File No. 2-31618
File No. 811-1806
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. 52
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 22
UNITED VANGUARD FUND, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on December 31, 1994 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under
the Securities Act of 1933 pursuant to Rule 24f(a)(1). Notice for the
Registrant's most recent fiscal year was filed on November 22, 1994, for
the fiscal year ended September 30, 1994.
<PAGE>
UNITED VANGUARD FUND, INC.
==========================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Summary of Expenses
(b) ..................... *
(c) ..................... *
3(a) ..................... Financial Highlights
(b) ..................... Financial Highlights
(c) ..................... Performance Information
(d)...................... Financial Highlights
4(a) ..................... What is United Vanguard Fund, Inc.?; Goal of
the Fund, Investment Policies
(b) ..................... Goal of the Fund, Investment Policies
(c) ..................... Goal of the Fund, Investment Policies
5(a) ..................... What is United Vanguard Fund, Inc.?
(b)...................... Management and Services; Inside Back Cover
(c) ..................... Management and Services
(d) ..................... Management and Services; Inside Back Cover
(e) ..................... Management and Services; Inside Back Cover
(f) ..................... Management and Services
(g)(i)................... *
(g)(ii).................. Management and Services
5A........................ **
6(a) ..................... What is United Vanguard Fund, Inc.?
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... Management and Services
(f)...................... Dividends, Distributions and Taxes
(g) ..................... Dividends, Distributions and Taxes
7(a) ..................... Management and Services; Inside Back Cover
(b) ..................... Purchase of Shares
(c) ..................... Purchase of Shares
(d) ..................... Purchase of Shares
(e) ..................... *
(f) ..................... Management and Services
8(a) ..................... Redemption
(b) ..................... *
(c) ..................... *
(d) ..................... Redemption
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Objective and Policies
(b) ..................... Investment Objective and Policies
(c) ..................... Investment Objective and Policies
(d) ..................... Investment Objective and Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... *
(e) ..................... Portfolio Transactions and Brokerage
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. *
(b)(iii) ................ *
(b)(iv).................. Performance Information
23 ........................ ***
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
***Included in Prospectus
<PAGE>
UNITED VANGUARD FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
December 31, 1994
PROSPECTUS
United Vanguard Fund, Inc. (the "Fund") is a management investment
company which seeks the appreciation of your investment through a
diversified holding of securities issued primarily by companies which the
Fund's Manager, Waddell & Reed Investment Management Company (the
"Manager"), believes have appreciation possibilities and through proper
timing of purchases and sales of securities.
This Prospectus contains concise information about the Fund of
which you should be aware before investing. Additional information has
been filed with the Securities and Exchange Commission and is contained in
a Statement of Additional Information (the "SAI"), dated December 31, 1994.
You may obtain a copy of the SAI free of charge by request to the Fund or
its Underwriter, Waddell & Reed, Inc., at the address or telephone number
shown below. The SAI is incorporated by reference into this Prospectus and
you will not be aware of all facts unless you read both this Prospectus and
the SAI.
Retain This Prospectus For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
UNITED VANGUARD FUND, INC.
Summary of Expenses
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Load Imposed on Purchases 5.75%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Management Fees 0.72%
12b-1 Fees* 0.10%
Other Expenses 0.23%
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)
Total Fund Operating Expenses 1.05%
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each
time period: $68 $89 $112 $178
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or lesser than
those shown.
*See "Management and Services" for further information about the 12b-1
service fees.
<PAGE>
United Vanguard Fund, Inc.
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP.
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended September 30,
-------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92 $5.61 $5.35
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income .00 .04 .06 .14 .17 .22 .14 .16 .17 .25
Net realized and
unrealized gain
(loss) on
investments .83 1.07 (0.10) 1.39 (0.95) 1.12 (1.00) 2.28 1.34 .30
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .83 1.11 (0.04) 1.53 (0.78) 1.34 (0.86) 2.44 1.51 .55
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income (0.02) (0.04) (0.09) (0.14) (0.22) (0.18) (0.18) (0.16) (0.20) (0.29)
Distributions from
capital gains (0.18) (0.00) (0.20) (0.21) (0.73) (0.07) (1.37) (0.97) (0.00) (0.00)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.20) (0.04) (0.29) (0.35) (0.95) (0.25) (1.55) (1.13) (0.20) (0.29)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $7.73 $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92 $5.61
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* 11.86% 18.38% -0.58% 30.88% -12.67% 23.69% -8.52% 40.12% 27.30% 10.56%
Net assets, end of
period (000
omitted) $1,014,263 $921,816 $843,978 $875,293 $679,765 $781,650 $659,184 $727,022 $493,844 $386,314
Ratio of expenses to
average net assets 1.05% 0.97% 0.96% 0.97% 0.98% 0.95% 1.00% 0.93% 0.98% 1.05%
Ratio of net investment
income to average
net assets 0.04% 0.50% 0.96% 2.28% 2.85% 3.62% 2.39% 2.30% 2.51% 4.47%
Portfolio
turnover rate** 36.70% 62.12% 84.82% 173.44% 161.54% 172.59% 128.91% 160.63% 125.52% 160.27%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
**This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the lesser of its purchases or sales
in the period, excluding short-term securities. For periods ended prior to
April 1, 1985, U.S. Government Securities were excluded from the calculation.
Information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders, which may be obtained without charge
by request to the Fund at the address or phone number shown on the cover of
this Prospectus.
<PAGE>
What is United Vanguard Fund, Inc.?
United Vanguard Fund, Inc. is a corporation organized under Maryland
law on February 15, 1974 as successor to a Delaware corporation which
commenced operations in 1969. It is an open-end diversified management
investment company commonly called a "mutual fund." The Fund has a Board
of Directors which has overall responsibility for the management of its
affairs. For the names of the Directors and other information about them,
see the SAI. The Fund has only one class of shares. Each share has the
same rights to dividends and to vote. Shares are fully paid and
nonassessable when bought. The Fund does not hold annual meetings of
shareholders; however, certain significant corporate matters, such as the
approval of a new investment advisory agreement or a change in a
fundamental investment policy, which require shareholder approval, will be
presented to shareholders at an annual or special meeting called by the
Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding
not less than 25% of all shares entitled to vote at such meeting, provided
certain conditions stated in the Bylaws of the Fund are met. There will
normally be no meeting of shareholders for the purpose of electing
directors until such time as less than a majority of directors holding
office have been elected by shareholders, at which time the directors then
in office will call a shareholders' meeting for the election of directors.
To the extent that Section 16(c) of the Investment Company Act of 1940, as
amended, applies to the Fund, the directors are required to call a meeting
of shareholders for the purpose of voting upon the question of removal of
any director when requested in writing to do so by the shareholders of
record of not less than 10% of the Fund's outstanding shares.
Performance Information
From time to time Waddell & Reed, Inc. or the Fund may include
performance data in advertisements or in information furnished to present
or prospective shareholders. Fund performance may be shown by presenting
one or more performance measurements, including total return and
performance rankings.
The Fund's total return is its overall change in value for the period
shown including the effect of reinvesting dividends and capital gains
distributions and any change in the net asset value per share. A
cumulative total return reflects the Fund's change in value over a stated
period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the cumulative total
return for a stated period if the Fund's performance had been constant
during each year of that period. Average annual total returns are not
actual year-by-year results and investors should realize that total returns
will fluctuate.
Standardized total return figures reflect payment of the maximum sales
charge. The Fund may also provide non-standardized performance information
which does not reflect deduction of such sales charge, which is for periods
other than those required to be presented or which differs otherwise from
standardized performance information. See the SAI for further information
regarding total return and method of computation.
From time to time in advertisements and information furnished to
present or prospective shareholders the Fund may discuss its performance
rankings as published by recognized independent mutual fund statistical
services such as Lipper Analytical Services, Inc., or by publications of
general interest such as Forbes, Money, The Wall Street Journal, Business
Week, Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may
also compare its performance to that of other selected mutual funds or
selected recognized market indicators such as the Standard and Poor's 500
Stock Index and the Dow Jones Industrial Average. Performance information
may be quoted numerically or presented in a table, graph or other
illustration.
All performance information which the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
Goal of the Fund
The goal of the Fund is the appreciation of your investment. It tries
to achieve this goal through a diversified holding of securities, primarily
issued by companies which the Manager believes have appreciation
possibilities and by trying to achieve proper timing of purchases and sales
relative to market conditions. This goal, the type of securities the Fund
may invest in, and the proportion of its assets which may be invested in
each such type are matters of fundamental policy and may not be changed
without the approval of shareholders. There can be no assurance that the
Fund will achieve its goals; some market risks are inherent in all
securities to varying degrees.
The Manager will attempt to select securities with appreciation
possibilities by looking at many factors. These include: (1) changes in
economic and political conditions; (2) the short-term and long-term outlook
for the industry being analyzed; (3) the management capability of the
company being considered; and (4) the company's market position, product
line, technological position and prospects for increased earnings. The
Manager will also analyze the demands of investors for the security
relative to its price. Securities may be chosen when the Manager
anticipates a development which might have an effect on the value of a
security. There may be times when up to all of the Fund's assets may be
invested temporarily for defensive purposes in either debt securities
(including commercial paper or short-term U. S. Government Securities) or
preferred stocks or both. There are three main kinds of securities that
the Fund will own: common stocks, preferred stocks and debt securities.
These securities in which the Fund may invest include preferred stock that
converts to common stock either automatically or after a specified period
of time or at the option of the issuer, and debt securities whose
performance is linked to a specified equity security or securities
index.
Investment Policies
The Fund may invest in debt securities rated in any rating category
and unrated securities judged by the Manager to be of equivalent quality;
however, as an operating (i.e., nonfundamental) policy, the Fund does not
intend to invest in non-investment grade debt securities if as a result of
such investment more than 5% of its assets would consist of such
investments. See the SAI for a discussion of the risks associated with
non-investment grade debt securities.
The Fund may invest up to two percent of its net assets in warrants,
which are rights to purchase securities. For the purpose of increasing
income the Fund may also purchase securities subject to repurchase
agreements (which can be considered as collateralized loans by the Fund)
but may not cause more than ten percent of its assets to be subject to
repurchase agreements with a maturity of more than seven days. The
majority of the repurchase transactions in which the Fund would engage run
from day to day, and the delivery pursuant to the resale typically will
occur within one to five days of the purchase. The Fund's risk is limited
to the ability of the vendor to pay the agreed-upon sum upon the delivery
day.
The Fund may purchase an unlimited amount of foreign securities.
There are certain risks associated with foreign securities not usually
associated with U. S. securities. An investment may be affected by changes
in currency rates and in exchange control regulations (i.e., currency
blockage). The Fund may bear a transaction charge in connection with the
exchange of currency. There may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
are not generally subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies.
Most foreign stock markets have substantially less volume than the New York
Stock Exchange and securities of some foreign companies are less liquid and
more volatile than securities of comparable domestic companies. There is
generally less government regulation of stock exchanges, brokers and listed
companies than in the United States. In addition, with respect to certain
foreign countries, there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments which
could adversely affect investments in securities of issuers located in
those countries. If it should become necessary, the Fund would normally
encounter greater difficulties in commencing a lawsuit against the issuer
of a foreign security than it would against a United States' issuer.
The Fund may buy shares of other investment companies which do not
redeem their shares, subject to the conditions stated in the SAI.
The Fund may also lend its securities on a short-term or long-term
basis for the purpose of realizing income. The Fund will not loan more
than 10% of its assets at any one time. The percentage limit and the
requirement that such loans be on a collateralized basis in accordance with
certain regulatory requirements are fundamental policies which can only be
changed by shareholder vote. If the Fund loses its voting rights on
securities loaned, it will have the securities returned to it in time to
vote them if a material event affecting the investment is to be voted upon.
There are certain risks associated with lending securities in that the Fund
may experience delay in recovering the collateral or even loss of the
collateral. See the SAI for further discussion of these risks.
The Fund may write (sell) listed covered calls on securities on not
more than 10% of its assets and may purchase calls and write and purchase
puts on securities. "Covered" means that the Fund owns the securities
which are subject to the call or has the right to acquire them without
additional payment. The purchaser of a call has the right to purchase from
the Fund the securities covered by the call at a fixed price for a fixed
period. The Fund has an operating policy which provides that only options
on securities which are issued by the Options Clearing Corporation may be
purchased or sold except the Fund may write unlisted put options and
purchase unlisted put and call options on securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
The Fund may write options on securities for the purpose of increasing
income in the form of premiums paid by the purchaser of the option. While
writing covered calls may increase the Fund's income, the Fund will lose
the opportunity to profit from an increase in the price of the security
subject to the call over the exercise price. When the Fund writes a put it
will maintain designated cash or readily marketable assets adequate to
purchase the related investments should the put be exercised. In writing
puts, the Fund assumes the risk of loss should the market value of the
underlying security decline below the exercise price at which the Fund is
obligated to purchase the security. The Fund will write a put only when it
has determined that it would be willing to purchase the underlying security
at the exercise price.
The Fund may purchase calls to take advantage of an expected rise in
the market value of securities which the Fund does not hold in its
portfolio and to close positions in calls it has written. It may purchase
puts on related investments it owns ("protective puts") or on related
investments it does not own ("nonprotective puts"). Buying a protective
put permits the Fund to protect itself during the put period against a
decline in the value of the related investments below the exercise price by
selling them through the exercise of the put. Buying a nonprotective put
permits the Fund, if the market price of the related investments is below
the put price during the put period, either to resell the put or to buy the
related investments and sell them at the exercise price. The Fund may also
purchase puts to close positions in puts it has written. If an option
purchased by the Fund is not exercised or sold it will become worthless at
its expiration date and the Fund will lose the amount of the premium it
paid.
The Fund may also, for non-speculative purposes, write and purchase
listed options on stock indexes which are not limited to stocks of any
industry or group of industries ("broadly-based stock indexes"). It will
write options on stock indexes primarily to generate income. It will
purchase calls on stock indexes to hedge against an anticipated increase in
the price of securities it wishes to acquire and will purchase puts on
stock indexes to hedge against an anticipated decline in the market value
of its portfolio securities. Because stock index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on a stock index by holding the
underlying securities. The Fund bears the risk that the value of the
securities it holds will vary from the value of the index.
Options offer large amounts of leverage which will result in the
Fund's net asset value being more sensitive to changes in the value of the
related investment. There is no assurance that a liquid secondary market
will exist for exchange-listed options. The market for options which are
not listed on an exchange may be less active than the market for exchange-
listed options. If the Fund is not able to enter into a closing
transaction on an option it has written it will be required to maintain the
securities, or cash in the case of an option on a stock index, subject to
the call or the collateral underlying the put until a closing purchase
transaction can be entered into or the option expires. Option transactions
may increase the portfolio turnover rate creating greater commission
expenses, transaction costs and certain tax consequences.
The Fund may also buy and sell futures contracts on debt securities
("Debt Futures"), futures contracts on broadly-based stock indexes ("Stock
Index Futures") and options on Debt Futures and Stock Index Futures. The
Fund will purchase or sell futures contracts only for the purpose of
hedging against changes in the market value of its portfolio securities or
changes in the market value of securities which the Manager anticipates it
may wish to include in the Fund's portfolio. At the present time, the debt
securities to which Debt Futures relate are long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association pass-through
mortgage-backed securities and three-month U.S. Treasury Bills. Since
futures contracts and options thereon can replicate movements in the cash
markets for the securities in which the Fund invests without the large cash
investments required for dealing in such markets, they may subject the Fund
to greater and more volatile risks than might otherwise be the case. The
principal risks related to the use of such instruments are (i) imperfect
correlation between movements in the market price of the portfolio
investments (held or intended) being hedged and in the price of the futures
contract or option; (ii) possible lack of a liquid secondary market for
closing out futures or options positions; (iii) the need for additional
portfolio management skills and techniques; and (iv) losses due to
unanticipated market price movements. For a hedge to be completely
effective, the price change of the hedging instrument should equal the
price change of the security being hedged. Such equal price changes are
not always possible because the investment underlying the hedging
instrument may not be the same investment that is being hedged. The
Manager will attempt to create a closely correlated hedge but hedging
activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to the differences in the natures of those markets, are
subject to distortion. Due to the possibility of distortion, a correct
forecast of general interest or stock market trends by the Manager may
still not result in a successful transaction. The Manager may be incorrect
in its expectations as to the extent of various interest rate movements or
stock market movements or the time span within which the movements take
place. As of the date of this Prospectus, except as to covered call
writing, the Fund intends to limit purchase and sale of options and futures
contracts to buying and selling broadly-based stock index futures contracts
and options thereon for the purpose of hedging not more than 10% of total
assets.
Gains and losses on investments in options and futures contracts
depend on the Manager's ability to predict correctly the direction of stock
prices, interest rates and other economic factors. See the SAI for further
information about these instruments and their risks.
The Fund may have a high portfolio turnover. See the Financial
Highlights table for past turnover. This results in correspondingly
greater commission expenses and transaction costs and may result in certain
tax consequences.
Management and Services
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of
Mutual Funds since 1940 or the inception of the investment company,
whichever was later, and to TMK/United Funds, Inc. since its inception. On
January 8, 1992, subject to the authority of the Fund's Board of Directors,
Waddell & Reed, Inc. assigned its investment management duties (and
assigned its professional staff for investment management services) to
Waddell & Reed Investment Management Company, a wholly-owned subsidiary of
Waddell & Reed, Inc. The Manager has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free
Fund, Inc. since each commenced operations in February 1993. Waddell &
Reed, Inc. serves as the Fund's underwriter and as underwriter for each of
the investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. Waddell & Reed, Inc. is an
indirect subsidiary of Torchmark Corporation, a holding company, and United
Investors Management Company, a holding company, and a direct subsidiary of
Waddell & Reed Financial Services, Inc., a holding company.
Subject to authority of the Fund's Board of Directors, the Manager
provides investment advice and supervises investments for which it is paid
a fee, consisting of two elements: (i) a "Specific" fee computed on the
Fund's net asset value as of the close of business each day at the annual
rate of .30 of 1% of net assets and (ii) a pro rata participation based on
the relative net asset size of the Fund in a "Group" fee computed each day
on the combined net asset values of all of the funds in the United Group at
the annual rates shown in the following table. The fee is accrued and paid
daily. Prior to the above-described assignment to the Manager on January
8, 1992, the fees were paid to Waddell & Reed, Inc.
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc.,
acts as transfer agent ("Shareholder Servicing Agent") for the Fund and
processes the payments of dividends. See the SAI for the fees paid for
these services. Inquiries concerning shareholder accounts should be sent
to that company at the address shown on the inside back cover of this
Prospectus or to the Fund at the address shown on the front cover of this
Prospectus.
Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays the Accounting Services Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each 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
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund may pay monthly a fee to
Waddell & Reed, Inc., the principal underwriter for the Fund, in an amount
not to exceed .25% of the Fund's average annual net assets. The fee is to
be paid to reimburse Waddell & Reed, Inc. for amounts it expends in
connection with the provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts. In particular, the Service
Plan and a related Service Agreement between the Fund and Waddell & Reed,
Inc. contemplate that these expenditures may include costs and expenses
incurred by Waddell & Reed, Inc. and its affiliates in compensating,
training and supporting registered sales representatives, sales managers
and/or other appropriate personnel in providing personal services to Fund
shareholders and/or maintaining shareholder accounts; increasing services
provided to Fund shareholders by office personnel located at field sales
offices; engaging in other activities useful in providing personal services
to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers, and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. See the SAI for additional information and terms of
the Service Plan.
The combined net asset values of all of the funds in the United
Group were approximately $11.2 billion on September 30, 1994. Management
fees for the fiscal year ended September 30, 1994 were 0.72% of the Fund's
average net assets. The Fund's total expenses for that year were 1.05%
of its average net assets.
The Manager places transactions for the Fund's portfolio and in doing
so may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions. See
the SAI for further information.
James D. Wineland is primarily responsible for the day-to-day
management of the portfolio of the Fund. Mr. Wineland has held his Fund
responsibilities since February 1992. He is Vice President of the Manager,
Vice President of the Fund and Vice President of other investment companies
for which the Manager serves as investment manager. Mr. Wineland has
served as the portfolio manager for investment companies managed by Waddell
& Reed, Inc. or the Manager since January 1984 and has been an employee of
Waddell & Reed Inc. and it's successor, the Manager, since November 1984.
Other members of the Manager's investment management department provide
input on market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Dividends, Distributions and Taxes
Ordinarily, dividends are paid semiannually from net investment
income, which includes dividends, accrued interest, earned discount and
other income earned on portfolio securities less expenses. The Fund also
distributes substantially all of its net capital gains (the excess of net
long-term capital gains over net short-term capital losses) and net short-
term capital gains, if any, after deducting any available capital loss
carryovers, and any net realized gains from foreign currency transactions,
with its regular dividend at the end of the calendar year. The Fund may
make additional distributions if necessary to avoid Federal income or
excise taxes on certain undistributed income and capital gains.
You have the option to receive dividends and distributions in cash, to
reinvest them in additional Fund shares without charge or to receive
dividends in cash and reinvest distributions, as you may instruct. In the
absence of instructions, dividends and distributions will be reinvested.
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986 so that it will
be relieved of Federal income tax on that part of its investment company
taxable income (consisting generally of net investment income, net short-
term capital gains and net gains from certain foreign currency
transactions) and net capital gains that is distributed to its
shareholders.
Dividends from the Fund's investment company taxable income are
taxable to you as ordinary income, to the extent of the Fund's earnings and
profits, whether received in cash or reinvested in additional Fund shares.
Distributions of the Fund's realized net capital gains, when designated as
such, are taxable to you as long-term capital gains, whether received in
cash or reinvested in additional Fund shares and regardless of the length
of time you have owned your shares. The Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year.
A portion of the dividends paid by the Fund, whether received in cash
or reinvested in additional Fund shares, may be eligible for the dividends-
received deduction allowed to corporations. The eligible portion may not
exceed the aggregate dividends received by the Fund from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
The Fund is required to withhold 31% of all dividends, distributions
and redemption proceeds payable to individuals and certain other non-
corporate shareholders who do not furnish the Fund with a correct tax
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are
subject to backup withholding.
Your redemption of Fund shares will result in taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than
your adjusted basis for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other
fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within 90 days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day
reinvestment privilege or exchange privilege. In these cases, any gain on
the disposition of the Fund shares would be increased, or loss decreased,
by the amount of the sales charge you paid when those shares were acquired,
and that amount will increase the adjusted basis of the shares subsequently
acquired. In addition, if you purchase Fund shares within thirty days
after redeeming other Fund shares at a loss, all or part of that loss will
not be deductible and will increase the basis of the newly purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the
SAI for a further discussion. There may be other Federal, state or local
tax considerations applicable to a particular investor. You are urged to
consult your own tax adviser.
Purchase of Shares
You may purchase shares through Waddell & Reed, Inc. and its sales
representatives. To open an account you must complete an application.
Orders are accepted only at the home office of Waddell & Reed, Inc. (see
inside back cover of this Prospectus for address) and it need not accept
any orders. The offering price of a share is its net asset value next
determined following acceptance plus the sales charge shown in the table
below. This net asset value per share is the value of the Fund's assets,
less liabilities, divided by the number of shares outstanding. Net asset
value is determined once each day as of the later of the close of the
regular session of the New York Stock Exchange or the close of the regular
session of any domestic securities exchange or commodities exchange on
which an option or future held by the Fund is traded, on each day the New
York Stock Exchange is open. The Fund's portfolio securities listed or
traded on an exchange are valued using market quotations or, if not
available, at their fair value in a manner determined in good faith by the
Board of Directors. Short-term debt securities are valued at amortized
cost which approximates market value. Other assets are valued at their
fair value.
Sales Charge
Sales Charge as Approximate
as Percent of Percent of
Size of Purchase Offering Price Amount Invested
Under $100,000 ...................... 5.75 6.10
$ 100,000 to less than 200,000 .. 4.75 4.99
200,000 to less than 300,000 .. 3.50 3.63
300,000 to less than 500,000 .. 2.50 2.56
500,000 to less than 1,000,000 .. 1.50 1.52
1,000,000 to less than 2,000,000 .. 1.00 1.01
2,000,000 and over ................. 0.00 0.00
Ordinarily the minimum initial investment is $500. A $50 minimum
initial investment pertains to sales in Arizona, California, Maine,
Massachusetts, Montana, North Dakota, Oklahoma, Texas, Vermont, Washington
and Wisconsin and to certain retirement plan accounts. A $50 minimum
initial investment also pertains to accounts for which an investor has
arranged, at the time of initial investment, to make subsequent purchases
for the account through automatic bank withdrawals, as described below. A
$100 minimum initial investment pertains to certain exchanges of shares
from other funds in the United Group.
A shareholder may arrange with Waddell & Reed, Inc. to purchase
shares by having regular monthly withdrawals of $25 or more made from a
bank account. A shareholder may also arrange with Waddell & Reed, Inc. to
purchase shares by having regular monthly exchanges of shares with a value
of $25 or more made from United Cash Management, Inc., subject to certain
conditions explained in the SAI.
Lower sales charges are available by combining additional purchases of
any of the funds in the United Group except United Municipal Bond Fund,
Inc., United Cash Management, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. with net asset value of shares
already held ("rights of accumulation") and by grouping all purchases made
during a thirteen-month period ("Statement of Intention"). Shares of the
Fund or another fund purchased through a "contractual plan" may not be
included unless the plan has been completed. Purchases by certain related
persons may be grouped. Shares of the Fund may be exchanged for shares of
another fund in the United Group without payment of an additional sales
charge. Subject to certain conditions, automatic monthly exchanges of
shares of United Cash Management, Inc. and exchanges of shares of certain
other funds in the United Group (listed on the back cover of this
Prospectus) may be made into the Fund. These exchange privileges may be
eliminated or modified at any time, upon notice in certain instances.
Information as to rights of accumulation, Statements of Intention, grouping
by related persons, exchange privileges, Flexible Withdrawal Service,
Individual Retirement Accounts, Section 403(b) plans, Keogh, 401(k), 457
plans and other qualified employee benefit plans is contained in the SAI.
Applicable forms are available from Waddell & Reed, Inc.'s representatives.
Fund shares may be purchased at net asset value by the Directors
and officers of the Fund, employees of Waddell & Reed, Inc., employees of
their affiliates, sales representatives of Waddell & Reed, Inc. and the
spouse, children, parents, children's spouses and spouse's parents of each
such Director, officer, employee and sales representative. Purchases in
certain retirement plans and certain trusts for these persons may also be
made at net asset value. Purchases in a 401(k) plan having 100 or more
eligible employees and purchases in a 457 plan having 100 or more eligible
employees may be made at net asset value. Shares may also be issued at net
asset value in a merger, acquisition or exchange offer made pursuant to a
plan of reorganization to which the Fund is a party. See the SAI for addi-
tional information.
Redemption
You have the right to sell your shares back to the Fund (redeem) at
any time by sending a written request to the address on the front cover of
this Prospectus, stating how many shares or the amount in dollars you wish
to redeem. The written request must be in good order which requires that
if more than one person owns the shares, each owner must sign the written
request. If you hold a certificate, it must be properly endorsed and sent
to the Fund. The Fund reserves the right to require a signature guarantee
by a national bank, a federally chartered savings and loan or a member firm
of a national stock exchange or other eligible guarantor in accordance with
procedures of the Fund's transfer agent in certain situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary, or the redemption request is made by, or redemption proceeds are
payable to, someone other than the owner of record. If you recently
purchased the shares by check, the payment of redemption proceeds on these
shares may be delayed. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption proceeds
on these shares will be delayed until the earlier of 10 days or when the
Fund has been able to verify that your purchase check has cleared and been
honored.
The Fund will redeem your shares at their net asset value (which may
be more or less than what you paid) next computed after receipt of your
written request for redemption in good order at the Fund's address shown on
the front cover of this Prospectus. Payment is made within seven days,
unless delayed because of emergency conditions determined by the Securities
and Exchange Commission, when the New York Stock Exchange is closed (other
than on weekends and holidays) or when trading on the Exchange is
restricted. Payment is made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
You may reinvest the amount you redeemed without charge by sending to
the Fund the amount you wish to reinvest. The reinvested amounts must be
received within thirty days after the date of your redemption. You may do
this only once as to Fund shares.
Under the terms of the 401(k) plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant
by redeeming Fund shares held by the plan. Principal and interest payments
on the loan made in accordance with the terms of the plan may be reinvested
by the plan, without payment of a sales charge, in shares of any of the
funds in the United Group in which the plan may invest.
Information concerning the establishment of automatic payments from
an account is available from sales representatives of Waddell & Reed,
Inc.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS AND RIGHTS
Airlines - 1.55%
Southwest Airlines Co. ................. 700,000 $ 15,750,000
Automotive - 3.68%
Ford Motor Company ..................... 600,000 16,650,000
Harley-Davidson, Inc. .................. 750,000 20,718,750
Total ................................. 37,368,750
Banks and Savings and Loans - 3.42%
HSBC Holdings plc (A) .................. 1,161,843 12,967,330
Wells Fargo & Company .................. 150,000 21,768,750
Total ................................. 34,736,080
Beverages - 2.04%
Buenos Aires Embotelladora S.A., ADR ... 200,000 7,475,000
PepsiCo, Inc. .......................... 400,000 13,250,000
Total ................................. 20,725,000
Biotechnology and Medical Services - 2.51%
Biogen, Inc.* .......................... 200,000 10,925,000
Chiron Corporation* .................... 100,000 6,675,000
Ventritex, Inc.* ....................... 400,000 7,900,000
Total ................................. 25,500,000
Building - 4.74%
Cemex, S.A., CPO Shares (A) ............. 3,037,500 27,282,825
Georgia-Pacific Corporation ............ 115,000 8,797,500
Metsa Serla Oy, Class B (A) ............ 249,800 12,022,874
Total ................................. 48,103,199
Chemicals Specialty and Miscellaneous
Technology - 0.57%
Calgon Carbon Corporation .............. 500,000 5,812,500
Computers and Office Equipment - 14.12%
Broderbund Software, Inc.* ............. 350,000 18,637,500
Cerner Corporation* .................... 300,000 12,225,000
Compaq Computer Corporation* ........... 300,000 9,787,500
First Data Corporation ................. 400,000 20,100,000
General Motors Corporation, Class E .... 500,000 19,000,000
Informix Corporation* .................. 1,000,000 27,687,000
Microsoft Corporation* ................. 100,000 5,618,700
Oracle Systems Corporation* ............ 400,000 17,250,000
Silicon Graphics, Inc.* ................ 500,000 12,875,000
Total ................................. 143,180,700
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Electronics - 7.63%
AMP Incorporated ....................... 350,000 $ 27,081,250
Applied Materials, Inc.* ............... 300,000 13,950,000
cisco Systems, Inc.* ................... 800,000 21,949,600
Silicon Valley Group, Inc. ............. 300,000 4,312,500
Xilinx, Inc.* .......................... 200,000 10,050,000
Total ................................. 77,343,350
Financial - 2.33%
Federal National Mortgage Association .. 300,000 23,625,000
Hospital Management - 4.18%
United HealthCare Corporation .......... 800,000 42,400,000
Household Products - 1.40%
Gillette Company (The) ................. 200,000 14,150,000
Insurance - 2.59%
MBIA, Inc. ............................. 250,000 14,906,250
TIG Holdings, Inc. ..................... 575,000 11,356,250
Total ................................. 26,262,500
Leisure Time - 4.68%
Comcast Corporation, Class A ........... 750,000 11,437,500
Walt Disney Company (The) .............. 400,000 15,550,000
Tele-Communications, Inc., Class A* .... 650,000 14,462,500
Viacom Inc., Class A ................... 16,688 682,122
Viacom Inc., Class B ................... 126,442 5,026,070
Viacom Inc., Rights* ................... 208,600 273,683
Total ................................. 47,431,875
Machinery - 1.24%
Mannesmann AG (A) ...................... 50,000 12,557,200
Multi-Industry - 1.23%
Grupo Carso, S.A. de C. V.,
Class 1 (A)*........................... 1,100,000 12,471,800
Publishing and Advertising - 1.25%
News Corporation Limited, ADR .......... 250,000 12,656,250
Retailing - 3.81%
Cifra, S.A. de C.V., C (A) ............. 9,315,000 26,054,055
Home Depot, Inc. (The) ................. 300,000 12,600,000
Total ................................. 38,654,055
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Telecommunications - 14.07%
General Instrument Corporation* ........ 600,000 $ 17,100,000
MCI Communications Corporation ......... 600,000 15,225,000
MFS Communications Company, Inc.* ...... 500,000 17,125,000
Motorola, Inc. ......................... 400,000 21,100,000
Nokia Corporation (A) .................. 250,000 29,104,250
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 500,000 26,812,500
Telefonos de Mexico S.A. de C.V., ADR .. 260,000 16,250,000
Total ................................. 142,716,750
TOTAL COMMON STOCKS AND RIGHTS - 77.04% $ 781,445,009
(Cost: $571,040,878)
PREFERRED STOCK - 0.17%
Telecommunications
Nokia Corporation, ADS ................. 28,900 $ 1,690,650
(Cost: $1,166,838)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.83%
U.S. Bancorp,
Master Note ........................... $ 8,471 8,471,000
Building - 1.56%
Weyerhaeuser Company,
4.78%, 10-21-94 ....................... 15,840 15,797,936
Chemicals Major - 0.61%
du Pont (E.I.) de Nemours
and Company,
4.74%, 10-25-94 ....................... 6,180 6,160,471
Computers and Office Equipment - 1.24%
Electronic Data Systems Corp.:
4.79%, 10-14-94 ....................... 5,800 5,789,968
4.89%, 11-15-94 ....................... 6,805 6,763,404
Total ................................. 12,553,372
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Drugs and Hospital Supply - 1.19%
Warner-Lambert Company,
4.75%, 11-1-94 ........................ $12,130 $ 12,080,385
Electrical Equipment - 1.04%
Emerson Electric Co.,
4.9%, 10-26-94 ........................ 10,550 10,514,101
Financial - 5.52%
Associates Corporation of North America,
Master Note ........................... 7,535 7,535,000
International Business Machines
Credit Corp.,
4.76%, 10-5-94 ........................ 2,380 2,378,741
Merrill Lynch & Co. Inc.,
4.75%, 10-6-94 ........................ 7,420 7,415,105
PHH Corp.,
4.9%, 10-26-94 ........................ 2,950 2,939,962
Textron Financial Corp.:
4.9%, 10-26-94 ........................ 9,800 9,766,653
5.08%, 10-27-94 ....................... 5,390 5,370,225
Transamerica Financial Group,
4.8%, 10-18-94 ........................ 3,000 2,993,200
Whirlpool Financial Corp.:
4.77%, 10-3-94 ........................ 7,596 7,592,987
4.92%, 10-25-94 ....................... 10,000 9,967,200
Total ................................. 55,959,073
Food and Related - 0.36%
Sara Lee Corporation,
Master Note ........................... 3,713 3,713,000
Public Utilities - Electric - 0.73%
Public Service Electric & Gas Co.,
4.82%, 10-11-94 ....................... 7,400 7,390,092
Public Utilities - Pipelines - 0.58%
Enron Corp.,
5.1%, 10-24-94 ........................ 5,960 5,940,580
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Retailing - 0.50%
K Mart Corporation,
4.95%, 10-31-94 ....................... $ 5,130 $ 5,108,839
Services, Consumer and Business - 0.83%
Hertz Corp.,
4.78%, 10-12-94 ....................... 8,420 8,407,702
Telecommunications - 0.77%
BellSouth Telecommunications Inc.,
4.8%, 10-19-94 ........................ 5,410 5,397,016
Southwestern Bell Telephone Company,
4.81%, 10-14-94 ....................... 2,375 2,370,875
Total ................................. 7,767,891
TOTAL SHORT-TERM SECURITIES - 15.76% $ 159,864,442
(Cost: $159,864,442)
TOTAL INVESTMENT SECURITIES - 92.97% $ 943,000,101
(Cost: $732,072,158)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 7.03% $ 71,262,780
NET ASSETS - 100.00% $1,014,262,881
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
See Note 1 to financial statements for security valuation and other
significant accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $ 943,000,101
Cash ............................................ 35,997
Receivables:
Investment securities sold ...................... 71,274,560
Fund shares sold ................................ 1,307,449
Dividends and interest .......................... 939,005
Prepaid insurance premium ........................ 42,598
--------------
Total assets .................................. 1,016,599,710
--------------
Liabilities
Payable for Fund shares redeemed ................. 1,950,370
Accrued service fee .............................. 192,581
Accrued transfer agency and dividend
disbursing ...................................... 123,417
Accrued accounting services fee .................. 8,333
Other ............................................ 62,128
--------------
Total liabilities ............................. 2,336,829
--------------
Total net assets ............................. $1,014,262,881
==============
Net Assets
$1.00 par value capital stock, authorized --
400,000,000; shares outstanding -- 131,135,209
Capital stock ................................... $ 131,135,209
Additional paid-in capital ...................... 594,169,754
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 371,101
Accumulated undistributed net realized gain on
investment transactions and foreign
currency transactions ......................... 77,658,874
Net unrealized appreciation in value of
investments at end of period ................... 210,927,943
--------------
Net assets applicable to outstanding
units of capital ............................. $1,014,262,881
==============
Net asset value per share (net assets divided
by shares outstanding) ........................... $7.73
Sales load (offering price x 5.75%)................. .47
-----
Offering price per share (net asset value
divided by 94.25%).............................. $8.20
=====
See notes to financial statements.
On sales of $100,000 or more the sales load is reduced as set forth
on page 11.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1994
Investment Income
Income:
Dividends ....................................... $ 6,190,306
Interest ........................................ 4,166,367
------------
Total income .................................. 10,356,673
------------
Expenses (Note 2):
Investment management fee ....................... 6,826,535
Transfer agency and dividend disbursing ......... 1,630,411
Service fee ..................................... 990,242
Custodian fees .................................. 249,340
Accounting services fee ......................... 86,250
Audit fees ...................................... 37,467
Legal fees ...................................... 19,030
Other ........................................... 161,094
------------
Total expenses ................................ 10,000,369
------------
Net investment income ........................ 356,304
------------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 78,021,451
Realized net loss on foreign currency
transactions .................................... (23,090)
------------
Realized net gain on investments ................ 77,998,361
Unrealized appreciation in value of investments
during the period ............................... 30,273,787
------------
Net gain on investments ....................... 108,272,148
------------
Net increase in net assets resulting
from operations ............................ $108,628,452
============
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
-----------------------------
1994 1993
-------------- ------------
Increase in Net Assets
Operations:
Net investment income ............ $ 356,304 $ 4,369,067
Realized net gain on
investments .................... 77,998,361 26,314,492
Unrealized appreciation........... 30,273,787 117,706,476
-------------- ------------
Net increase in net assets
resulting from operations ..... 108,628,452 148,390,035
-------------- ------------
Dividends to shareholders from:*
Net investment income ............ (2,315,396) (4,820,030)
Realized gains on securities
transactions ................... (22,767,798) ---
-------------- ------------
(25,083,194) (4,820,030)
-------------- ------------
Capital share transactions:
Proceeds from sale of shares
(11,403,314 and 10,417,512
shares, respectively) .......... 83,173,561 67,105,227
Proceeds from reinvestment of
dividends and/or capital gains
distribution (3,461,005 and
713,365 shares, respectively) .. 24,607,745 4,654,207
Payments for shares redeemed
(13,569,912 and 21,266,075 shares,
respectively) .................. (98,880,083) (137,491,017)
-------------- ------------
Net increase (decrease) in net
assets resulting from capital
share transactions ............ 8,901,223 (65,731,583)
-------------- ------------
Total increase ................ 92,446,481 77,838,422
Net Assets
Beginning of period ............... 921,816,400 843,977,978
-------------- ------------
End of period, including undistributed
net investment income of $371,101
and $2,330,193, respectively ..... $1,014,262,881 $921,816,400
============== ============
*See "Financial Highlights" on page 21.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended September 30,
-------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92 $5.61 $5.35
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income .00 .04 .06 .14 .17 .22 .14 .16 .17 .25
Net realized and
unrealized gain
(loss) on
investments .83 1.07 (0.10) 1.39 (0.95) 1.12 (1.00) 2.28 1.34 .30
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .83 1.11 (0.04) 1.53 (0.78) 1.34 (0.86) 2.44 1.51 .55
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income (0.02) (0.04) (0.09) (0.14) (0.22) (0.18) (0.18) (0.16) (0.20) (0.29)
Distributions from
capital gains (0.18) (0.00) (0.20) (0.21) (0.73) (0.07) (1.37) (0.97) (0.00) (0.00)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.20) (0.04) (0.29) (0.35) (0.95) (0.25) (1.55) (1.13) (0.20) (0.29)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $7.73 $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92 $5.61
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* 11.86% 18.38% -0.58% 30.88% -12.67% 23.69% -8.52% 40.12% 27.30% 10.56%
Net assets, end of
period (000
omitted) $1,014,263 $921,816 $843,978 $875,293 $679,765 $781,650 $659,184 $727,022 $493,844 $386,314
Ratio of expenses to
average net assets 1.05% 0.97% 0.96% 0.97% 0.98% 0.95% 1.00% 0.93% 0.98% 1.05%
Ratio of net investment
income to average
net assets 0.04% 0.50% 0.96% 2.28% 2.85% 3.62% 2.39% 2.30% 2.51% 4.47%
Portfolio
turnover rate** 36.70% 62.12% 84.82% 173.44% 161.54% 172.59% 128.91% 160.63% 125.52% 160.27%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
**This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the lesser of its purchases or sales
in the period, excluding short-term securities. For periods ended prior to
April 1, 1985, U.S. Government Securities were excluded from the calculation.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 -- Significant Accounting Policies
United Vanguard Fund, Inc. (the "Fund") is registered under the In-
vestment Company Act of 1940 as a diversified, open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal
period as reported by the principal securities exchange on which the
issue is traded or, if no sale is reported for a stock, the average of
the latest bid and asked prices. Bonds, other than convertible bonds,
are valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days
when there is no sale reported. Stocks which are traded over-the-
counter are priced using NASDAQ (National Association of Securities
Dealers Automated Quotations) which provides information on bid and
asked or closing prices quoted by major dealers in such stocks.
Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Securities gains and losses are calculated
on the identified cost basis. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See
Note 3 -- Investment Security Transactions.
C. Foreign currency translations -- All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars
daily. Purchases and sales of investment securities and accruals of
income and expenses are translated at the rate of exchange prevailing
on the date of the transaction. For assets and liabilities other than
investments in securities, net realized and unrealized gains and
losses from foreign currency translations arise from changes in
currency exchange rates. The Fund combines fluctuations from currency
exchange rates and fluctuations in market value when computing net
realized and unrealized gain or loss from investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of
its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue
Code. In addition, the Fund intends to pay distributions as required
to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by the Fund on the record date. During the
period ended September 30, 1994, the Fund adopted Statement of
Position 93-2 Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. Accordingly, permanent book
and tax basis differences relating to future shareholder distributions
have been reclassified to additional paid-in capital. As of October
1, 1993, the cumulative effect of such differences totaling $500 was
reclassified from accumulated undistributed net realized gain on
investment transactions to additional paid-in capital. Net investment
income, net realized gains and net assets were not affected by this
change.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The
fee consists of two elements: (i) a "Specific" fee computed on net asset
value as of the close of business each day at the annual rate of .30% of
net assets and (ii) a "Group" fee computed each day on the combined net
asset values of all of the funds in the United Group of mutual funds
(approximately $11.2 billion of combined net assets at September 30, 1994)
at annual rates of .51% of the first $750 million of combined net assets,
.49% on that amount between $750 million and $1.5 billion, .47% between
$1.5 billion and $2.25 billion, .45% between $2.25 billion and $3 billion,
.43% between $3 billion and $3.75 billion, .40% between $3.75 billion and
$7.5 billion, .38% between $7.5 billion and $12 billion, and .36% of that
amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays WARSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge for transfer
agency and dividend disbursement services of $1.0208 for each shareholder
account which was in existence at any time during the prior month, plus
$0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. The Fund also reimburses W&R and
WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct
and indirect gross sales commissions (which are not an expense of the Fund)
of $3,180,392, out of which W&R paid sales commissions of $1,663,016 and
all expenses in connection with the sale of Fund shares, except for
registration fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund may pay monthly a fee to 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 provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $34,421.
W&R is an indirect subsidiary of Torchmark Corporation, a holding
company, and United Investors Management Company, a holding company, and a
direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and
short-term securities, aggregated $307,993,398 while proceeds from
maturities and sales aggregated $431,792,878. Purchases of short-term
securities aggregated $1,192,582,327 while proceeds from maturities and
sales aggregated $1,180,530,902. There were no transactions in U.S.
Government securities during the period.
For Federal income tax purposes, cost of investments owned at
September 30, 1994 was $732,072,158, resulting in net unrealized
appreciation of $210,927,943, of which $222,440,086 related to appreciated
securities and $11,512,143 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $77,830,586 during its fiscal year ended September 30, 1994, of which a
portion was paid to shareholders during the period ended September 30,
1994. Remaining net capital gains will be distributed to the Fund's
shareholders.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Vanguard Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of United
Vanguard Fund, Inc. (the "Fund") at September 30, 1994, the results of its
operations for the year then ended and the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at September 30, 1994 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
October 31, 1994
<PAGE>
United Vanguard Fund, Inc.
Custodian Underwriter
United Missouri Bank, n. a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P.O. Box 29217
Legal Counsel Shawnee Mission, Kansas 66201-9217
Kirkpatrick & Lockhart (913) 236-2000
1800 M Street N. W.
Washington, D. C. Shareholder Servicing Agent
Waddell & Reed Services Company
Independent Accountants 6300 Lamar Avenue
Price Waterhouse LLP P.O. Box 29217
Kansas City, Missouri Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Investment Manager
Waddell & Reed Investment Accounting Services Agent
Management Company Waddell & Reed Services Company
6300 Lamar Avenue 6300 Lamar Avenue
P. O. Box 29217 P.O. Box 29217
Shawnee Mission, Kansas Shawnee Mission, Kansas 66201-9217
66201-9217 (913) 236-2000
(913) 236-2000
<PAGE>
UNITED VANGUARD FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROSPECTUS
December 31, 1994
The United Group of Mutual Funds
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
TABLE OF CONTENTS
Summary of Expenses .......... 2
Financial Highlights ......... 3
What is United Vanguard
Fund, Inc.? ............... 4
Performance Information ...... 4
Goal of the Fund ............. 5
Investment Policies .......... 5
Management and Services ...... 7
Dividends, Distributions
and Taxes ................. 9
Purchase of Shares ...........10
Redemption ...................11
Financial Statements .........13
NUP2005(12-94)
printed on recycled paper
UNITED VANGUARD FUND, INC................................1
What is United Vanguard Fund, Inc.?......................6
Performance Information..................................6
Goal of the Fund.........................................7
Investment Policies......................................8
Management and Services..................................11
Dividends, Distributions and Taxes.......................13
Purchase of Shares.......................................15
Redemption...............................................16
<PAGE>
UNITED VANGUARD FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
December 31, 1994
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the
prospectus (the "Prospectus") of United Vanguard Fund, Inc. (the "Fund"),
dated December 31, 1994, which may be obtained from the Fund or its
Underwriter, Waddell & Reed, Inc., at the address or telephone number shown
above.
TABLE OF CONTENTS
Performance Information........................... 2
Investment Objective and Policies................. 3
Investment Management and Other Services.......... 22
Purchase, Redemption and Pricing of Shares........ 26
Directors and Officers............................ 40
Payments to Shareholders.......................... 44
Taxes ............................................ 45
Portfolio Transactions and Brokerage.............. 47
Other Information................................. 49
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from
time to time publish the Fund's total return information and/or performance
information in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the
average annual compounded rates of return over the one-, five-, and ten-
year periods that would equate the initial amount invested to the ending
redeemable value. Standardized total return information is calculated by
assuming an initial $1,000 investment from which the maximum sales load of
5.75% is deducted. All dividends and distributions are assumed to be
reinvested at net asset value as of the day the dividend or distribution is
paid. No sales load is charged on reinvested dividends or distributions.
The formula used to calculate the total return is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for
the periods shown.
Non-standardized performance information may also be presented and it
may not reflect the sales charge. For example, the Fund may also compute
total return without deduction of the sales load in which case the same
formula noted above will be used but the entire amount of the $1,000
initial payment will be assumed to have been invested. If the sales charge
were reflected, it would reduce the performance quoted.
The average annual total return quotations as of September 30,
1994, which is the most recent balance sheet included in the Prospectus,
for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from October 1, 1993 to
September 30, 1994: 5.43%11.86%
Five-year period from October 1, 1989 to
September 30, 1994: 7.24% 8.51%
Ten-year period from October 1, 1984 to
September 30, 1994: 12.21% 12.88%
The Fund may also quote unaveraged or cumulative total return which
reflect the change in value of an investment over a stated period of time.
Cumulative total return will be calculated according to the formula
indicated above but without averaging the rate for the number of years in
the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. The Fund may also compare its performance
to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
All performance information which the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of Fund shares when redeemed may be
more or less than their original cost.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Securities - General
The Fund may invest in securities including common stock, preferred
stock, debt securities and convertible securities, as described in the
Prospectus. These securities may include the following described
securities from time to time.
The Fund may purchase debt securities whose principal amount at
maturity is dependent upon the performance of a specified equity security.
The issuer of such debt securities, typically an investment banking firm,
is unaffiliated with the issuer of the equity security to whose
performance the debt security is linked. Equity-linked debt securities
differ from ordinary debt securities in that the principal amount received
at maturity is not fixed, but is based on the price of the linked equity
security at the time the debt security matures. The performance of
equity-linked debt securities depends primarily on the performance of the
linked equity security and may also be influenced by interest rate
changes. In addition, although the debt securities are typically adjusted
for diluting events such as stock splits, stock dividends and certain
other events affecting the market value of the linked equity security, the
debt securities are not adjusted for subsequent issuances of the linked
equity security for cash. Such an issuance could adversely affect the
price of the debt security. In addition to the equity risk relating to
the linked equity security, such debt securities are also subject to
credit risk with regard to the issuer of the debt security. In general,
however, such debt securities are less volatile than the equity securities
to which they are linked.
The Fund may also invest in a type of convertible preferred stock
that pays a cumulative, fixed dividend that is senior to, and expected to
be in excess of, the dividends paid on the common stock of the issuer. At
the mandatory conversion date, the preferred stock is converted into not
more than one share of the issuer's common stock at the "call price" that
was established at the time the preferred stock was issued. If the price
per share of the related common stock on the mandatory conversion date is
less than the call price, the holder of the preferred stock will
nonetheless receive only one share of common stock for each share of
preferred stock (plus cash in the amount of any accrued but unpaid
dividends). At any time prior to the mandatory conversion date, the
issuer may redeem the preferred stock upon issuing to the holder a number
of shares of common stock equal to the call price of the preferred stock
in effect on the date of redemption divided by the market value of the
common stock, with such market value typically determined one or two
trading days prior to the date notice of redemption is given. The issuer
must also pay the holder of the preferred stock cash in an amount equal to
any accrued but unpaid dividends on the preferred stock. This convertible
preferred stock is subject to the same market risk as the common stock of
the issuer, except to the extent that such risk is mitigated by the higher
dividend paid on the preferred stock. The opportunity for equity
appreciation afforded by an investment in such convertible preferred
stock, however, is limited, because in the event the market value of the
issuer's common stock increases to or above the call price of the
preferred stock, the issuer may (and would be expected to) call the
preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability
of the issuer to pay the dividend established upon issuance of the
preferred stock. Generally, convertible preferred stock is less volatile
than the related common stock of the issuer.
Foreign Securities
The Fund may purchase an unlimited amount of foreign securities.
However, the Fund does not expect to invest more than 20% of its total
assets in foreign securities.
Waddell & Reed Investment Management Company ("the Manager"), the
Fund's investment manager, believes that while there are investment risks
(see below) in investing in foreign securities, there are also investment
opportunities in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual
foreign companies may also differ favorably or unfavorably from domestic
companies in the same industry. Foreign currencies may be stronger or
weaker than the U.S. dollar or than each other. The Manager believes that
the Fund's ability to invest its assets abroad may enable it to take
advantage of these differences and strengths where they are favorable.
Investment in Warrants
The Fund may not invest more than 2% of its net assets valued at the
lower of cost or market in warrants. Warrants acquired in units or
attached to other securities are not considered for purposes of computing
the 2% limitation. Warrants basically are options to purchase equity
securities at specific prices valid for a specific period of time. The
prices do not necessarily move parallel to the prices of the underlying
securities. Warrants have no voting rights, receive no dividends and have
no rights with respect to the assets of the issuer.
Lending Securities
Although income is not one of the Fund's goals, the Manager believes
that it should realize income unless doing so would detract from the
realization of its goal. One of the ways in which the Fund may try to
realize income is by lending its securities. If the Fund does this, the
borrower pays the Fund an amount equal to the dividends or interest on the
securities that the Fund would have received if it had not loaned the
securities. The Fund also receives additional compensation as discussed
below.
Any securities loan which the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines").
This policy can only be changed by shareholder vote. Under the present
Guidelines, the collateral must consist of cash or securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
("Government Securities") or bank letters of credit, at least equal in
value to the market value of the securities loaned on each day that the
loan is outstanding. If the market value of the loaned securities exceeds
the value of the collateral, the borrower must add more collateral so that
it at least equals the market value of the securities loaned. If the
market value of the securities decreases, the borrower is entitled to a
return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method
is available for all three types of collateral. The second method, which
is not available when letters of credit are used as collateral, is for the
Fund to receive interest on the investment of the cash collateral or to
receive interest on the Government Securities used as collateral. Part of
the interest received in either case may be shared with the borrower.
The letters of credit which the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities),
entered into at the request of the borrower and for its account and risk,
under which the banks are obligated to pay to the Fund, while the letter is
in effect, amounts demanded by the Fund if the demand meets the terms of
the letter. The Fund's right to make this demand secures the borrower's
obligations to it. The terms of any such letters and the creditworthiness
of the banks providing them (which might include the Fund's custodian bank)
must be satisfactory to the Fund.
The Manager, subject to the direction and control of the Board of
Directors, has adopted additional rules concerning lending of securities
which may be changed without shareholder vote. At present, under these
rules, the Fund will lend securities only to creditworthy broker-dealers
and financial institutions. The Fund will make loans only under rules of
the New York Stock Exchange, which presently require the borrower to give
the securities back to the Fund within five business days after the Fund
gives notice to do so. If the Fund loses its voting rights on securities
loaned, it will have the securities returned to it in time to vote them if
a material event affecting the investment is to be voted on. The Fund may
pay reasonable finder's, administrative and custodian fees in connection
with loans of securities.
Some, but not all, of these rules are necessary to meet requirements
of certain laws relating to securities loans. These rules will not be
changed unless the change is permitted under these requirements. These
requirements do not cover the present rules which may be changed without
shareholder vote as to (i) whom securities may be loaned; (ii) the
investment of cash collateral; or (iii) voting rights.
There may be risks of delay in receiving additional collateral from
the borrower if the market value of the securities loaned goes up, risks of
delay in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements.
A repurchase transaction occurs when, at the time the Fund purchases
securities, it also agrees to resell them to the vendor (normally a
commercial bank or broker-dealer), and must deliver those securities and/or
securities substituted for them under the repurchase agreement to the
vendor on an agreed-upon date in the future. In this section, such
securities, including any securities so substituted, are referred to as the
"Resold Securities." The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the
period of time during which the Fund's money is invested in the Resold
Securities. The majority of the repurchase transactions in which the Fund
would engage run from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund's
risk is limited to the ability of the vendor to pay the agreed-upon sum
upon the delivery date. In the event of bankruptcy or other default by the
vendor, there may be possible delays or expenses in liquidating the Resold
Securities, decline in their value or loss of interest. Upon default, the
Resold Securities constitute collateral security for the repurchase
obligation. The return on such collateral may be more or less than that
from the repurchase agreement. Repurchase agreements will be structured so
as to fully collateralize the loans, i.e., the value of the Resold
Securities, which will be held by the Fund's Custodian bank or by a third
party that qualifies as a custodian under Section 17(f) of the Investment
Company Act of 1940, is and, during the entire term of the agreement,
remains at least equal to the value of the loan, including the accrued
interest earned thereon. Repurchase Agreements are entered into only with
those entities approved on the basis of criteria established by the Board
of Directors.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that due to their possible limited
liquidity, the Fund may not make certain illiquid investments if as a
result more than 10% of its net assets would consist of such investments.
The investments which are included in this 10% limit are: (i) repurchase
agreements not terminable within seven days; (ii) securities for which
market quotations are not readily available; and (iii) unlisted options and
their underlying collateral.
Writing Covered Calls on Securities
The Fund may not purchase or write put options ("puts"), call options
("calls") or combinations thereof; however, calls may be written on
securities if (i) such calls are listed on a domestic securities exchange;
(ii) when any such call is written and at all times prior to a closing
purchase transaction as to such call, or its lapse or exercise, the Fund
owns the securities which are subject to the call or has the right to
acquire such securities without the payment of further consideration; and
(iii) when any such call is written, not more than 10% of the Fund's total
assets would be subject to calls; calls may be purchased to effect a
closing purchase transaction as to any call written in accordance with the
foregoing.
In short, the Fund can write calls, but only listed, covered calls and
only if not more than 10% of the Fund's assets are subject to calls.
"Covered" means that the Fund must own the securities which are subject to
the call (or have the right to acquire them without additional payment).
"Listed" calls are those which are listed on a domestic securities
exchange.
If the Fund writes (i.e., sells) a call, it agrees to sell to a
purchaser of a call the securities subject to the call. The price at which
it must sell is fixed by the call; this price is referred to as the
exercise price. This price may be equal to, or more or less than, the
market price of the securities covered by the call. The period during
which the Fund must sell at this price is also fixed by the call. Most
calls run for periods of up to 9 months except that calls on certain debt
securities may run for periods of up to 15 months. During the period of a
call the Fund must, if the call is exercised, sell at the exercise price no
matter what happens to the market price of the securities subject to the
call.
As compensation for entering into this contract when it writes a call,
the Fund receives a premium. The Manager believes that the Fund's income
can be increased through the receipt of premiums on calls. Also should the
market price of securities on which the Fund has written calls go down
during the call period, the premium would help to offset that decline.
However, if the Fund wrote a call, it would lose the opportunity to profit
from an increase in the market price of securities which are subject to a
call over the exercise price except to the extent that the premium
represents such a profit. The Fund will write calls when it considers that
the amount of the premium represents adequate compensation for the loss of
the opportunity.
Writing calls is a highly specialized activity. Personnel of the
Manager have had experience in this activity with respect to the Fund and
other funds and accounts managed by the Manager and its affiliates.
Writing calls involves investment techniques and risks different from those
ordinarily associated with investment companies. It is believed that the
Fund's limitations on writing calls will tend to reduce these risks.
The Fund may purchase calls only to close its position in a call
which it has written. To do this, it will make a "closing purchase
transaction"; this involves buying a call on the same security with the
same exercise price and call period as the call it has written. When the
Fund sells a security on which it has written a call, it will, so that the
call will remain covered, effect a closing purchase transaction. The Fund
may also effect a closing purchase transaction to avoid having to sell a
security on which it has written a call if the call is exercised. The Fund
will have a profit or loss from a closing purchase transaction, depending
on whether the amount it paid to purchase the call is less or more than the
premium it received on the call which is closed out. See "Taxes" and
"Payments to Shareholders." There is no assurance that the Fund will be
able to effect a closing purchase transaction, due to the lack of a market
in the call in question; if it cannot do so, it will have to hold the
security on which the call was written until the call expires or is
exercised even though it might otherwise be desirable to sell the security.
If a call which the Fund wrote is exercised, it could deliver the
securities which it owns (or the securities which it has the right to get).
It could also deliver other securities which it purchases.
Portfolio securities will be bought and sold on the basis of
attempting to achieve the goals of the Fund. However, the fact that listed
calls can be written on a particular security may be a factor in buying or
keeping it if it is otherwise considered suitable for the Fund.
The Fund's Custodian bank (or a securities depository acting for it)
will act as the Fund's escrow agent as to securities on which the Fund has
written calls (or other securities which, under the applicable rules, are
acceptable for escrow arrangements). The securities will not be released
from the escrow until the call expires or the Fund enters into a closing
purchase transaction.
The writing of calls by the Fund may affect its turnover rate and the
brokerage commissions it pays. Calls may be exercised causing the sale of
securities, thus increasing its turnover rate. The increase would be
beyond the Fund's control since it has no control over the exercise of
calls written by it.
A premium received by the Fund upon writing a call will be included in
its assets; an equal amount will be included in the liability section of
the Statement of Assets and Liabilities as a deferred credit. This amount
will be subsequently adjusted to the current market value of the call. For
example, if the current market value of the call exceeds the premium
received, the excess would be an unrealized loss; if the premium exceeds
the current market value, the excess would be an unrealized gain. The
current market value of a call will be the last sales price on the
principal exchange in which the call is traded or, in the absence of
transactions, the mean between the bid and asked prices.
Writing Puts on Securities
Subject to the limitations set forth under "Operating Restrictions,"
the Fund may write put options on securities in which it may invest. As
with covered call writing, the Fund will write puts on securities for the
purpose of increasing income by receiving premiums from the purchaser of
the option. When the Fund writes a put, it receives a premium and agrees
to purchase the related investments from a purchaser of a put during the
put period at a fixed exercise price (which may differ from the market
price of the related investments) regardless of market price changes during
the put period. If the put is exercised, the Fund must purchase the
related investments at the exercise price. Puts are ordinarily sold when
it is anticipated that during the option period the market price of the
underlying security will decline by less than the amount of the premium,
adjusted for any amount by which the market price of the underlying
security at the time of sale is greater than the strike price. In writing
puts, the Fund assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. The
Fund's cost of purchasing the investments will be adjusted by the amount of
the premium it has received. The Fund will write a put only when it has
determined that it would be willing to purchase the underlying security at
the exercise price.
To terminate its obligation on a put which it has written, the Fund
may purchase a put in a "closing purchase transaction." As discussed
below, it may also purchase puts other than as part of such closing
transaction. A profit or loss will be realized depending on the amount of
option transaction costs and whether the premium previously received is
more or less than the cost of the put purchased. A profit will also be
realized if the put lapses unexercised because the Fund retains the premium
received.
When the Fund writes a put it will, until it enters into a closing
purchase transaction, maintain designated cash or readily marketable assets
adequate to purchase the related investments should the put be exercised.
The Fund may hold cash or acquire readily marketable assets for this
purpose. The Fund will be unable to utilize such cash or assets for other
investment purposes until the exercise or expiration of the put.
Purchasing Calls and Puts on Securities
Subject to the limitations set forth under "Operating Restrictions,"
the Fund may purchase options.
The Fund may purchase a call in a closing purchase transaction in
order to terminate its obligation on a call it has written. In addition,
the Fund may purchase calls on securities for the purpose of taking
advantage of a rise in the market value of the underlying securities.
When a Fund buys a call, it pays a premium and has the right to buy
the related investments from a seller of a call during the call period at a
fixed exercise price. The Fund benefits only if the market price of the
related investments is above the call price during the call period and the
call is either exercised or sold at a profit. If the call is not exercised
or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose the premium payment and the right to
purchase the related investments.
The Fund will purchase puts on securities to protect against major
price declines in the value of its portfolio securities. The Fund may
purchase a put on a security it owns ("protective put") or on a security it
does not own ("nonprotective put"). When a Fund buys a put, it pays a
premium and has the right to sell the related investments to a seller of a
put during the put period at a fixed exercise price. Buying a protective
put (as defined above) permits the Fund to protect itself during the put
period against a decline in the value of the related investments below the
exercise price by selling them through the exercise of the put. Buying a
nonprotective put (as defined above) permits the Fund, if the market price
of the related investments is below the put price during the put period,
either to resell the put or to buy the related investments and sell them at
the exercise price. If the market price of the related investments is
above the exercise price and as a result the put is not exercised or resold
(whether or not at a profit), the put will become worthless at its
expiration date.
A type of put which the Fund may purchase is an "optional delivery
standby commitment" which is entered into by parties selling debt
securities to the Fund. An optional delivery standby commitment gives the
Fund purchasing the security the right to sell the security back to the
seller on specified terms. This right is provided as an inducement to
purchase the security.
Risks of Options on Securities
The Fund is authorized to write listed covered call options on
securities and to write put options and purchase options which are listed
or unlisted. The Fund has an operating policy, however, which provides
that it will only purchase calls or write and purchase puts which are
listed with two exceptions: (1) it may purchase calls and write and
purchase puts which are not listed if the security underlying the option is
a security issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; and (2) optional delivery standby commitments may be
unlisted. Exchange-listed options are issued by the Options Clearing
Corporation ("OCC"). A position in an exchange-listed option may be closed
out only on an exchange which provides a secondary market for options
covering the same related investment having the same exercise price and
expiration date. There is no assurance that a liquid secondary market will
exist for any particular option. In investing in options on securities
which are not listed on an exchange, the Fund must rely on the
creditworthiness of the party with whom it has entered into the options
transaction. The Manager will evaluate the creditworthiness of all such
parties and intends to enter into unlisted option transactions only with
major dealers in such unlisted options. The market for these options may
be less active than the market for exchange-listed options. The Manager
will evaluate the ability to enter into closing purchase transactions on
unlisted options prior to investing in them.
The Fund's put and call activities may affect its turnover rate and
brokerage commission payments. The exercise of calls or puts written by
the Fund may cause it to sell or purchase related investments, thus
increasing its turnover rate in a manner beyond its control. The exercise
of puts may also cause the sale of related investments, also increasing
turnover; although such exercise is within the Fund's control, holding a
protective put might cause it to sell the related investments for reasons
which would not exist in the absence of the put. The Fund will pay a
brokerage commission each time it buys or sells a put or call or buys or
sells an underlying investment in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to
direct purchases or sales. The Fund's custodian bank, or a securities
depository acting for it, will act as the Fund's escrow agent as to the
related investments on which it has written covered calls, or as to other
assets acceptable for such escrow, so that pursuant to the rules of the
Option Clearing Corporation and certain exchanges, no margin deposit will
be required of the Fund on such calls. Until the related investments or
other investments held in escrow are released from escrow, they cannot be
sold by the Fund; this release will take place on the expiration of the
call or by the Fund's entering into a closing purchase transaction. Once
the Fund has received an exercise notice on an option it has written, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or receive the underlying
securities at the exercise price.
Option premiums paid to control an amount of related investments are
small in relation to the market value of related investments and,
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options will result in the Fund's net asset
value being more sensitive to changes in the value of the related
investment. Markets for options on securities and options on futures
contracts are relatively new so it is not possible to predict whether
active exchange markets will continue over time.
Options On Stock Indexes
The Fund is permitted to write and purchase options on broadly-based
stock indexes subject to the limitations set forth under "Operating
Restrictions" and "Investment Restrictions." Broadly-based stock indexes
are indexes which are not limited to stocks of any particular industry or
industries. The Fund will write options on stock indexes primarily to
generate income when the Manager anticipates that the index price will not
increase or decrease by more than the premium received by the Fund. The
Fund will purchase calls on stock indexes to hedge against anticipated
increases in the price of securities it wishes to acquire and purchase puts
on stock indexes to hedge against anticipated declines in the market value
of portfolio securities. Puts and calls on stock indexes are similar to
puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the broad-
based index in question (and thus on price movements in the stock market
generally) rather than on price movements in individual securities or
futures contracts. When the Fund writes a call on a stock index, it re-
ceives a premium and agrees that during the call period a purchaser of a
call, upon exercise of the call, will receive from the Fund an amount of
cash if the closing level of the stock index upon which the call is based
is greater than the exercise price of the call. The amount of cash is
equal to the difference between the closing price of the index and the
exercise price of the call times a specified multiple (the "multiplier")
which determines the total dollar value for each point of such difference.
When the Fund buys a call on a stock index it pays a premium and has the
same rights as to such call as are indicated above as the Fund's obligation
when it writes such a call. When the Fund buys a put on a stock index, it
pays a premium and has the right during the put period to require a seller
of such a put, upon the Fund's exercise of the put, to deliver to the Fund
an amount of cash if the closing level of the stock index upon which the
put is based is lesser than the exercise price of the put, which amount of
cash is determined by the multiplier, as described above for calls. When
the Fund writes a put on a stock index it receives a premium and the
purchaser of such a put has the right during the put period to require the
Fund to deliver to it an amount of cash equal to the difference between the
closing level of the stock index and the exercise price times the
multiplier, if the closing level is less than the exercise price.
When the Fund writes a call on a stock index it will, until it enters
into a closing purchase transaction as to that call, segregate and maintain
cash or readily marketable assets adequate to make the required cash
delivery if the call is exercised. When it writes a put on a stock index,
it will, until it enters into a closing purchase transaction as to that
put, maintain designated cash or readily marketable assets adequate to
purchase the related investments should the put be exercised.
Risks of Options on Stock Indexes
The risks of investment in options on stock indexes may be greater
than options on securities. Because exercises of stock index options are
settled in cash, when the Fund writes a call on a stock index it cannot
provide in advance for its potential settlement obligations by acquiring
and holding the underlying securities. The Fund can offset some of the
risk of its writing position by holding a diversified portfolio of stocks
similar to those on which the underlying index is based. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same stocks as the underlying index and, as a result, bears a
risk that the value of the securities held will vary from the value of the
index. Even if the Fund could assemble a stock portfolio that exactly
reproduced the composition of the underlying index, it still would not be
fully covered from a risk standpoint because of the "timing risk" inherent
in writing index options. When an index option is exercised, the amount of
cash that the holder is entitled to receive is determined by the difference
between the exercise price and the closing index level on the date when the
option is exercised. As with other kinds of options, the Fund as the call
writer will not learn that it has been assigned until the next business day
at the earliest. The time lag between exercise and notice of assignment
poses no risk for the writer of a covered call on a specific underlying
security, such as a common stock, because there the writer's obligation is
to deliver the underlying security, not to pay its value as of a fixed time
in the past. So long as the writer already owns the underlying security,
it can satisfy its settlement obligations by simply delivering it, and the
risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call
holds stocks that exactly match the composition of the underlying index, it
will not be able to satisfy its assignment obligations by delivering those
stocks against payment of the exercise price. Instead, it will be required
to pay cash in an amount based on the closing index value on the exercise
date; and by the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of
index call writers to cover their risk exposure by holding stock positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available it runs the risk that the
level of the underlying index may subsequently change. If such a change
causes the exercised option to fall out-of-the-money, the Fund exercising
the option will be required to pay the difference between the closing index
value and the exercise price of the option (times the applicable
multiplier) to the assigned writer.
Futures Contracts and Options on Futures Contracts
The Fund is permitted to purchase and sell futures contracts and
options on futures contracts subject to the limitations set forth under
"Operating Restrictions" and "Investment Restrictions." When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price. In the case of futures contracts on broadly based stock indexes
("Stock Index Futures"), the obligation underlying the futures contract is
an amount of cash equal to a specified dollar amount times the difference
between the index value at the close of the last trading day of the futures
contract and the price at which the futures contract is originally struck.
In the case of a futures contract on debt securities ("Debt Future"), the
underlying obligation is the related debt security.
When the Fund writes an option on a futures contract it becomes
obligated, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time during the term
of the option. If the Fund has written a call it becomes obligated to
assume a "long" position in a futures contract which means that it is
required to take delivery of the underlying securities. If it has written
a put it is obligated to assume a "short" position in a futures contract
which means that it is required to deliver the underlying securities. When
the Fund purchases an option on a futures contract it acquires the right in
return for the premium it pays to assume a position in a futures contract.
The Fund will not purchase or sell futures contracts and options
thereon for speculative purposes but rather only for the purpose of hedging
against changes in the market value of its portfolio securities or changes
in the market value of securities which the Manager anticipates that it may
wish to include in the portfolio of the Fund. The Fund may sell a Stock
Index Future or write a call or purchase a put on a Stock Index Future if
the Manager anticipates that a general market or market sector decline may
adversely affect the market value of any or all of the Fund's common stock
holdings. The Fund may buy a Stock Index Future or purchase a call or sell
a put on a Stock Index Future if the Manager anticipates a significant
market advance in the common stock it intends to purchase for the Fund's
portfolio. The Fund may purchase a Stock Index Future or a call option
thereon as a temporary substitute for the purchase of individual stocks
which may then be purchased in a orderly fashion. In the case of debt
securities the Fund could sell a Debt Future or write a call or buy a put
on a Debt Future to attempt to protect against the risk that the value of
debt securities held by the Fund might decline. The Fund could purchase a
Debt Future or purchase a call or write a put on a Debt Future to protect
against the risk of an increase in the value of debt securities at a time
when the Fund is not invested in debt securities to the extent permitted by
its investment policies. As securities are purchased, corresponding
futures positions would be terminated by offsetting sales.
Unlike when the Fund purchases or sells securities, no price is
paid or received by it upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit an amount of cash or U.S.
Treasury Bills equal to a varying specified percentage of the contract
amount. This amount is known as initial margin. Cash held in the margin
account is not income producing. Subsequent payments, called variation
margin, to and from the broker will be made on a daily basis as the price
of the underlying index fluctuates making the futures contract more or less
valuable, a process known as marking-to-market.
If the Fund writes an option on a futures contract it will be required
to deposit initial and variation margin pursuant to requirements similar to
those applicable to futures contracts. Premiums received from the writing
of an option on a future are included in the initial margin deposit.
Changes in variation margin are recorded by the Fund as unrealized
gains or losses. Initial margin payments will be deposited in the Fund's
custodian bank in an account registered in the broker's name; access to the
assets in that account may be made by the broker only under specified
conditions. At any time prior to expiration of a futures contract or an
option thereon, the Fund may elect to close the position by taking an
opposite position which will operate to terminate its position in the
futures contract or option. A final determination of variation margin is
made at that time, additional cash is required to be paid by or released to
it and it realizes a loss or gain. Although futures contracts by their
terms call for the actual delivery or acquisition of the underlying
obligation, in most cases the contractual obligation is so fulfilled
without having to make or take delivery. The Fund does not intend to make
or take delivery of the underlying obligation. All transactions in futures
contracts and options thereon are made, offset or fulfilled through a
clearing house associated with the exchange on which the contracts are
traded. Although the Fund intends to buy and sell futures contracts only
on exchanges where there appears to be an active secondary market, there is
no assurance that a liquid secondary market will exist for any particular
future at any particular time. In such event, it may not be possible to
close a futures contract position.
The Fund will deposit in a segregated account with its custodian bank
high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it
has purchased less any margin deposited on its long position. It may hold
cash or acquire such debt obligations for the purpose of making these
deposits.
The use of futures contracts and options thereon to attempt to protect
against the market risk of a decline in the value of portfolio securities
is referred to as having a "short futures position." The use of futures
contracts and options thereon to attempt to protect against the market risk
that the Fund might not be fully invested at a time when the value of
securities in which it invests is increasing is referred to as having a
"long futures position." The Fund must operate within certain restrictions
as to long and short positions in futures contracts and options thereon
under a rule (the "CFTC Rule") adopted by the Commodity Futures Trading
Commission ("CFTC") under the Commodity Exchange Act (the "CEA") to be
eligible for the exclusion provided by the CFTC Rule from registration by
the Fund with the CFTC as a "commodity pool operator" (as defined under the
CEA), and must represent to the CFTC that it will operate within such
restrictions. Under these restrictions the Fund will not, as to any
positions, whether long, short or a combination thereof, enter into futures
and options thereon for which the aggregate initial margins and premiums
exceed 5% of the fair market value of the Fund's assets after taking into
account unrealized profits and losses on options the Fund has entered into;
in the case of an option that is "in-the-money" (as defined under the CEA)
the "in-the-money" amount may be excluded in computing such 5%. (In
general a call option on a futures contract is "in-the-money" if the value
of the future exceeds the strike, i.e. exercise, price of the call; a put
option on a futures contract is "in-the-money" if the value of the futures
contract which is the subject of the put is exceeded by the strike price of
the put.) Under the restrictions, the Fund also must, as to short
positions, use futures contracts and options thereon solely for bona fide
hedging purposes within the meaning and intent of the applicable provisions
under the CEA. As to its long positions which are used as part of the
Fund's portfolio strategy and are incidental to the Fund's activities in
the underlying cash market, the "underlying commodity value" (see below) of
the Fund's futures contract and options thereon must not exceed the sum of
(i) cash set aside in an identifiable manner, or short-term U.S. debt
obligations or other U.S. dollar-denominated high-quality short-term money
market instruments so set aside, plus any funds deposited as margin; (ii)
cash proceeds from existing investments due in 30 days; and (iii) accrued
profits held at the futures commission merchant. (There is described above
the segregated accounts which the Fund must maintain with its custodian
bank as to its options and futures contracts activities due to Securities
and Exchange Commission ("SEC") requirements; the Fund will, as to its long
positions, be required to abide by the more restrictive of these SEC and
CFTC requirements.) The "underlying commodity value" of a futures contract
is computed by multiplying the size (dollar amount) of the futures contract
by the daily settlement price of the futures contract. For an option on a
futures contract that value is the underlying commodity value of the future
underlying the option.
Risk of Futures Contracts and Options Thereon
Since futures contracts and options thereon can replicate movements in
the cash markets for the securities in which the Fund invests without the
large cash investments required for dealing in such markets, they may
subject the Fund to greater and more volatile risks than might otherwise be
the case. The principal risks related to the use of such instruments are
(i) the offsetting correlation between movements in the market price of the
portfolio investments (held or intended) being hedged and in the price of
the futures contract or option may be imperfect; (ii) possible lack of a
liquid secondary market for closing out futures or options positions; (iii)
the need for additional portfolio management skills and techniques; and
(iv) losses due to unanticipated market price movements. For a hedge to be
completely effective, the price change of the hedging instrument should
equal the price change of the security being hedged. Such equal price
changes are not always possible because the investment underlying the
hedging instrument may not be the same investment that is being hedged.
The Manager will attempt to create a closely correlated hedge but hedging
activity may not be completely successful in eliminating market value
fluctuation. (See below for additional discussion of correlation as it
relates to Stock Index Futures.) The ordinary spreads between prices in
the cash and futures markets, due to the differences in the natures of
those markets, are subject to the following factors which may create
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent
participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point
of view of speculators the deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause
temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest or stock market trends by the Manager
may still not result in a successful transaction. The Manager may be
incorrect in its expectations as to the extent of various interest rate
movements or stock market movements or the time span within which the
movements take place.
The risk of imperfect correlation between movements in the price of a
Stock Index Future and movements in the price of the securities which are
the subject of the hedge increases as the composition of the Fund's common
stock portfolio diverges from the common stocks included in the applicable
index. The price of the Stock Index Future may move more than or less than
the price of the securities being hedged. If the price of the Stock Index
Future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
common stocks being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the
price of the common stocks being hedged has moved in a favorable direction,
this advantage will be partially offset by the futures contract. If the
price of the futures contract moves more than the price of the stock, the
Fund will experience either a loss or a gain on the futures contract which
will not be completely offset by movements in the price of the securities
which are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the Stock Index Futures, the Fund may buy or sell
Stock Index Futures in a greater dollar amount than the dollar amount of
common stocks being hedged if the historical volatility of the prices of
such common stocks being hedged is less than the historical volatility of
the stock index. It is also possible that, where the Fund has sold futures
contracts to hedge its common stocks against decline in the market, the
market may advance and the value of common stocks held in the portfolio may
decline. If this occurred, the Fund would lose money on the futures
contract and also experience a decline in value in its portfolio
securities. However, while this could occur for a very brief period or to
a very small degree, over time the value of a diversified portfolio of
common stocks will tend to move in the same direction as the market indices
upon which the futures contracts are based.
Where Stock Index Futures are purchased to hedge against a possible
increase in the price of stocks before the Fund is able to invest in common
stocks in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in common stocks at that
time because of concern as to possible further market decline or for other
reasons, it will realize a loss on the futures contract that is not offset
by a reduction in the price of the common stocks it had anticipated
purchasing.
Operating Restrictions
The Fund is subject to certain operating restrictions pertaining to
investments in options and futures. Such operating restrictions may be
revised by the Board depending on its judgments regarding the ability of
the Manager to make use of these instruments to the benefit of the Fund and
in order to conform to rules and regulations of the CFTC, the SEC, various
state securities commissions, Federal tax law and regulations, and the
rules of the exchanges on which the investments are traded.
(i) Options on stock indexes, futures contracts and options on futures
contracts will be used only for risk management ("hedging")
purposes within the meaning of applicable regulations. The Fund
will not hedge more than 10% of its total assets.
(ii) Only options on securities which are issued by the Options Clearing
Corporation may be purchased or sold except for options on
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and except for optional delivery
standby commitments; only options on stock indexes, options on
futures contracts and futures contracts which are listed on a
national securities or commodities exchange may be purchased or
sold; to the extent option transactions involving unlisted options
are illiquid, such options and the underlying collateral will be
subject to an operating policy of the Fund which limits investment
in illiquid securities to 10% of the net assets of the Fund.
(iii) The aggregate premiums paid for the purchase of permitted options
which are held by the Fund at any one time, adjusted for the
portion of any premium attributable to a difference between the
"strike price" of the option and the market value of the underlying
security or futures contract at the time of purchase, may not
exceed 20% of the total assets of the Fund;
(iv) The aggregate margin deposits and premiums required on all futures
contracts and options thereon held or outstanding at any one time
by the Fund may not exceed 5% of the total assets of the Fund
adjusted for unrealized gains or losses of the Fund on such options
and futures contracts;
(v) The aggregate amount of the obligations underlying the puts written
by the Fund which are outstanding at any one time may not exceed
25% of the net assets of the Fund computed at the time of sale.
Risk Factors of High-Yield Investing
As an operating (i.e., nonfundamental) policy, the Fund does not
intend to invest in non-investment grade debt securities if as a result of
such investment more than 5% of its assets would consist of such
investments. The market for high-yield, high-risk debt securities is
relatively new and much of its growth paralleled a long economic
expansion, during which this market involved a significant increase in the
use of high-yield debt securities to fund highly leveraged corporate
acquisitions and restructurings. Thereafter, this market was affected by a
relatively high percentage of defaults with respect to high-yield
securities as compared with higher rated securities. An economic downturn
or increase in interest rates is likely to have a greater negative effect
on this market and the value of high-yield debt securities, if any, in the
Fund's portfolio.
Prices of high-yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments.
Debt securities with longer maturities, which may have higher yields, may
increase or decrease in value more than debt securities with shorter
maturities. Market prices of high-yield debt securities structured as zero
coupon or pay-in-kind securities are affected to a greater extent by
interest rate changes and may be more volatile than securities which pay
interest periodically and in cash. Where it deems it appropriate and in
the best interests of Fund shareholders, the Fund may incur additional
expenses to seek recovery on a debt security on which the issuer has
defaulted and to pursue litigation to protect the interests of security
holders of its portfolio companies.
Because the market for lower rated securities may be thinner and less
active than for higher rated securities, there may be market price
volatility for these securities and limited liquidity in the resale market.
If market quotations are not readily available for the Fund's lower rated
or unrated securities, these securities will be valued by a method that the
Fund's Board of Directors believes accurately reflects fair value.
Valuation becomes more difficult and judgment plays a greater role in
valuing high-yield debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available.
While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with
using credit ratings. Credit ratings evaluate the safety of principal and
interest payments, not market value risk. Credit ratings of individual
securities may change from time to time, and the Fund may retain a
portfolio security whose rating has been changed.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and together with
certain restrictions described in the Prospectus, cannot be changed without
shareholder approval. Under these additional restrictions, the Fund may
not:
(i) Buy or sell commodities or commodity contracts, except that it may,
for non-speculative purposes, buy or sell futures contracts on
futures contracts on Stock Index Futures, Debt Futures and options
on Stock Index Futures and Debt Futures;
(ii) Buy real estate nor any nonliquid interests in real estate
investment trusts;
(iii) Buy shares of other investment companies which redeem their
shares. The Fund can buy shares of investment companies which do
not redeem their shares if it does it in a regular transaction in
the open market and then does not have more than one tenth (i.e.,
10%) of its total assets in these shares; however, the Fund does
not have any current intent to invest more than 5% of its assets in
such securities in the foreseeable future nor has it done so within
the past year. 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;
(iv) Lend money or other assets, other than through certain limited
types of loans; the Fund can buy debt securities which have been
sold to the public; it can buy other obligations customarily
acquired by institutional investors; it can also lend its portfolio
securities (see "Lending Securities" above) and enter into
repurchase agreements (see "Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Buy or continue to hold securities if the Fund's Directors or
officers or certain others own too much of the same securities; if
any one of these people owns more than one two-hundredths (i.e., .5
of 1%) of the shares of a company and if the people who own that
much or more own one twentieth (i.e., 5%) of that company's shares,
the Fund cannot buy that company's shares or continue to own them;
(vii) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(viii) Sell securities short, buy securities on margin or engage in
arbitrage transactions; however, the Fund may make margin deposits
in connection with its use of any financial instruments permitted
by its fundamental policies;
(ix) Engage in the underwriting of securities, that is, the selling of
securities for others; also, the Fund does not invest in restricted
securities; restricted securities are securities which cannot
freely be sold for legal reasons;
(x) Deviate from the percentage restriction set forth above under
"Investment in Warrants,";
(xi) Purchase or write puts, calls or combinations thereof; however call
options ("calls") may be written on securities if: (i) such calls
are listed on a domestic securities exchange; (ii) when any such
call is written and at all times prior to a closing purchase
transaction as to such call, or its lapse or exercise, the Fund
owns the securities which are subject to the call or has the right
to acquire such securities without the payment of further
consideration; and (iii) when any such call is written not more
than 10% of the Fund's total assets would be subject to calls;
calls may be purchased to effect a closing purchase transaction as
to any call written in accordance with the foregoing. In addition,
the Fund may purchase calls and write and purchase put options
("puts") on securities in which the Fund may invest and may, for
non-speculative purposes, write and purchase options on broadly-
based stock indexes;
(xii) Borrow money or mortgage or pledge any of its assets; but may enter
into escrow and collateral arrangements in connection with the use
of options and futures;
(xiii) Buy a security if, as a result, it would own more than ten percent
of the issuer's voting securities, or if more than five percent of
its total assets would be invested in securities of that issuer, or
if more than twenty-five percent of its assets would then be in
securities of companies in any one industry.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed
by taking the lesser of purchases or sales of portfolio securities for a
year and dividing it by the monthly average of the market value of such
securities during the year, excluding U.S. Government Securities with
maturities of less than 12 months and certain short-term securities. The
Fund's turnover rate may vary greatly from year to year as well as within a
particular year and may be affected by cash requirements for the redemption
of its shares. The Fund's turnover rate for the fiscal year ended
September 30, 1994 was 36.70% and 62.12% for the fiscal year ended
September 30, 1993.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to Waddell & Reed Investment Management
Company, a wholly-owned subsidiary of Waddell & Reed, Inc. Under the
Management Agreement, the Manager is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of the
Manager and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer
agency services ("Shareholder Servicing Agreement") and a separate
agreement for accounting services ("Accounting Services Agreement") with
the Fund. The Management Agreement contains detailed provisions as to the
matters to be considered by the Fund's Directors prior to approving any
Shareholder Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
The Manager is a wholly-owned subsidiary of Waddell & Reed, Inc.
Waddell & Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc., a holding company. Waddell & Reed Financial
Services, Inc. is a wholly-owned subsidiary of United Investors Management
Company. United Investors Management Company is a wholly-owned subsidiary
of Torchmark Corporation. Torchmark Corporation is a publicly held
company. The address of Torchmark Corporation and United Investors
Management Company is 2001 Third Avenue South, Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of
Mutual Funds since 1940 or the company's inception date, whichever was
later, and to TMK/United Funds, Inc. since that fund's inception, until
January 8, 1992 when it assigned its duties as investment manager for these
funds (and the related professional staff) to the Manager. The Manager has
also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and Torchmark Government Securities Fund, Inc.
and Torchmark Insured Tax-Free Fund, Inc. since they each commenced
operations in February 1993. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the United Group of Mutual
Funds, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between Waddell
& Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., and the Fund, the Agent performs shareholder servicing functions,
including the maintenance of shareholder accounts, the issuance, transfer
and redemption of shares, distribution of dividends and payment of
redemptions, the furnishing of related information to the Fund and handling
of shareholder inquiries. A new Shareholder Servicing Agreement, or
amendments to the existing one, may be approved by the Fund's Directors
without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records,
pricing of the Fund's shares, and preparation of prospectuses for existing
shareholders, proxy statements and certain reports. A new Accounting
Services Agreement, or amendments to an existing one, may be approved by
the Fund's Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for the Manager's management services,
the Fund pays the Manager a fee as described in the Prospectus.
Prior to the above-described assignment from Waddell & Reed, Inc.
to Waddell & Reed Investment Management Company, all fees were paid to
Waddell & Reed, Inc. The management fees paid to Waddell & Reed, Inc. or
the Manager, as the case may be, during the three fiscal years ended
September 30, 1994, 1993 and 1992 were $6,826,535, $6,340,220 and
$6,301,535, respectively.
For purposes of calculating the daily fee, the Fund does not include
money owed to it by Waddell & Reed, Inc. for shares which it has sold but
not yet paid to the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account which was in existence
at any time during the prior month, plus $0.30 for each account on which a
dividend or distribution, of cash or shares, had a record date in that
month. It also pays certain out-of-pocket expenses of the Agent, including
long distance telephone communications costs; microfilm and storage costs
for certain documents; forms, printing and mailing costs; and costs of
legal and special services not provided by Waddell & Reed, Inc., the
Manager or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
fee for accounting services as described in the Prospectus. Fees paid to
the Agent for the fiscal years ended September 30, 1994, 1993 and 1992 were
$86,250, $85,000 and $85,000, respectively.
The State of California imposes limits on the amount of certain
expenses the Fund can pay and requires the Manager to reduce its fee if
these expense amounts are exceeded. The Manager must reduce the amount of
such expenses to the extent they exceed these expense limits. Not all of
the Fund's expenses are included in the limit. The excluded expenses
include interest, taxes, brokerage commissions and extraordinary expenses
such as litigation that usually do not arise in the normal operations of a
mutual fund. The Fund's other expenses, including its management fee, are
included.
The Manager must, under California law, reduce the cost of any
included expenses which are over 2.5% of the Fund's first $30 million of
average net assets, 2% of the next $70 million of average net assets, and
1.5% of any remaining average net assets during a fiscal year. The Fund
will notify shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the
Manager and the Agent, respectively, pay all of their own expenses in
providing these services. Amounts paid by the Fund under the Shareholder
Servicing Agreement are described above. Waddell & Reed, Inc. and
affiliates pay the Fund's Directors and officers who are affiliated with
the Manager and its affiliates. The Fund pays the fees and expenses of the
Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the
Management Agreement, Shareholder Servicing Agreement and Accounting Ser-
vices 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, the Manager pays the costs of sales
literature, including the costs of shareholder reports used as sales
literature, and the costs of printing the prospectus furnished to it by the
Fund. The aggregate dollar amounts of underwriting commissions for the
fiscal years ended September 30, 1994, 1993 and 1992 were $3,180,392,
$3,548,594 and $4,885,481, respectively, and the amounts retained by the
Manager for each fiscal year were $1,517,376, $1,720,694 and $2,348,016,
respectively.
A major portion of the sales charge is paid to sales representatives
and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate
its sales representatives as to purchases for which there is no sales
charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Fund under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Under a Service Plan (the "Plan") adopted by the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940, the Fund may pay Waddell &
Reed, Inc., the principal underwriter for the Fund, a fee not to exceed
.25% of the Fund's average annual net assets, paid monthly, to reimburse
Waddell & Reed, Inc. for its costs and expenses in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Plan and a related Service Agreement between the Fund and
Waddell & Reed, Inc. contemplate that Waddell & Reed, Inc. may be
reimbursed for amounts it expends in compensating, training and supporting
registered sales representatives, sales managers and/or other appropriate
personnel in providing personal services to Fund shareholders and/or
maintaining shareholder accounts; increasing services provided to Fund
shareholders by office personnel located at field sales offices; engaging
in other activities useful in providing personal service to Fund
shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers, and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. Service fees in the amount of $990,242 were paid (or
accrued) by the Fund for the fiscal year ended September 30, 1994.
The Plan and the Service Agreement were approved by the Fund's Board
of Directors, including the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter,
the "Plan Directors"). The Plan was also approved by shareholders of the
Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding shares of the Fund, and (iv) while the Plan remains in
effect, the selection and nomination of the Directors who are Plan
Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is United Missouri Bank, n.a., Kansas City,
Missouri. In general, the Custodian is responsible for holding the Fund's
cash and securities. The Fund may place and maintain foreign securities
and cash with a foreign custodian in accordance with Rule 17f-5 of the
Investment Company Act of 1940. Price Waterhouse LLP, Kansas City,
Missouri, the Fund's independent accountants, audits the Fund's financial
statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each of the shares of the Fund is the value
of the Fund's assets, less what it owes, divided by the total number of
shares. For example, if on a particular day the Fund owned securities
worth $100 and had cash of $15, the total value of the assets would be
$115. If it owed $5, the net asset value would be $110 ($115 minus $5).
If it had 11 shares outstanding, the net asset value of one share would be
$10 ($110 divided by 11).
Shares of the Fund are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup
as of September 30, 1994 was as follows:
Net asset value per share (net assets divided
by capital shares outstanding) ........... $7.73
Add: selling commission (5.75% of offering
price) ................................... ..47
-----
Maximum offering price per share (net asset
value divided by 94.25%) ................. $8.20
=====
The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge. The number
of shares you receive for your purchase depends on the next offering price
after Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily
computed once on each day that the New York Stock Exchange is open for
trading as of the later of the close of the regular session of the New York
Stock Exchange (ordinarily, 4:00 p.m. Eastern time) or the close of the
regular session of any securities or commodities exchange on which an
option or future held by the Fund is traded. The New York Stock Exchange
annually announces the days on which it will not be open for trading. The
most recent announcement indicates that the New York Stock Exchange will
not be open on the following days: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, it is possible that the New York Stock Exchange
may close on other days. The net asset value will change every business
day, since the value of the assets and the number of shares change every
business day.
The Fund's portfolio securities, except as otherwise noted, listed or
traded on a stock exchange, are valued on the basis of the last sale on
that day or, lacking any sales, at a price which is the mean between the
closing bid and asked prices. Other securities which are traded over-the-
counter are priced using NASDAQ (National Association of Securities Dealers
Automated Quotations), which provides information on bid and asked prices
quoted by major dealers in such stocks. Bonds, other than convertible
bonds, are valued using a pricing system provided by a major dealer in
bonds. Convertible bonds are valued using this pricing system only on days
when there is no sale reported. Short-term debt securities are valued at
amortized cost, which approximates market. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the
general supervision and responsibility of the Fund's Board of Directors.
Options and futures purchased and held by the Fund are valued at
the last sales price thereof on the securities or commodities exchanges on
which they are traded, or, if there are no transactions, at the mean
between the bid and asked prices. Ordinarily, the close of option trading
on national securities exchanges is 4:10 P.M. Eastern time and the close of
commodities exchanges is 4:15 P.M. Eastern time. Futures contracts will be
valued by reference to established futures exchanges. The value of a
futures contract purchased by the Fund will be either the closing purchase
price of the 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 Fund's Statement of Assets and Liabilities as
an asset, and an equivalent deferred credit is included in the liability
section. The deferred credit is "marked-to-market" to reflect the current
market value of the 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 received from the sale of the
related investment is reduced by the amount of the premium it paid. If a
put or call written by the Fund expires, it has a gain in the amount of the
premium; if it enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium was more or less than the
cost of the closing transaction.
Optional delivery standby commitments are valued at fair value under
the general supervision and responsibility of the Fund's Board of
Directors. They are accounted for in the same manner as exchange-listed
puts.
Minimum Initial and Subsequent Investments
Initial investments must be at least $500 with the exceptions
described in this paragraph. A $50 minimum initial investment pertains to
sales to certain retirement plan accounts and to sales made in Arizona,
California, Maine, Massachusetts, Montana, North Dakota, Oklahoma, Texas,
Vermont, Washington and Wisconsin. A $50 minimum initial investment also
pertains to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A
minimum initial investment of $25 is applicable to purchases made through
payroll deduction for or by employees of the Manager, Waddell & Reed, Inc.,
their affiliates, or certain retirement plan accounts. A $100 minimum
initial investment pertains to certain exchanges of shares from another
fund in the United Group. Except with respect to certain exchanges and
automatic withdrawals from a bank account, a shareholder may make
subsequent investments of any amount. See "Exchanges for Shares of Other
Funds in the United Group."
Reduced Sales Charges
Account Grouping
Large purchases are subject to lower sales charges. The schedule of
sales charges appears in the Prospectus. For the purpose of taking
advantage of the lower sales charges available for large purchases, a
purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with
purchases in any other of these categories.
1. Purchases by an individual for his or her own account (includes
purchases under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or spouse
in a Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to
Minors Act account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), Section 457 of the Internal
Revenue Code of 1986, as amended (the "Code") salary reduction plan
account provided that such purchases are subject to a sales charge
(see "Net Asset Value Purchases"), tax sheltered annuity account
("T.S.A."), or Keogh plan account provided that the individual and
spouse are the only participants in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or
her spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has
an account in her own name; A's father has an account in his own
name; the UGMA account may be grouped with A's father's account
but may not be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made
in the trust account is eligible for grouping with an IRA account
of W, H's wife;
C. H's will provides for the establishment of a trust for the
benefit of his minor children upon H's death; his bank is named
as trustee; upon H's death, an account is established in the name
of the bank, as trustee; a purchase in the account may be grouped
with an account held by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son,
as successor trustee and R and S as beneficiaries; upon X's
death, the account is transferred to R as trustee; a purchase in
the account may not be grouped with R's individual account. If
X's spouse, Y, was successor trustee, this purchase could be
grouped with Y's individual account.
All purchases made for a participant in a multi-participant Keogh plan
may be grouped only with other purchases made under the same plan; a multi-
participant Keogh plan is defined as a plan in which there is more than one
participant where one or more of the participants is other than the spouse
of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made
under the plan with any purchases in categories 1 through 7
above.
Example B: H has established a Keogh plan; his wife, W, is a participant
and they have hired one or more employees who also become
participants in the plan; H and W may not combine any purchases
made under the plan with any purchases in categories 1 through
7 above; however, all purchases made under the plan for H, W or
any other employee will be combined.
All purchases made under a "qualified" employee benefit plan of an
incorporated business will be grouped. A "qualified" employee benefit plan
is established pursuant to Section 401 of the Code. All qualified employee
benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or
indirectly, controls or is controlled by or is under control with another
employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made
under both plans will be grouped.
All purchases made under a simplified employee pension plan ("SEP"),
payroll deduction plan or similar arrangement adopted by an employer or
affiliated employers (as defined above) may be grouped provided that the
employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made
by individual employees under the plan may be grouped with the other
accounts of the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase in accounts eligible for grouping may be combined
for purposes of determining the availability of a reduced sales charge. In
order for an eligible purchase to be grouped, the investor must advise
Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at
the same time, H's parents open up three UGMA accounts for H and
W's three minor children and invest $10,000 in each child's name;
the combined purchase of $105,000 is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that
the purchases are entitled to grouping.
Rights of Accumulation
If shares are held in any account and an additional purchase is made
in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the
existing account as of the date the new purchase is accepted by Waddell &
Reed, Inc. for the purpose of determining the availability of a reduced
sales charge.
Example: H is a current shareholder who invested in the Fund three years
ago. His account has a net asset value of $80,000. His wife, W,
now wishes to invest $20,000 in the Fund. W's purchase will be
combined with H's existing account and will be entitled to a
reduced sales charge of 4.75%. H's original purchase was subject
to a full sales charge and the reduced charge does not apply
retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced
charge and provide Waddell & Reed, Inc. with the name and number of the
existing account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under the plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases is also
available under a Statement of Intention. By signing a Statement of
Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount
which is sufficient to qualify for a reduced sales charge. The 13-month
period begins on the date the first purchase made under the Statement is
accepted by Waddell & Reed, Inc. Each purchase made from time to time
under the Statement is treated as if the purchaser were buying at one time
the total amount which he or she intends to invest. The sales charge
applicable to all purchases made under the terms of the Statement will be
the sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account;
that is, shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest
in his own name a dollar amount sufficient to entitle him to
purchase shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the shares held under the IRA
in the Fund have a net asset value as of the date the Statement
is accepted by Waddell & Reed, Inc. of $15,000; H's wife, W, has
an account in her own name invested in another fund in the United
Group which charges the same sales load as the Fund, with a net
asset value as of the date of acceptance of the Statement of
$10,000; H needs to invest $75,000 over the 13-month period in
order to qualify for the reduced sales load applicable to a
purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be
returned to the purchaser after it is accepted by Waddell & Reed, Inc. and
will set forth the dollar amount which must be purchased within the 13-
month period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan will be taken into account
in determining the amount which must be invested under the Statement only
if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement. An amount
equal to 5% of the purchase required under the Statement will be held "in
escrow." If a purchaser does not, during the period covered by the
Statement, invest the amount required to qualify for the reduced sales
charge under the terms of the Statement, he or she will be responsible for
payment of the sales charge applicable to the amount actually invested.
The additional sales charge owed on purchases made under a Statement which
is not completed will be collected by redeeming part of the shares
purchased under the Statement and held "in escrow" unless the purchaser
makes payment of this amount to Waddell & Reed, Inc. within 20 days of
Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the Statement of Intention, the lower sales
charge will apply.
A Statement of Intention does not bind the purchaser to buy, or
Waddell & Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement
of Intention, the initial investment must be at least $200,000, and the
value of any shares redeemed during the 13-month period which were acquired
under the Statement will be deducted in computing the aggregate purchases
under the Statement.
Statements of Intention are not available for purchases made under a
simplified employee pension plan where the employer has elected to have all
purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases apply to purchases of any
of the funds in the United Group which are subject to a sales charge. A
purchase of, or shares held, in any of the funds in the United Group which
are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group are subject to a maximum
5.75% ("full") sales charge as described in the prospectus of each Fund:
United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United
Retirement Shares, Inc., United High Income Fund, Inc., United New Concepts
Fund, Inc., United Gold & Government Fund, Inc. and United High Income Fund
II, Inc. The following funds in the United Group are subject to a
"reduced" sales charge as described in the prospectus of each fund: United
Municipal Bond Fund, Inc., United Government Securities Fund, Inc. and
United Municipal High Income Fund, Inc. For the purposes of obtaining the
lower sales charge which applies to large purchases, purchases in a fund in
the United Group which is subject to a full sales charge may not be grouped
with purchases in a fund in the United Group which is subject to a reduced
sales charge; conversely, purchases made in a fund with a reduced sales
charge may not be grouped or combined with purchases of a fund which is
subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge.
Purchases in that fund are not eligible for grouping with purchases in any
other fund.
Net Asset Value Purchases
As stated in the Prospectus, Fund shares may be purchased at net asset
value by the Directors and officers of the Fund, employees of Waddell &
Reed, Inc., employees of their affiliates, sales representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouses and
spouse's parents of each such Director, officer, employee and sales
representative. "Child" includes stepchild; "parent" includes stepparent
Purchases in an IRA sponsored by Waddell & Reed, Inc. established for any
of these eligible purchasers may also be at net asset value. Purchases in
any tax qualified retirement plan under which the eligible purchaser is the
sole participant may also be made at net asset value. Trusts under which
the grantor and the trustee or a co-trustee are each an eligible purchaser
are also eligible for net asset value purchases. "Employees" includes
retired employees. A retired employee is an individual separated from
service from Waddell & Reed, Inc. or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed, Inc. or
its affiliated companies. "Sales representatives" includes retired sales
representatives. A "retired sales representative" is any sales representa-
tive who was, at the time of separation from service from Waddell & Reed,
Inc., a Senior Account Representative. A custodian under the Uniform Gifts
(or Transfers) to Minors Act purchasing for the child or grandchild of any
employee or sales representative may purchase at net asset value whether or
not the custodian himself is an eligible purchaser.
Purchases in a 401(k) plan having 100 or more eligible employees and
purchases in a 457 plan having 100 or more eligible employees may be made
at net asset value.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number of
instances in which the Fund's shares are sold or issued on a basis other
than the maximum public offering price, that is, the net asset value plus
the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases, whether made at one time or over a
period of time as under a Statement of Intention or right of accumulation.
See the table of sales charges in the Prospectus. The reasons for these
quantity discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts;
(ii) certain quantity discounts are required by rules of the National
Association of Securities Dealers, Inc. (as are elimination of sales
charges on the reinvestment of dividends and distribution); and (iii) they
are designed to avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses. Quantity
discounts are made available to certain related persons for reasons of
family unity and to provide a benefit to tax exempt plans and
organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares
exchanged. Sales without sales charge are permitted to Directors, officers
and certain others due to reduced or eliminated selling expenses and since
such sales may aid in the development of a sound employee organization,
encourage incentive, responsibility and interest in the United Group and an
identification with its aims and policies. Limited reinvestments of
redemptions at no sales charge are permitted to attempt to protect against
mistaken or not fully informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or eliminated
sales expenses and since, in some cases, such issuance is exempted by the
Investment Company Act of 1940 from the otherwise applicable restrictions
as to what sales charge must be imposed. In no case in which there is a
reduced or eliminated sales charge are the interest of existing
shareholders adversely affected since, in each case, the Fund receives the
net asset value per share of all shares sold or issued.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments; this can be done by redeeming shares on a
regular basis. This service is called Flexible Withdrawal Service (the
"Service"). It is available not only for Fund shares but also for shares
of any of the funds in the United Group. It would be a disadvantage to an
investor to make additional purchases of shares while a withdrawal program
is in effect as this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
shares which you still own of any of the funds in the United Group; or, you
must own shares having a value of at least $10,000. The value for this
purpose is not the net asset value but the value at the offering price,
i.e., the net asset value plus the sales charge.
To start this service, you must fill out a form (available from
Waddell & Reed, Inc.), advising Waddell & Reed, Inc. how you want your
shares redeemed to make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of
$50 or more;
Second. To get a monthly payment, which will change each month, equal
to one-twelfth of a percentage of the value of the shares in the Account;
you fix the percentage; or
Third. To get a monthly or quarterly payment, which will change each
month or quarter, by redeeming a fixed number of shares (at least five
shares).
Shares are redeemed on the 20th day of the month in which the payment
is to be made, or on the prior business day if the 20th is not a business
day. Payments are made within five days of the redemption.
The Fund, not Waddell & Reed, Inc., pays the costs of this Service.
Having the Service costs you nothing extra individually. There is a $2.00
fee for each withdrawal from retirement plan accounts.
If you have a share certificate for the shares you want to make
available for this Service, you must enclose the certificate with the form
initiating the Service.
The dividends and distributions on shares you have made available for
this Service are reinvested in additional shares. All payments are made by
redeeming shares, which may involve a gain or loss for tax purposes. To
the extent that payments exceed dividends and distributions, the number of
shares you own will decrease. When all of the shares in your account are
redeemed, you will not receive any payments. Thus, the payments are not an
annuity or an income or return on your investment.
You may, at any time change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to
you. For example, if you started out with a $50 monthly payment, you could
change to a $200 quarterly payment. You can at any time redeem part or all
of the shares in your account; if you redeem all of the shares, the Service
is terminated. The Fund can also terminate the Service by notifying you in
writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax
return.
Exchanges for Shares of Other Funds in the United Group
Once a sales charge has been paid on shares of a fund in the United
Group, these shares and any shares added to them from reinvestment of
dividends or distributions may be freely exchanged for shares of another
fund in the United Group. The shares you exchange must be worth at least
$100 or you must already own shares of the fund in the United Group into
which you want to exchange.
You may exchange shares you own in another fund in the United Group
for Fund shares without charge if (i) a sales charge was paid on these
shares, or (ii) the shares were received in exchange for shares for which a
sales charge was paid, or (iii) the shares were acquired from reinvestment
of dividends and distributions paid on such shares. (There may have been
one or more such exchanges so long as a sales charge was paid on the shares
originally purchased.) Also, shares acquired without a sales charge
because the purchase was $2 million or more will be treated the same as
shares on which a sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. shares are the exception
and special rules apply. Shares of either of these funds may be exchanged
for Fund shares only if (i) you have received those shares as a result of
one or more exchanges of shares on which a sales charge was originally
paid, or (ii) the shares have been held from the date of original purchase
for at least 6 months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of shares of United Cash Management, Inc.
automatically exchanged each month into the Fund or any other fund in the
United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must
own shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange
monthly is $100, which may be allocated among different funds in the United
Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange. The
relative values are those next figured after your written exchange request
is received in good order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can in most instances be eliminated or modified
at any time and any such exchange may not be accepted.
Retirement Plans
For individual taxpayers meeting certain requirements, Waddell & Reed,
Inc. offers four retirement plan arrangements which provide tax deferral
and contribute to retirement assets. All four of them involve investments
in Fund shares (or the shares of certain other funds in the United Group).
First. A self-employed person may set up a plan that is commonly
called a Keogh plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her
annual earned income, with a maximum of $30,000.
Second. Investors having earned income may set up a plan that is
commonly called an IRA. Under an IRA, an investor can contribute each year
up to 100% of his or her earned income up to a maximum of $2,000. The
maximum is $2,250 if an investor's spouse has no earned income in a taxable
year. If an investor's spouse has at least $2,000 of earned income in a
taxable year, the maximum is $4,000 ($2,000 for each spouse).
These contributions are deductible unless the investor (or, if
married, either spouse) is an active participant in a qualified retirement
plan or if, notwithstanding that the investor or one or both spouses so
participates, the adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution
which is either (a) a direct rollover from an employer's plan or (b) a
rollover of an eligible distribution paid to the investor from an
employer's plan or another IRA. To the extent a rollover contribution is
made to an IRA, the distribution will not be subject to Federal income tax
until distributed from the IRA. A direct rollover generally applies to any
distribution from an employer's plan (including a custodial account under
Section 403(b)(7) of the Code, but not an IRA) other than certain periodic
payments, required minimum distributions and other specified distributions.
In a direct rollover, the eligible rollover distribution is paid directly
to the IRA, not to the investor. If, instead, an investor receives payment
of an eligible rollover distribution, all or a portion of that distribution
generally may be rolled over to an IRA within 60 days after receipt of the
distribution. Because mandatory Federal income tax withholding applies to
any eligible rollover distribution which is not paid in a direct rollover,
investors should consult their tax advisers or pension consultants as to
the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell &
Reed, Inc.
Third. If an investor is an employee of a public school system or of
certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement through a custodial account under
Section 403(b) of the Code.
Fourth. If an investor is an employee of a state or local government
or of certain types of charitable organizations, he or she may be able to
enter into a deferred compensation arrangement in accordance with Section
457 of the Code.
Waddell & Reed, Inc. also offers to businesses prototype employee
benefit plans qualified under Section 401 of the Code. Investments may be
made in the Fund in accordance with the terms of the plans.
More detailed information about these arrangements is in the
applicable forms which are available from Waddell & Reed, Inc. These plans
may involve complex tax questions as to premature distributions and other
matters. Investors should consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures; the
emergency or other extraordinary conditions there indicated under which
payment may be delayed beyond seven days are certain emergency conditions
determined by the Securities and Exchange Commission, when the New York
Stock Exchange is closed other than for weekends or holidays, or when
trading on the Exchange is restricted. The extraordinary conditions
mentioned in the Prospectus under which redemptions may be made in
portfolio securities are that the Fund's Board of Directors can decide that
conditions exist making cash payments undesirable. If they should,
redemption payments could be made in securities. They would be valued at
the value used in figuring net asset value. There would be brokerage costs
to the redeeming shareholder in selling such securities. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which it is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any
90-day period for any one shareholder.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege under which, if
you redeem and then decide it was not a good idea, you may reinvest. If
Fund shares are then being offered, you can put all or part of your
redemption payment back into Fund shares without any sales charge at the
net asset value next determined after you have returned the amount. Your
written request to do this must be received within 30 days after your
redemption request was received. You can do this only once as to Fund
shares. You do not use up this privilege by redeeming shares to invest the
proceeds at net asset value in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside
organizations selected by the Board of Directors. The Board has
responsibility for establishing broad corporate policies for the Fund and
for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors.
Each of the Fund's Directors is also a Director of each of the other
funds in the United Group, TMK/United Funds, Inc., Waddell and Reed Funds,
Inc., Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-
Free Fund, Inc. and each of its officers is also an officer of one or more
of these funds. The principal occupation of each Director and officer
during at least the past five years is given below. Each of the persons
listed through and including Mr. Wright is a member of the Fund's Board of
Directors. The other persons are officers but not Board members.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund; Chairman of the
Board of Directors of Waddell & Reed Financial Services, Inc., United
Investors Management Company and United Investors Life Insurance Company;
Chairman of the Board of Directors and Chief Executive Officer of Torchmark
Corporation; Chairman of the Board of Directors of Vesta Insurance Group,
Inc.; formerly, Chairman of the Board of Directors of Waddell & Reed,
Inc.
KEITH A. TUCKER*
President of the Fund; President, Chief Executive Officer and
Director of Waddell & Reed Financial Services, Inc.; Chairman of the Board
of Directors of the Manager, Waddell & Reed, Inc., Waddell & Reed Services
Company, Waddell & Reed Asset Management Company and Torchmark
Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice Chairman of
the Board of Directors, Chief Executive Officer and President of United
Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of
Atlantis Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the
United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc.,
he served in such capacity for the funds in the United Group and TMK/United
Funds, Inc.
DODDS I. BUCHANAN
University of Colorado
Campus Box 419
Boulder, Colorado 80309
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corp.; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Chairman, Department
of Marketing, Transportation and Tourism, University of Colorado; formerly,
Professor of Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards
Company; formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
P.O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law
firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial
Corporation and related subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund, each Fund in the United Group, TMK/United Funds, Inc., Waddell &
Reed Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. (Mr. Morgan retired as Chairman of the Board of
Directors and President of these Funds on April 30, 1993); formerly,
President, Director and Chief Executive Officer of the Manager and Waddell
& Reed, Inc.; formerly, Chairman of the Board of Directors of Waddell &
Reed Services Company; formerly, Director of Waddell & Reed Asset
Management Company, United Investors Management Company and United
Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate
management and investment; formerly, Director of The Vendo Company, a
manufacturer and distributor of vending machines.
FREDERICK VOGEL, III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P.O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund; Vice
President, Chief Operations Officer, Director and Treasurer of Waddell &
Reed Financial Services, Inc.; Executive Vice President, Principal
Financial Officer, Director and Treasurer of the Manager; President, Chief
Executive Officer, Principal Financial Officer, Director and Treasurer of
Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed Asset
Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund; Vice President, Chief Investment Officer
and Director of Waddell & Reed Financial Services, Inc.; Director of
Waddell & Reed, Inc.; President, Chief Executive Officer, Chief Investment
Officer and Director of the Manager and Waddell & Reed Asset Management
Company; Senior Vice President and Chief Investment Officer of United
Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the
Fund; Vice President of Waddell & Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund; Vice
President, Secretary and General Counsel of Waddell & Reed Financial
Services, Inc.; Senior Vice President, Secretary and General Counsel of the
Manager and Waddell & Reed, Inc.; Director, Senior Vice President,
Secretary and General Counsel of Waddell & Reed Services Company; Director,
Secretary and General Counsel of Waddell & Reed Asset Management Company;
Vice President, Secretary and General Counsel of Torchmark Distributors,
Inc.; formerly, Assistant General Counsel of the Manager, Waddell & Reed
Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
Carl E. Sturgeon
Vice President of the Fund; Vice President of the Manager; formerly,
Vice President of Waddell & Reed, Inc.
James D. Wineland
Vice President of the Fund; Vice President of the Manager; formerly,
Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, four of the Fund's Directors may be
deemed to be "interested persons" as defined in the Investment Company Act
of 1940 of its underwriter, Waddell & Reed, Inc. or the Manager. The
Directors who may be deemed to be "interested persons" are indicated as
such by an asterisk.
The Board has created an honorary position of Director Emeritus,
which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a
director of the funds in the United Group for a total of at least five
years. A Director Emeritus receives fees in recognition of his past
services whether or not services are rendered in his capacity as Director
Emeritus, but has no authority or responsibility with respect to management
of the Fund. Currently, no person serves as Director Emeritus.
The funds in the United Group, TMK/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $40,000 per year, plus
$500 for each meeting of the Board of Directors attended and $500 for each
committee meeting attended which is not held in conjunction with a Board of
Directors' meeting other than Directors who are affiliates of Waddell &
Reed, Inc. The fees to the Directors who receive them are divided among
the funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. based on their relative size. During the Fund's fiscal year
ended September 30, 1994, its share was $34,421. The officers are paid by
the Manager or its affiliates.
Shareholdings
As of November 30, 1994, all of the Fund's Directors and officers
as a group owned less than 1% of the outstanding shares of the Fund. As of
such date no person owned of record or was known by the Fund to own
beneficially 5% or more of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder, other than payments when you redeem your shares. The first
source is the Fund's net investment income, which is derived from the
dividends, interest and earned discount on the securities it holds less its
expenses. The second source is realized capital gains, which are derived
from the proceeds received from the sale of securities at a price higher
than the Fund's tax basis (usually cost) in such securities; these gains
can be either long-term or short-term, depending on how long the Fund has
owned the securities before it sells them. The third source is net
realized gains from foreign currency transactions. The payments made to
shareholders from net investment income, net short-term capital gains and
net realized gains from certain foreign currency transactions are called
dividends. Payments, if any, from long-term capital gains are called
distributions.
The Fund pays distributions only if it has net realized 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 or not
securities are sold and at what price. If the Fund has net capital gains,
it will ordinarily pay distributions once each year, in the latter part of
the fourth calendar quarter. Even if it has capital gains for a year, the
Fund does not pay out the gains if it has applicable prior year losses to
offset the gains.
Choices You Have on Your Dividends and Distributions
In your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions reinvested in Fund shares or (iii) you want cash for your
dividends and want your distributions reinvested in Fund shares. You can
change your instructions at any time. If you give no instruction, your
dividends and distributions will be reinvested in Fund shares. All
reinvestments are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date
for the dividend or distribution, although this could be changed by the
Directors.
Even if you get dividends and distributions in cash, you can
thereafter reinvest them (or distributions only) in Fund shares at net
asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment.
The reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Code, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-
term capital gains and net gains from certain foreign currency
transactions) and must meet several additional requirements. These
requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures contracts or forward contracts) derived with
respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or forward contracts or (ii) foreign currencies
(or options, futures contracts or forward contracts thereon) that are not
directly related to the Fund's principal business of investing in
securities (or in options and futures with respect to securities) ("Short-
Short Limitation"); (3) at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must be represented by
cash and cash items, 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 outstanding voting securities
of the issuer; and (4) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government Securities or the securities of
other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in
any of those months are deemed to have been paid by the Fund and received
by you on December 31 of that year even if they are paid by the Fund during
the following January. Accordingly, those dividends and distributions will
be taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for a dividend or distribution, the purchaser will receive
some portion of the purchase price back as a taxable dividend or
distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus
certain other amounts.
It is the Fund's policy to make sufficient distributions each year to
avoid imposition of the Excise Tax. The Code permits the Fund to defer
into the next calendar year net capital losses incurred between each
November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate
these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of a debt security denominated in a foreign currency
that are attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of
disposition, and (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 Currencies
The use of hedging strategies, such as writing (selling) and
purchasing options and futures, involves complex rules that will determine
for income tax purposes the character and timing of recognition of the
gains and losses the Fund realizes in connection therewith. Income from
foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options and futures
derived by the Fund with respect to its business of investing in
securities, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
will be subject to the Short-Short Limitation if they are held for less
than three months. Income from the disposition of foreign currencies that
are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect to securities) also will be
subject to the Short-Short Limitation if they are held for less than three
months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining whether
the Fund satisfies the Short-Short Limitation. Thus, only the net gain (if
any) from the designated hedge will be included in gross income for
purposes of that limitation. The Fund intends that, when it engages in
hedging transactions, they will qualify for this treatment, but at the
present time it is not clear whether this treatment will be available for
all the Fund's hedging transactions. To the extent this treatment is not
available, the Fund may be forced to defer the closing out of certain
options and futures beyond the time when it otherwise would be advantageous
to do so, in order for the Fund to continue to qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gain. If the Fund enters into a closing purchase transaction, it
will have a short-term capital gain or loss based on the difference between
the premium it receives for the option it wrote and the premium it pays for
the option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such
an option is exercised and the Fund thus sells the securities subject to
the option, the premium the Fund receives will be added to the exercise
price to determine the gain or loss on the sale. The Fund will not write
so many options that it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at
the end of each taxable year, other than section 1256 contracts that are
part of a "mixed straddle" with respect to which the Fund has made an
election not to have the following rules apply, are "marked-to-market"
(that is, treated as sold for their fair market value) for federal income
tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gain or loss
recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, are treated as long-term
capital gains or losses, and the balance is treated as short-term capital
gains or losses. Section 1256 contracts also may be marked-to-market for
purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the
taxation of options and futures contracts in which the Fund may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which
apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short
sale" rules applicable to straddles. If the Fund makes certain elections,
the amount, character and timing of the recognition of gains and losses
from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely
clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by the Manager pursuant to the
Management Agreement is to arrange the purchase and sale of securities for
the portfolio of the Fund. Transactions in securities other than those for
which an exchange is the primary market are generally done with dealers
acting as principals or market makers. Brokerage commissions are paid
primarily for effecting transactions in securities traded on an exchange
and otherwise only if it appears likely that a better price or execution
can be obtained. The individual who manages the Fund may manage other
advisory accounts with similar investment objectives. It can be
anticipated that the manager will frequently place concurrent orders for
all or most accounts for which the manager has responsibility.
Transactions effected pursuant to such combined orders are averaged as to
price and allocated in accordance with the purchase or sale orders actually
placed for each fund or advisory account.
To effect the portfolio transactions of the Fund, the Manager is
authorized to engage broker-dealers ("brokers") which, in its best judgment
based on all relevant factors, will implement the policy of the Fund to
achieve "best execution" (prompt and reliable execution at the best price
obtainable) for reasonable and competitive commissions. The Manager need
not seek competitive commission bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies
of the Fund. Subject to review by the Board of Directors, such policies
include the selection of brokers which provide execution and/or research
services and other services, including pricing or quotation services
directly or through others ("brokerage services") considered by the Manager
to be useful or desirable for its investment management of the Fund and/or
the other funds and accounts over which the Manager or its affiliates have
investment discretion.
Brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers;
(ii) furnishing analyses and reports; or (iii) effecting securities
transactions and performing functions incidental thereto (such as
clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such brokerage services
may be higher than another qualified broker would charge for effecting
comparable transactions if a good faith determination is made by the
Manager that the commission is reasonable in relation to the brokerage
services provided. Subject to the foregoing considerations, the Manager
may also consider the willingness of particular brokers and dealers to sell
shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to the Manager or
its affiliates.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of the Manager and its
affiliates and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such other
accounts. To the extent that electronic or other products provided by such
brokers to assist the Manager in making investment management decisions are
used for administration or other non-research purposes, a reasonable
allocation of the cost of the product attributable to its non-research use
is made by the Manager.
Such investment research (which may be supplied by a third party at
the instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager to obtain market information on the
price of securities held in the Fund's portfolio or being considered for
purchase.
In placing transactions for the Fund's portfolio, the Manager may
consider sales of shares of the Fund and other funds managed by the Manager
and its affiliates as a factor in the selection of brokers to execute
portfolio transactions. The Manager intends to allocate brokerage on the
basis of this factor only if the sale is $2 million or more and there is no
sales charge. This results in the consideration only of sales which by
their nature would not ordinarily be made by Waddell & Reed, Inc.'s direct
sales force and is done in order to prevent the direct sales force from
being disadvantaged by the fact that it cannot participate in Fund
brokerage. As of September 30, 1994, the Fund owned Merrill & Lynch Co.
Inc., parent company of Merrill Lynch, Pierce, Fenner & Smith, Inc.,
securities in the aggregate amount of $7,415,105. Merrill Lynch, Pierce,
Fenner & Smith, Inc. is a regular broker of the Fund.
During the Fund's fiscal years ended September 30, 1994, 1993 and
1992, it paid brokerage commissions of $729,817, 1,234,475 and $1,551,891,
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 last fiscal year, the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $273,159,058 on which $424,828 in
brokerage commissions were paid. These transactions were allocated to
these broker-dealers by the internal allocation procedures described
above.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group,
TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. or accounts
over which Waddell & Reed Asset Management Company exercises investment
discretion frequently buy or sell the same securities at the same time. If
this happens, the amount of each purchase or sale is divided. This is done
on the basis of the amount of securities each fund or account wanted to buy
or sell. Sharing in large transactions could affect the price the Fund
pays or receives or the amount it buys or sells. However, sometimes a
better negotiated commission is available.
OTHER INFORMATION
The Shares of the Fund
The Fund presently has only one kind (class) of shares. Each share
has the same rights to dividends, to vote and to receive assets if the Fund
liquidates (winds up). Each fractional share has the same rights, in
proportion, as a full share. Shares are fully paid and nonassessable when
bought.
<PAGE>
UNITED VANGUARD FUND, INC................................1
STATEMENT OF ADDITIONAL INFORMATION......................1
TABLE OF CONTENTS...................................1
PERFORMANCE INFORMATION..................................2
Total Return........................................2
Performance Rankings................................3
INVESTMENT OBJECTIVE AND POLICIES........................3
Foreign Securities..................................3
Investment in Warrants..............................4
Lending Securities..................................4
Repurchase Agreements...............................6
Illiquid Investments................................6
Writing Covered Calls on Securities.................7
Writing Puts on Securities..........................9
Purchasing Calls and Puts on Securities.............9
Risks of Options on Securities......................10
Options On Stock Indexes............................11
Risks of Options on Stock Indexes...................12
Futures Contracts and Options on Futures Contracts..13
Risk of Futures Contracts and Options Thereon.......16
Operating Restrictions..............................18
Risk Factors of High-Yield Investing................19
Investment Restrictions.............................20
Portfolio Turnover..................................22
INVESTMENT MANAGEMENT AND OTHER SERVICES.................22
The Management Agreement............................22
Torchmark Corporation and United Investors Management Company
....................................................22
Shareholder Services................................23
Accounting Services.................................23
Payments by the Fund for Management, Accounting and Shareholder
Services............................................23
Custodial and Auditing Services.....................26
PURCHASE, REDEMPTION AND PRICING OF SHARES...............26
Determination of Offering Price.....................26
Minimum Initial and Subsequent Investments..........28
Reduced Sales Charges...............................29
Account Grouping...............................29
One-time Purchases.............................31
Rights of Accumulation.........................31
Statement of Intention.........................32
Other Funds in the United Group................33
Net Asset Value Purchases...........................34
Reasons for Differences in Public Offering Price....34
Flexible Withdrawal Service.........................35
Exchanges for Shares of Other Funds in the United Group 37
Retirement Plans....................................38
Redemptions.........................................39
Reinvestment Privilege..............................39
DIRECTORS AND OFFICERS...................................40
Shareholdings.......................................43
PAYMENTS TO SHAREHOLDERS.................................44
General.............................................44
Choices you have on your Dividends and Distributions44
TAXES....................................................45
General.............................................45
Income from Foreign Securities......................46
Foreign Currency Gains and Losses...................46
Income from Options, Futures and Currencies.........46
PORTFOLIO TRANSACTIONS AND BROKERAGE.....................47
Buying and Selling With Other Funds.................49
OTHER INFORMATION........................................49
The Shares of the Fund..............................49
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Vanguard Fund, Inc.
Included in Part B:
-------------------
As of September 30, 1994
Statements of Assets and Liabilities
For the year ended September 30, 1994
Statements of Operations
For each of the two years in the period ended September 30, 1994
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1994
Report of Independent Accountants
Included in Part C:
-------------------
Consent of Independent Accountants
Amended Schedule A to Custodian Agreement dated October 20, 1994-EX-
99.B8-VFCAA
Amended Schedule B to Custodian Agreement dated July 5, 1994-EX-99.B8-
VFCAA2
Amendment to Service Agreement-EX-99.B9-VFSAA
Financial Data Schedule-EX-27.B-17-VFFDS
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 52 to the Registration Statement on Form N-1A
of our report dated October 31, 1994 relating to the financial statements
and the financial highlights of United Vanguard Fund, Inc., which appears
in such Prospectus. We further consent to the reference to us under the
heading "Financial Highlights" in such Prospectus and to the reference to
us under the heading "Custodial and Auditing Services" in the Statement of
Additional Information constituting part of this Post-Effective Amendment.
PRICE WATERHOUSE
Kansas City, Missouri
December 29, 1994
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation filed November 30, 1973 as Exhibit 1(1)
to Post-Effective Amendment No. 15 to the Registration Statement
on Form S-5*
Articles of Amendment filed January 27, 1982 as Exhibit 1 to
Post-Effective Amendment No. 32 to the Registration Statement on
Form N-1*
Articles of Amendment filed November 15, 1983 as Exhibit 1 to
Form N-1Q for the quarter ended 9/30/83*
(2) By-Laws filed November 30, 1973 as Exhibit 1(2) to Post-Effective
Amendment No. 15 to the Registration Statement on Form S-5*
Amendment to By-Laws filed July 13, 1990 as Exhibit (b)(2) to
Post-Effective Amendment No. 46 to the Registration Statement on
Form N-1A*
Amendment to By-Laws filed November 19, 1990 as Exhibit No. 3 on
Form SE to Form N-SAR for the six months ended September 30,
1990*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed November 30, 1973
as Exhibit 1(1) to Post-Effective Amendment No. 15 to the
Registration Statement on Form S-5*; Article I, Article IV and
Article VII of the Bylaws of the Registrant, as amended, filed
November 30, 1973 as Exhibit 1(2) to Post-Effective Amendment No.
15 to the Registration Statement on Form S-5*
(5) Investment Management Agreement filed July 13, 1990 as Exhibit
(b)(5) to Post-Effective Amendment No. 46 to the Registration
Statement on Form N-1A*
Assignment to the Investment Management Agreement filed May 22,
1992 as Exhibit No. 2 on Form SE to Form N-SAR for the six months
ended March 30, 1992*
(6) Underwriting Agreement filed January 27, 1982 as Exhibit 6 to
Post-Effective Amendment No. 32 to the Registration Statement on
Form N-1*
(7) Not applicable
(8) Custodian Agreement filed December 6, 1991 as Exhibit No. (b)(8)
under Form SE to Post-Effective Amendment No. 48 to the
Registration Statement on Form N-1A*
Amended Schedule A to the Custodian Agreement dated October 20,
1994 attached hereto
Amended Schedule B to the Custodian Agreement dated July 5, 1994
attached hereto
- ---------------------------------
*Incorporated herein by reference
Amendment to the Custodian Agreement dated February 17, 1993
filed by electronic format on July 30, 1993 as Exhibit (b)(8) to
Post-Effective Amendment No. 50 to the Registration Statement on
Form N-1A*
(9) Shareholder Servicing Agreement filed December 11, 1992 as
Exhibit No. (b)(9) to Post-Effective Amendment No. 49 to the
Registration Statement on Form N-1A*
Accounting Services Agreement filed November 19, 1990 as Exhibit
No. 4 on Form SE to Form N-SAR for the six months ended September
30, 1990*
Fund application filed December 6, 1991 as Exhibit (b)(9)(b) on
Form SE to Post-Effective Amendment No. 48 to the Registration
Statement on Form N-1A*
Service Agreement filed by electronic format on July 30, 1993 as
Exhibit (b)(15) to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
Amendment to Service Agreement attached hereto
(10) Not applicable
(11) Not applicable
(12) Not applicable
(13) Not applicable
(14) (a) Individual Retirement Plan Agreement filed March 9, 1992 as
Exhibit (b)(14)(a) on Form SE to Post-Effective Amendment
No. 111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(b) Simplified Employee Pension Plan filed March 9, 1992 as
Exhibit (b)(14)(b) on Form SE to Post-Effective Amendment
No. 111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(c) Tax Sheltered Account for Employees of Public and Private
Schools and Tax-Exempt Organizations filed March 9, 1992 as
Exhibit (b)(14)(c) on Form SE to Post-Effective Amendment
No. 111 on Form N-1A of United Funds, Inc.*
(d) Tax Sheltered Keogh Retirement Plan for self-employed
individuals, sole proprietors and common partnerships filed
March 9, 1992 as Exhibit (b)(14)(d) on Form SE to Post-
Effective Amendment No. 111 on Form N-1A of United Funds,
Inc.*
(e) Defined Contribution Plan filed March 9, 1992 as Exhibit
(b)(14)(e) on Form SE to Post-Effective Amendment No. 111 to
the Registration Statement on Form N-1A of United Funds,
Inc.*
- ---------------------------------
*Incorporated herein by reference
(f) 457 Plan for Public Employees filed March 9, 1992 as Exhibit
(b)(14)(f) on Form SE to Post-Effective Amendment No. 111 to
the Registration Statement on Form N-1A of United Funds,
Inc.*
(g) 401(k) Plan for Public Employees filed March 9, 1992 as
Exhibit (b)(14)(g) on Form SE to Post-Effective Amendment
No. 111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(15) Service Plan filed by electronic format on July 30, 1993 as
Exhibit (b)(15) to Post-Effective Amendment No. 50 to the
Registration Statement on Form N-1A*
(16) Schedule for computation of total return performance quotations
filed by electronic format on July 30, 1993 as Exhibit (b)(16) to
Post-Effective Amendment No. 50 to the Registration Statement on
Form N-1A*
(17) Financial Data Schedule attached hereto
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class September 30, 1994
-------------- ------------------------------
Capital Stock 139,428
27. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through 6(f) of
the Article of Incorporation of Registrant, as amended, filed November
30, 1973 as Exhibit (1)(b)(1) to the Post-Effective Amendment No. 15
to the Registration Statement on Form N-1 incorporated herein by
reference and to Article IV of the Underwriting Agreement filed
January 27, 1982 as Exhibit (1)(b)(6) to Post-Effective Amendment No.
32 and incorporated herein by reference, both of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers,
employees and agents.
- ---------------------------------
*Incorporated herein by reference
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is not engaged in any business other than the provision of
investment management services to those registered investment
companies described in Part A and Part B of this Registration
Statement.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation
or employment during the past two years only his duties as an
executive officer and/or employee of Waddell & Reed Investment
Management Company or its predecessors, except as to persons who are
directors and/or officers of the Registrant and have served in the
capacities shown in the Statement of Additional Information of the
Registrant, and except for Mr. Ronald K. Richey. Mr. Richey is
Chairman of the Board and Chief Executive Officer of Torchmark
Corporation, the parent company of Waddell & Reed, Inc., and Chairman
of the Board of United Investors Management Company, a holding company
of which Waddell & Reed, Inc. is an indirect subsidiary. Mr. Richey's
address is 2001 Third Avenue South, Birmingham, Alabama 35233. The
address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment
Management Company, reference is made to the Prospectus and SAI of
this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter. 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 Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United
Science and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on
form BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or
any affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B
of this Post-Effective Amendment and as listed in response to items
(b)(9) and (b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to
shareholders upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if
requested in writing by the shareholders of record of not less
than 10% of the Fund's outstanding shares, to call a meeting of
the shareholders of the Fund for the purpose of voting upon the
question of removal of any director and to assist in
communications with other shareholders as required by Section
16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(b) of the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Overland Park, and
State of Kansas, on the 29th day of December, 1994.
UNITED VANGUARD FUND, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been
signed below by the following persons in the capacities and on the date
indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board December 29, 1994
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 29, 1994
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 29, 1994
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 29, 1994
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 29, 1994
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director December 29, 1994
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 29, 1994
- -------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director December 29, 1994
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 29, 1994
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director December 29, 1994
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director December 29, 1994
- ------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director December 29, 1994
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director December 29, 1994
- ------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director December 29, 1994
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
- -------------------- --------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
- -------------------- (Principal Executive Officer) --------------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
- -------------------- and Principal Accounting --------------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
- -------------------- Principal Financial --------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
- -------------------- --------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
- -------------------- --------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
- -------------------- --------------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
- -------------------- --------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 1, 1994
- -------------------- --------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
- -------------------- --------------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
- -------------------- --------------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
- -------------------- --------------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
- -------------------- --------------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
- -------------------- --------------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B8-VFCAA
APPENDIX A
This Appendix A relates to the Custodian Agreements between United Missouri
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as amended:
Fund Date
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
Global Income Fund April 24, 1992
Growth Fund April 24, 1992
Torchmark Government Securities Fund, Inc. December 9, 1992
Torchmark Insured Tax-Free Fund, Inc. December 9, 1992
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De France
Germany Berliner Handels Und Frankfurter KASSENVEREIN
Bank
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing Company
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities
Depository Corporation
(KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank, n.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche
Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. None
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Thailand HongKong & Shanghai Banking Corp. Share Depository Center
(SDC)
Turkey Citibank, n.a. TvS, Central Bank of
Turkey
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
EX-99.B8-VFCAA2
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED VANGUARD FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of November 26, 1991
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depository
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
Cedel. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00025 for the first $100,000,000 of the net assets of the United Funds,
plus
.00015 for the next $900,000,000 of the net assets of the United Funds,
plus
.00010 for the next $1,000,000,000 of the net assets of the United Funds,
plus
.00005 for the next $3,000,000,000 of the net assets of the United Funds,
plus
.000025 for the next $5,000,000,000 of the net assets of the United Funds,
plus
.00001 for any net assets exceeding $10,000,000,000 of the assets of the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(1)For each portfolio transaction* processed through a
Depository (DTC, PTC, Fed) $10.00
(2) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(3)For each futures/options contract written 25.00
(4)For each principal/interest paydown 6.00
(5)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all fees charged by any Special Subcustodian to the Custodian as
Custodian for any assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Annual Fee (combining all foreign assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of global assets), at the annual rate of:
.0035 on all assets held in countries assigned to category 5 below, plus
.0014 on all assets held in countries assigned to category 4 below, plus
.0012 on the first $500,000,000 remaining global assets, plus
.0010 on the remaining global assets in excess of $500,000,000.
B. Portfolio Transaction Fees (billed to each Fund)*:
Category 1: $30.00
Belgium, Canada, Japan, Netherlands
Category 2: 60.00
Austria, Denmark, Germany, Ireland, Italy, Sweden, United Kingdom
Category 3: 90.00
Australia, Finland, France, Greece, Hong Kong, Indonesia, Malaysia, New
Zealand,
Norway, Philippines, Portugal, Singapore, Spain, Switzerland, Thailand
Category 4: 30.00
Argentina, Brazil, Chile, India, Mexico, Peru, Turkey
Category 5: 60.00
Korea
Miscellaneous Cash Transactions 10.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Including, but not limited to, telex, legal, telephone, postage, and direct
expenses, including but not limited to, emerging markets subcustodian
custody fees and transaction charges (Category 4 above), tax reclaim,
customized systems programming, certificate fees, duties, and registration
fees.
D. Short-term Dollar Denominated Global Assets--Eurodollar CDs, Time Deposits
(billed to each Fund):
(1)An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at the
annual rate of:
.0004 on all short-term dollar denominated assets of the United Funds.
(2)Portfolio Transaction Fees (billed to each Fund)*:
Eurodollar Time Deposits/CDs will be assessed the following charges:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
E. Euroclear Eligible Issues (billed to each Fund):
(1)An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill
issued to the Fund based upon its portion of Euroclear issues), at the annual
rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at United Missouri Bank, n.a.
(2) Portfolio Transaction Fees (billed to each Fund)*:
Euroclear $60.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
EX-99.B9(d)-VFSAA
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 1st day of September, 1994, by
and between United Vanguard Fund, Inc. (the "Fund") and Waddell & Reed, Inc.
("W&R").
WHEREAS, the Fund and W&R have entered into a certain Service Agreement dated
October 1, 1993, which the parties now desire to amend to provide for the
provision of personal services and maintenance of shareholder accounts through
broker-dealers who sell shares of the Fund to qualified benefit plans under a
selling group agreement with W&R, or through other third parties;
AND WHEREAS, the Fund has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan pursuant to which this Service Agreement has
been adopted and which Service Plan authorizes the payment to W&R of a service
fee to finance shareholder servicing by, among others, broker-dealers who may
sell Fund shares.
NOW THEREFORE, it is mutually agreed as follows:
A. Section A of the Service Agreement is hereby amended by the addition of the
following subsection:
4. Third-Party Services - Through broker-dealers selling shares of the
Fund to employee benefit plans, including benefit plans existing under the
provisions of Section 457 of the United States Internal Revenue Code (hereafter
"Benefit Plans"), or through other third parties, and who provide personal
services to the Benefit Plans and assist in the maintenance of participants'
accounts for whom the Benefit Plans hold shares of the Fund.
B. Section B of the Service Agreement is hereby amended by the addition of the
following subsection:
5. Subject to the limitation set forth in Section B.3., the Fund shall
fully reimburse W&R for payments it makes to a broker-dealer who sells Fund
shares to Benefit Plans to cover a part of the broker-dealer's cost incurred
directly or through affiliates, and to any other third party to cover a part of
that party's cost, in providing personal services to the Benefit Plans and for
the maintenance of participants' accounts of the Benefit Plans, provided that
such payment shall not exceed a sum equal to .25 of 1% of the Fund's average
annual net assets represented by Fund shares purchased through the broker-dealer
or in accounts coded in the name of the third party, as applicable, and held by
the Benefit Plans.
C. Approval and Other Provisions.
1. The Fund represents that this Amendment has been approved by vote of
the Board of Directors of the Fund and of the directors of the Fund who are not
interested persons of the Fund and who have no direct financial interest in the
operation of the Service Plan or this Agreement ("independent directors"), which
was cast in person by such directors at a meeting called for the purpose of
voting on the plan and approval of this Amendment.
2. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in the
Service Agreement and to the other provisions set forth therein.
IN WITNESS WHEREOF, the parties have executed this Amendment this 1st day of
September, 1994.
United Vanguard Fund, Inc.
By: ______________________________________
Sharon K. Pappas, Vice President and Secretary
Waddell & Reed, Inc.
By: ______________________________________
Robert L. Hechler, President
December 29, 1994
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Vanguard Fund, Inc.
Post-Effective Amendment No. 52
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Very truly yours,
Sharon K. Pappas
General Counsel
SKP:jb
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000101868
<NAME> UNITED VANGUARD FUND, INC.
<S> <C>
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<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 732,072,158
<INVESTMENTS-AT-VALUE> 943,000,101
<RECEIVABLES> 73,521,014
<ASSETS-OTHER> 35,997
<OTHER-ITEMS-ASSETS> 42,598
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<APPREC-INCREASE-CURRENT> 30,273,787
<NET-CHANGE-FROM-OPS> 108,628,452
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<DISTRIBUTIONS-OF-INCOME> 2,315,396
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