [ ] Owner-Only Money Purchase (122)
(CRP1695) (MRP1198) (MRP0651 and MRP0651AM)
[ ] Conversion Roth IRA (792/050) [ ] Title-I TSA (724) [ ] 457 Plan (730/731) [ ] Multi Part. Profit Sharing (832/097/098)
(CRP1695) (MRP1198TI-Non Inventory) (MRP1401) (MRP0651 and MRP0651AP)
[ ] Education IRA (793/050) [ ] Church Sponsored TSA (774) [ ] Multi Part. Money Purchase (822/099/100)
(CRP1696) (Non Inventory-Case by Case) (MRP0651 and MRP0651AM)
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
__________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT | |
(must have same ownership): |__________________|
</TABLE>
<TABLE>
<S> <C> <C> <C>
-----------------------------------------------------------------------------
Trustee/Custodian or Responsible Party (Education IRA Only)
-----------------------------------------------------------------------------
Employer or Business/Organization Name
------------------------------------------------------------ ----------------------------------------------
Participant, Planholder or Beneficiary (Education IRA Only) Plan Year End / Date of Birth (Month/Day/Year)
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
City/State/Zip
------------------------- ----------------------- ----------------------------------
Social Security Number Employer Tax ID Number Plan (Trust) Identification Number
------------------------- ----------------------- ----------------------------------
Telephone (home) Telephone (work) Citizenship (Required in VA)
</TABLE>
------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
FUNDS CODES
A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income 621 121 321 Continental Income 627 127 327 Small Cap 677 177 377
Science & Technology 622 122 322 High Income 628 128 328 Retirement Shares 680 180 380
Accumulative 623 123 323 Vanguard 629 129 329 Asset Strategy 684 184 384
Bond 624 124 324 New Concepts 630 130 330 Cash Management 750 150 350
International Growth 625 125 325 High Income II 634 134 334 Government Securities 753 153 353
</TABLE>
<TABLE>
<CAPTION>
IRA TOP From Monthly
Fund Amount Year of Deductible or Another AIS
(enter code) Enclosed Contribution Non-Deductible Carrier (If Any)
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES ____________
(ONLY ONE) | |
|____________| $_______ ____________ __________ [ ] $_______
____________
| |
A [ ] B [ ] C [ ] |____________| $_______ ____________ __________ [ ] $_______
____________
| |
IF NOT CHECKED, |____________| $_______ ____________ __________ [ ] $_______
ASSUME A ____________
| |
|____________| $_______ ____________ __________ [ ] $_______
____________
| |
|____________| $_______ ____________ __________ [ ] $_______
Total $_______ $_______
</TABLE>
To prevent possible tax penalties, Dividends and Capital gains are
automatically re-invested in Retirement Plan accounts.
------------------------------------------------------------------------------
CAP1771 Page 1 of 6
<PAGE>
------------------------------------------------------------------------------
BENEFICIARY
To designate contingent beneficiaries or per stirpes distribution,
use MRP-0972 or MRP-1588
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
</TABLE>
------------------------------------------------------------------------------
A SHARES ONLY
This purchase is entitled to a reduced sales load charge for the following
reason:
<TABLE>
<S> <C>
[ ] Existing Letter of Intent To Invest $_____________ LOI Number____________
[ ] Cumulative discount number____________ or Rights of Accumulation With Existing Accounts____________
[ ] Identify Other New Accounts Established At This Time:________________________
</TABLE>
------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
STATEMENT OF INTENT (A SHARES ONLY) I agree to the terms of the Statement of
Intent conditions set forth in the Statement of Additional Information
(including the escrowing of shares). Although I am not obligated to do so, it
is my intention to invest over a 13-month period in shares of one or more
United funds in an aggregate amount at least equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
[ ] $100,000 [ ] $200,000 [ ] $300,00 [ ] $500,00 [ ] $1,000,000 [ ] $2,000,000 See Section 8
</TABLE>
------------------------------------------------------------------------------
3 ------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management A [ ] B [ ] C [ ]
<TABLE>
<S> <C>
-------------------------------------------------- -------------------------------------------------
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
-------------------------------------------------- -------------------------------------------------
Street Customer's Bank Account Number
-------------------------------------------------- -------------------------------------------------
City/State/Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc.
is authorized to honor any requests from anyone for redemption of fund shares
as long as the proceeds are transmitted to the identified account. All wires
must be transmitted exactly as registered on the UCM Account.
------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
Establish NEW Automatic Investment Service ______________
REGISTRATION INFORMATION EXISTING ACCOUNT:| |
|______________|
-----------------------------------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
Fund Draft Is To Begin On
(Enter code) (Month/Day/Year) Draft Amount Special Instructions
<S> <C> <C> <C>
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
</TABLE>
------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
5 ------------------------------------------------------------------------------
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge
to my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to
pay the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry.
I agree that your rights in respect to any debit entry shall be the same as
if it were a check signed personally by me. I further agree, that if any such
debit entry be dishonored, whether intentionally or inadvertently, you shall
be under no liability whatsoever.
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
<TABLE>
<S> <C>
----------------------------------------------------- -------------------------
NAME OF DEPOSITOR (as shown on bank records(s)) Bank Account Number
----------------------------------------------------- See Section 9
BANK NAME
-----------------------------------------------------
BANK ADDRESS
-----------------------------------------------------
CITY/STATE/ZIP
</TABLE>
------------------------------------------------------------------------------
6 ------------------------------------------------------------------------------
Establish NEW Funds Plus Service
<TABLE>
<S> <C> <C> <C>
___________
REGISTRATION INFORMATION [ ] NEW ACCOUNT W/UCM or [ ] EXISTING ACCOUNT W/UCM |___________|
</TABLE>
-----------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
FUNDS PLUS Service
Account(s) to RECEIVE Fund If new, Is To Begin On FUNDS PLUS
FUNDS PLUS Investment (Enter code) mark box (Month/Day/Year) Investment Amount
<S> <C> <C> <C> <C>
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
</TABLE>
------------------------------------------------------------------------------
7 ------------------------------------------------------------------------------
Establish NEW Flexible Withdrawal Service (See Section 10)
<TABLE>
<CAPTION>
Fund Changes To Be
(See Reverse Effective Beginning Amount
for Codes) (Month) (Year) Indicate dollars, shares or percentage Frequency Make Payable
<S> <C> <C> <C> <C>
____________ _________________ ______________
| | | | 20 | | | |
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] monthly [ ] To registered owner(s)
____________ _________________ ______________
| | | | 20 | | | | [ ] quarterly [ ] To Alternate Payee
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] %
____________ _________________ ______________ [ ] semi-annually [ ] To registered owner(s)
| | | | 20 | | | | at alternate address
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] annually
____________ _________________ ______________
| | | | 20 | | | | (If left blank,
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % annual payments
will be assumed)
</TABLE>
------------------------------------------------------------------------------
Designate Alternate Payee or Address (for Electronic Deposits of FWS, see
section 9)
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE
(other than as registered) or SENT TO AN ALTERNATE ADDRESS. Please provide
voided check if FWS is to be electronically deposited. If sending FWS to
another fund/account please indicate account/fund. Must be same class.
<TABLE>
<CAPTION>
Alternate Payee Alternate Address (check will be payable as registered and sent to the following)
<S> <C>
---------------------------------------------- ----------------------------------------------
Name or institution C/O Name
---------------------------------------------- ----------------------------------------------
Street Street
---------------------------------------------- ----------------------------------------------
City/State/Zip City/State/Zip
---------------------------------------------- ----------------------------------------------
Bank Account Number (if applicable) Bank Account Number (if applicable)
</TABLE>
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Page 3 of 6
<PAGE>
7 ------------------------------------------------------------------------------
Con't.
TO ESTABLISH Life Expectancy Payment Option For Retirement Plan Accounts
IMPORTANT INFORMATION (read carefully before proceeding)
If this option is selected, the information (joint/single life, age) provided
below will be used to determine the withdrawal amount applicable for the
CURRENT year only. The withdrawal amount will remain unchanged until a change
is authorized by the planholder.
Check applicable box: [ ] Age 70-1/2 or over Retirement planholders who
have reached age 70-1/2 must take a minimum
distribution from their plan in accordance
with IRS regulations. It is NOT necessary to
complete this section to meet IRS minimum
mandatory withdrawal requirement. The minimum
withdrawal will be automatically processed
unless otherwise instructed.
[ ] Prior to age 70-1/2 Enter annual $___________
(Do not enter amount in section below)
If dollar amount is blank, payments will be
calculated on a non-amortized basis, and will
remain unchanged. If amount provided is based
on an amortized life expectancy calculation,
attach UNET worksheet. PAYMENTS MUST CONTINUE
UNTIL THE LATER OF AGE 59-1/2 OR FIVE
SUCCESSIVE YEARS.
Complete applicable information:
<TABLE>
<S> <C>
[ ] SINGLE LIFE OR [ ] JOINT LIFE
Indicate Account Owner's Indicate Account Owner's Date of Birth |__|__|__|__|__|__|
Date of Birth |__|__|__|__|__|__| (Month/Day/Year)
(Month/Day/Year) and Beneficiary's Date of Birth |__|__|__|__|__|__|
(Month/Day/Year)
</TABLE>
<TABLE>
<CAPTION>
Amount Frequency
Fund If blank amount will Indicated monthly,
(See Reverse Effective Beginning be calculated as quarterly, semi-
For Codes) (Month) (Day) described above annually or annually Make Payable
------------ -------------------- -------------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] --------------------- [ ] To Registered owner(s)
(If left blank, annual pay-
ments will be assumed)
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] [ ] To Alternate Payee*
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] [ ] To Registered Owner(s) at
alternate address*
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] *Complete Section 11
</TABLE>
FEDERAL INCOME TAX WITHHOLDING FOR RETIREMENT PLAN ACCOUNTS
Check One:*
A [ ] The undersigned directs that no Federal Income Tax shall be withheld
from the above described Withdrawal.
(Applicable to Retirement Plans only)
B [ ] The undersigned directs that Federal Income Tax be withheld from the
above described Withdrawal.
(Applicable to Retirement Plans only)
*IF NEITHER BLOCK IS SELECTED, FEDERAL INCOME TAXES WILL NOT BE
WITHHELD.
------------------------------------------------------------------------------
8 ------------------------------------------------------------------------------
LOI TERMS AND CONDITIONS
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc.
to sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked
on the front of this Agreement as described in the prospectus of the fund
or funds being purchased.
4. If the amount invested during the 13-month period covered by this
Agreement exceeds the required amount and is large enough to qualify for a
sales charge lower than that available under this Agreement, the lower
sales charge will be applied to the amount invested. Upon termination of
this Agreement, a price adjustment will be made to give effect to the
lower sales charge and the amount of the price adjustment will be
reinvested in additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this
Agreement is less than the required amount, the sales charge for the
investments reverts back to that outlined in the Fund Prospectus, as if
the Agreement had not been executed. Waddell & Reed, Inc. will subtract
shares equal in value to the amount of the additional sales charge due
from escrowed shares. The investor hereby irrevocably appoints Waddell &
Reed, Inc. or its successors or assigns, as attorney to surrender for
redemption shares in an amount equal to the additional sales charge owed
on the purchases made. This appointment and the authority granted herein
shall be binding on the heirs, legal representatives, successors and
assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held
by the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for these purposes.
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Page 4 of 6
<PAGE>
9 ------------------------------------------------------------------------------
BANK ACCOUNT OR CREDIT UNION INFORMATION (optional)
This information will be used for
[ ] Systematic investments (Sec. 4) [ ] Flexible withdrawals (Sec. 7)
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------
Checking account Bank or credit union's ABA route number Bank or credit union account number
-----------------------------------------------------------------------------------
Savings account Bank or credit union's ABA route number Bank or credit union account number
</TABLE>
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals to your checking account, please tape a voided
check so we may get bank or credit union account information.
For deposits or withdrawals to a savings account, please tape a preprinted
deposit slip.
(Do not staple the slips.)
------------------------------------------------------------------------------
10------------------------------------------------------------------------------
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a
business day, on the preceding business day.
2. Allow five days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds/or W&R Funds combined accounts should
exceed $10,000. You may add to your account by additional investments of
at least $1,000, except in United Cash Management, Inc., which has no
minimum additional investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If withdrawals are to be made monthly, 1/12th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made quarterly, 1/4th of the indicated percentage of
the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Dividends and capital gains distributions are automatically reinvested.
Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
------------------------------------------------------------------------------
11------------------------------------------------------------------------------
ALTERNATE PAYEE/ADDRESS
To send systematic withdrawals (Section 7) to a third party, or to another
United Fund account, please fill in the appropriate information below.
This address will be used for (check one):
[ ] Flexible Withdrawals
[ ] Div/Cap Gains
<TABLE>
<S> <C>
------------------------------------------------------------- To another United Fund
Name
------------------------------------------------------------- ---------------------------------
Address (including apartment or box number) Account # Fund #
Must be to same class of shares
-------------------------------------------------------------
City/State/Zip
</TABLE>
------------------------------------------------------------------------------
Page 5 of 6
<PAGE>
13------------------------------------------------------------------------------
CONFIDENTIAL DATA (Required)
1. Marital Status:__________
(Required in VA)
2. Gross Family Income: $__________
3. Taxable Income: $__________
4. Number of Dependents:__________
5. Occupation:______________________________________________________________
6. Employer Name:___________________________________________________________
7. Employer Address:________________________________________________________
8. Savings and Liquid Assets: $__________
9. Other Assets (excluding home, furnishings, cars): $__________
10. Net Worth (Assets minus liabilities): $__________
11. Are you associated with an NASD Member? [ ] Yes [ ] No
12. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Reserves [ ] College Funds [ ] Buy Major Asset
[ ] Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:__________________________________________
_____________________________________________________________________________
14. Residence Address:_______________________________________________________
(if different from Street City State Zip
Mailing Address
on reverse side)
<TABLE>
<S> <C> <C>
(Required in CT)
15. Was this investment solicited by a W&R Advisor/Representative? [ ] Yes [ ] No
(Required in CT)
16. Has any beneficial owner of this account conducted any prior investment activity? [ ] Yes [ ] No
If yes, which owner(s)?_________________________________________________________________________
17. Are proceeds from the sale of another security being used to open this account? [ ] Yes [ ] No
If yes, specify:________________________________________________________________________________
________________________________________________________________________________
</TABLE>
------------------------------------------------------------------------------
14------------------------------------------------------------------------------
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds
selected, and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 is correct (or I
am waiting for a number to be issued to me) and (strike the following if
not true) that I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report
all interest and dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
o I (we) understand that there maybe a deferred sales charge upon the
redemption of any class B or C shares held in the account for less than
the time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- --------------------
(Advisor/Representative Signature) (Date)
</TABLE>
_____________________________
| |
Advisor/Representative Number |_____________________________|
------------------------------------------------------------------------------
-----------------------------------------------|
Check Any Items Enclosed With Application |
|
[ ] Declaration Trust Revocable (CUF0022) |
|---------------|
[ ] Additional Applications______ |OSJ: |
|(H.O. USE) |
[ ] Check enclosed #______ | |
| |
[ ] Other:______ | |
-----------------------------------------------|---------------|
Page 6 of 6
EX-99.B(i)rslegopn
August 27, 1999
United Retirement Shares, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: United Retirement Shares, Inc.
Post-Effective Amendment No. 51
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of United
Retirement Shares, Inc. (the "Fund"), I have examined such corporate records and
documents and have made such further investigation and examination as I deemed
necessary for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
Helge K. Lee
General Counsel
HKL/fr
EX-99.B(j)rsconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 51 to
Registration Statement No. 2-42885 of United Retirement Shares, Inc. on Form
N-1A of our report dated August 6, 1999 appearing in the Prospectus, which is
part of such Registration Statement, and to the reference to us under the
caption "Financial Highlights" appearing in such Prospectus.
Deloitte & Touche LLP
Kansas City, Missouri
August 24, 1999
