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. 54
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 24
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, 1995 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 29, 1995, for
the fiscal year ended September 30, 1995.
<PAGE>
UNITED VANGUARD FUND, INC.
===========================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Fund;
About the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund
(c) ..................... An Overview of the Fund; About the Investment
Principles of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b)...................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... About the Management and Expenses of the Fund
(d) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... About the Management and Expenses of the Fund
(g)(i)................... *
(g)(ii).................. About the Management and Expenses of the Fund
5A........................ **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... *
(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) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Included in Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for
future reference. It sets forth concisely the information about the Fund
that you ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information
("SAI") dated December 31, 1995. The SAI is available free upon request to
the Fund or Waddell & Reed, Inc., the Fund's underwriter, at the address or
telephone number below. The SAI is incorporated by reference into this
Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
United Vanguard Fund, Inc.
Class A Shares
This Fund seeks the appreciation of your investment through a diversified
holding of securities issued primarily by companies that the Fund's
investment manager believes have appreciation possibilities and through
proper timing of purchases and sales of securities.
This Prospectus describes one class of shares of the Fund -- Class A
Shares.
Prospectus
December 31, 1995
UNITED VANGUARD FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.......................
EXPENSES.........................................
FINANCIAL HIGHLIGHTS.............................
PERFORMANCE......................................
Explanation of Terms ...........................
ABOUT WADDELL & REED.............................
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND......
Investment Goals and Principles ................
Risk Considerations ..........................
Securities and Investment Practices ............
ABOUT YOUR ACCOUNT...............................
Ways to Set Up Your Account ....................
Buying Shares ..................................
Minimum Investments ............................
Adding to Your Account .........................
Selling Shares .................................
Shareholder Services ...........................
Personal Service .............................
Reports ......................................
Exchanges ....................................
Automatic Transactions .......................
Dividends, Distributions and Taxes .............
Distributions ................................
Taxes ........................................
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND....
WRIMCO and Its Affiliates ......................
Breakdown of Expenses ..........................
Management Fee ...............................
Other Expenses ...........................
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United Vanguard
Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United Vanguard Fund, Inc. (the "Fund") seeks the
appreciation of your investment. The Fund seeks to achieve this goal by
investing in a diversified holding of securities issued primarily by
companies that the Fund's investment manager believes have appreciation
possibilities and through proper timing of purchases and sales of
securities. See "About the Investment Principles of the Fund" for further
information.
Management: Waddell & Reed Investment Management Company ("WRIMCO")
provides investment advice to the Fund and manages the Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO,
Waddell & Reed, Inc. and its predecessors have provided investment
management services to registered investment companies since 1940. See
"About the Management and Expenses of the Fund" for further information
about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed,
Inc. and its account representatives. The price to buy a Class A share of
the Fund is the net asset value of a Class A share plus a sales charge.
See "About Your Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption and reinvestment
procedures.
Risk Considerations: The value of the Fund's investments and the income
generated will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
See "About the Investment Principles of the Fund" for information about the
risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases 5.75%
(as a percentage of
offering price)
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees 0.12%
Other expenses 0.21%
Total Fund operating
expenses1 1.04%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return2 and (2) redemption at the end of each time
period:
1 year $ 67
3 years $ 89
5 years $112
10 years $177
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class A shares of the Fund
will bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater
or lesser than those shown. For a more complete discussion of certain
expenses and fees, see "Breakdown of Expenses."
1Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
2Use of an assumed annual return of 5% is for illustration purposes only
and is not a representation of the Fund's future performance, which may be
greater or lesser.
<PAGE>
Financial Highlights
(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, included in the SAI.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended September 30,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $7.73 $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92 $5.61
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income ... 0.07 0.00 0.04 0.06 0.14 0.17 0.22 0.14 0.16 0.17
Net realized and unrealized
gain (loss) on investments 1.82 0.83 1.07 (0.10) 1.39 (0.95) 1.12 (1.00) 2.28 1.34
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .............. 1.89 0.83 1.11 (0.04) 1.53 (0.78) 1.34 (0.86) 2.44 1.51
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income ..... (0.03) (0.02) (0.04) (0.09) (0.14) (0.22) (0.18) (0.18) (0.16) (0.20)
Distributions from
capital gains ......... (0.62) (0.18) (0.00) (0.20) (0.21) (0.73) (0.07) (1.37) (0.97) (0.00)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ....... (0.65) (0.20) (0.04) (0.29) (0.35) (0.95) (0.25) (1.55) (1.13) (0.20)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........... $8.97 $7.73 $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ............ 26.82% 11.86% 18.38% -0.58% 30.88% -12.67% 23.69% -8.52% 40.12% 27.30%
Net assets, end of
period (000
omitted) ...............$1,286,716$1,014,263 $921,816 $843,978 $875,293 $679,765 $781,650 $659,184 $727,022 $493,844
Ratio of expenses to
average net assets ...... 1.05% 1.05% 0.97% 0.96% 0.97% 0.98% 0.95% 1.00% 0.93% 0.98%
Ratio of net investment
income to average
net assets .............. 0.87% 0.04% 0.50% 0.96% 2.28% 2.85% 3.62% 2.39% 2.30% 2.51%
Portfolio
turnover rate ........... 30.01% 36.70% 62.12% 84.82% 173.44% 161.54% 172.59% 128.91% 160.63% 125.52%
*On August 15, 1995, the Fund began offering Class Y shares to the public. Fund shares outstanding prior to that date were
designated Class A shares.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing performance rankings.
Performance information is calculated and presented separately for each
class of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may not reflect deduction of the applicable sales charge or
may be for periods other than those required to be presented or may
otherwise differ from standardized total return. Total return quotations
that do not reflect the applicable sales charge will reflect a higher rate
of return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a
ranking, the Fund may provide additional information, such as the
particular category to which it relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of
sales charges, fee waivers and/or expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives
located throughout the United States. Your primary contact in your
dealings with Waddell & Reed will be your local account representative.
However, the Waddell & Reed shareholder services department, which is part
of the Waddell & Reed headquarters operations in Overland Park, Kansas, is
available to assist you and your Waddell & Reed account representative.
You may speak with a customer service representative by calling 913-236-
2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is the appreciation of your investment. The Fund
seeks to achieve this goal through a diversified holding of securities,
primarily issued by companies that WRIMCO believes have appreciation
possibilities and by trying to achieve proper timing of purchases and sales
relative to market conditions. There is no assurance that the Fund will
achieve its goal.
WRIMCO attempts 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. WRIMCO may
also analyze the demands of investors for the security relative to its
price. Securities may be chosen when WRIMCO anticipates a development that
might have an effect on the value of a security.
There are three main kinds of securities that the Fund owns: common
stock, preferred stock and debt securities. The Fund may also own
convertible securities. At times, as a temporary measure for defensive
purposes, the Fund may invest up to all of its assets in either debt
securities or preferred stocks or both.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate
that the share price of the Fund will fluctuate. Financial risk is based
on the financial situation of the issuer. The financial risk of the Fund
depends on the credit quality of the underlying securities. Prepayment
risk is the possibility that, during periods of falling interest rates, a
debt security with a high stated interest rate will be prepaid prior to its
expected maturity date.
The Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates or other factors that affect
security values. These techniques may involve certain derivative
instruments, including options, futures contracts, options on futures
contracts and indexed securities. The use of derivative instruments
involves special risks. See "Risks of Derivative Instruments" for further
information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies WRIMCO may employ
in pursuit of the Fund's goal. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies
and restrictions unless it believes that doing so will help the Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without
the approval of the shareholders of the Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal of the Fund, the type of securities in which the
Fund may invest and, unless otherwise indicated, the proportion of its
assets that the Fund may invest in each type are fundamental policies.
Unless otherwise indicated, the types of other assets in which the Fund may
invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a
subsequent change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote
on measures affecting the issuer's organization and operations. Although
common stocks and other equity securities have a history of long-term
growth in value, their prices tend to fluctuate in the short term,
particularly those of smaller companies. The equity securities in which
the Fund invests may include preferred stock that converts to common stock
either automatically or after a specified period of time or at the option
of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The debt
securities in which the Fund invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt
securities rise. The values of floating and adjustable-rate debt
securities are not as sensitive to changes in interest rates as the values
of fixed-rate debt securities. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency
or instrumentality of the U.S. Government. Not all U.S. Government
Securities are backed by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those
rated D by Standard & Poor's Ratings Services ("S&P") and C by Moody's
Investors Service, Inc. ("MIS")). In addition, the Fund will treat unrated
securities judged by WRIMCO to be of equivalent quality to a rated security
to be equivalent to securities having that rating. Debt securities rated D
by S&P or C by MIS are in payment default or are regarded as having
extremely poor prospects of ever attaining any real investment standing.
Debt securities rated at least BBB by S&P or Baa by MIS are considered to
be investment grade debt securities. Securities rated BBB or Baa may have
speculative characteristics. Credit ratings for individual securities may
change from time to time, and the Fund may retain a portfolio security
whose rating has been changed. See the SAI for additional information
about non-investment grade debt securities.
Preferred Stock. The Fund may invest in preferred stock rated in any
rating category by an established rating service and unrated preferred
stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally have higher yields than those of common stocks of the same or
similar issuers, but lower yields than comparable nonconvertible
securities, are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying
common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer
and other factors also may have an effect on the convertible security's
investment value.
Policies and Restrictions: The Fund does not intend to invest in non-
investment grade debt securities if, as a result of such investment, more
than 5% of the Fund's assets would consist of such investments.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability,
military action or unrest or adverse diplomatic developments. There is no
assurance that WRIMCO will be able to anticipate these potential events or
counter their effects.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
an unlimited amount of foreign securities; however, the Fund does not
intend to invest more than 20% of its total assets in foreign securities.
Options, Futures and Other Strategies. The Fund may use certain options to
attempt to enhance income or yield or may attempt to reduce the overall
risk of its investments by using certain options and futures contracts.
The strategies described below may be used in an attempt to manage certain
risks of the Fund's investments that can affect fluctuation in its net
asset value.
Except as to covered call writing, the Fund intends to limit purchase and
sale of options and futures contracts to buying and selling futures
contracts on broadly-based stock indices ("Stock Index Futures") and
options thereon for the purposes of hedging not more than 10% of its total
assets.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not
use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these instruments and strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the
right to buy, and obligates the writer to sell, the underlying investment
at the agreed upon exercise price during the option period. A put option
gives the purchaser the right to sell, and obligates the writer to buy, the
underlying investment at the agreed upon exercise price during the option
period. Purchasers of options pay an amount, known as a premium, to the
option writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will
exist for exchange-listed options. The market for options that are not
listed on an exchange may be less active than the market for exchange-
listed options. The Fund will be able to close a position in an option it
has written only if there is a market for the put or call. 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 an index, subject to the call or the collateral underlying the
put until a closing purchase transaction can be entered into or the option
expires. Because index options are settled in cash, the Fund cannot
provide in advance for its potential settlement obligations on a call it
has written on an index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may write
calls on securities only if the calls are listed and covered (i.e., the
Fund must own the securities that are subject to the call or have the right
to acquire them without additional payment) on not more than 10% of its
total assets and may purchase call options to close out call options it has
written.
As a fundamental policy, the Fund may purchase calls and purchase and write
puts on securities in which the Fund may invest.
The Fund may purchase and write only options on securities that are
issued by the Options Clearing Corporation except that the Fund may write
unlisted put options and purchase unlisted put and call options on U.S.
Government Securities and may purchase optional delivery standby
commitments.
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.
As a fundamental policy, the Fund may, for non-speculative purposes, write
and purchase options on domestic stock indices that are not limited to
stocks of any industry or group of industries ("broadly-based stock
indices").
The Fund may write and purchase only listed options on broadly-based stock
indices.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the term of the option.
If the Fund has written a call, it assumes a short futures position. If it
has written a put, it assumes a long futures position. When the Fund
purchases an option on a futures contract, it acquires a right in return
for the premium it pays to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put).
Policies and Restrictions: As a fundamental policy, the Fund may, for
non-speculative purposes, buy and sell futures contracts on debt securities
("Debt Futures"), Stock Index Futures and options on Debt Futures and Stock
Index Futures.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities
involve special risks, including (i) possible imperfect or no correlation
between price movements of the portfolio investments (held or intended to
be purchased) involved in the transaction and price movements of the
instruments involved in the transaction, (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time, (iii)
the need for additional portfolio management skills and techniques, (iv)
losses due to unanticipated market price movements, (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in investments involved in the transaction, (vi) incorrect
forecasts by WRIMCO concerning interest rates or direction of price
fluctuations of the investment involved in the transaction, which may
result in the strategy being ineffective, (vii) loss of premiums paid by
the Fund on options it purchases, and (viii) the possible inability of the
Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for
the Fund to maintain "cover" or to segregate securities in connection with
such transactions and the possible inability of the Fund to close out or
liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being
hedged. The risk of imperfect correlation of these price changes increases
as the composition of the Fund's portfolio diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not
be the same investment that is being hedged. WRIMCO will attempt to create
a closely correlated hedge but hedging activity may not be completely
successful in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to
adjust the return characteristics of the Fund's portfolio of investments.
An embedded derivative is a derivative that is part of another financial
instrument. Embedded derivatives typically, but not always, are debt
securities whose return of principal or interest, in part, is determined by
reference to something that is not intrinsic to the security itself. The
use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate or stock market trends by WRIMCO may still not result in a
successful transaction. WRIMCO may be incorrect in its expectations as to
the extent of various interest rate movements or stock market movements or
the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and
transaction costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and restrictions and
regulatory requirements applicable to investment companies.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
securities subject to repurchase agreements but may not cause more than 10%
of its assets to be subject to repurchase agreements not terminable within
seven days.
Illiquid Investments. Illiquid investments may be difficult to sell
promptly at an acceptable price. Difficulty in selling securities may
result in a loss or may be costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid
investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting
securities of an issuer, or if more than 5% of the Fund's total assets
would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in
securities of companies in any one industry.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing the Fund's income. This practice could
result in a loss or a delay in recovering the Fund's securities. Loans
will be made only to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not
lend more than 10% of its assets at any one time, and such loans must be on
a collateralized basis in accordance with applicable regulatory
requirements.
Other Instruments may include warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund
would bear its pro rata share of that investment company's expenses, which
could result in duplication of certain fees, including management and
administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
warrants if, as a result of such purchase, no more than 2% of its net
assets would consist of warrants.
As a fundamental policy, the Fund may buy shares of other investment
companies that do not redeem their shares only if it does so in a regular
transaction in the open market and not more than 10% of the Fund's total
assets would be invested in such shares. The Fund does not currently
intend to invest more than 5% of its assets in such securities.
The Fund does not intend to purchase the securities of any issuer if, as a
result, more than 10% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or
more owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships,
institutions or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may
be tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and
under 70 1/2 with earned income to invest up to $2,000 per tax year.
The maximum is $2,250 if the investor's spouse has less than $250 of
earned income in the taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions
from employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business
owners or those with self-employed income (and their eligible employees)
with many of the same advantages as a Keogh, but with fewer
administrative requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income,
with a maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to
contribute a percentage of their wages on a tax-deferred basis. These
accounts need to be established by the administrator or trustee of the
plan.
_ 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation
on a tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child
without paying Federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act ("UGMA") or the
Uniform Transfers to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may
use a trust form made available by Waddell & Reed. Contact your Waddell &
Reed account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with
any questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class A share (price to buy one Class A share) is
the Fund's Class A net asset value ("NAV") plus the sales charge shown in
the table below.
Sales
Sales Charge
Charge as
as Approx.
PercentPercent
of of
Size of Offering Amount
Purchase Price Invested
- -----------------------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,0001.50 1.52
$1,000,000
to less
than
$2,000,0001.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding with respect to that Class the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market
quotations are not available, at their fair value in a manner determined in
good faith by or at the direction of the Board of Directors. Bonds are
generally valued according to prices quoted by a dealer in bonds that
offers a pricing service. Short-term debt securities are valued at
amortized cost, which approximates market value. Other assets are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the later of the close of business of the NYSE, normally 4
p.m. Eastern time, or the close of the regular session of any other
securities or commodities exchange on which an option held by the Fund is
traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the
NYSE is closed. Consequently, the NAV of Fund shares may be significantly
affected on days when the Fund does not price its shares and when you have
no access to the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
_ Orders are accepted only at the home office of Waddell & Reed, Inc.
_ All of your purchases must be made in U.S. dollars.
_ If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous
investment has cleared.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income
to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of
shares of a corresponding class of any of the funds in the United Group, to
the extent otherwise permitted, except United Municipal Bond Fund, Inc.,
United Cash Management, Inc., United Government Securities Fund, Inc. and
United Municipal High Income Fund, Inc., with the net asset value of Class
A shares already held ("rights of accumulation") and by grouping all
purchases of Class A shares made during a thirteen-month period ("Statement
of Intention"). Shares of a corresponding class of another fund purchased
through a contractual plan may not be included unless the plan has been
completed. Purchases by certain related persons may be grouped.
Additional information and applicable forms are available from Waddell &
Reed account representatives.
Class A shares may be purchased at net asset value by the Directors and
officers of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, account representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and account representative. Purchases of Class
A shares in certain retirement plans and certain trusts for these persons
may also be made at net asset value. Purchases of Class A shares in a
401(k) plan having 100 or more eligible employees and purchases of Class A
shares in a 457 plan having 100 or more eligible employees may be made at
net asset value. Shares may also be issued at net asset value in a merger,
acquisition or exchange offer made pursuant to a plan of reorganization to
which the Fund is a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic
Investment Service $50
For certain retirement accounts and accounts opened through payroll
deductions for or by employees of WRIMCO, Waddell & Reed, Inc. and their
affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
the detachable form that accompanies the confirmation of a prior_
purchase by you or your year-to-date statement, or
a letter showing your account number, the account registration and_
stating the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class
A NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
the name on the account registration,_
the Fund's name,_
the Fund account number,_
the dollar amount or number of shares to be redeemed, and_
_ any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint The written
Tenant instructions must be
signed by all persons
required to sign for
transactions, exactly
as their names appear
on the account.
Sole Proprietorship The written
instructions must be
signed by the
individual owner of
the business.
UGMA, UTMA The custodian must
sign the written
instructions
indicating capacity as
custodian.
Retirement Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
Conservator, Guardian The written
or Other Fiduciary instructions must be
signed by the person
properly authorized by
court order to act in
the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by
Waddell & Reed, Inc. at its home office. Note the following:
- - If more than one person owns the shares, each owner must sign the
written request.
- - If you hold a certificate, it must be properly endorsed and sent to the
Fund.
- - If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the_
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted, or as permitted by the Securities and Exchange
Commission.
- - Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Fund may require a signature guarantee in
certain situations such as:
_ the request for redemption is made by a corporation, partnership or
fiduciary,
_ the request for redemption is made by someone other than the owner of
record, or
_ the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested
amounts must be received by the Fund within thirty days after the date of
your redemption. You may do this only once as to Class A shares of the
Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant
by redeeming Fund shares held by the plan. Principal and interest payments
on the loan made in accordance with the terms of the plan may be reinvested
by the plan, without payment of a sales charge, in shares of a
corresponding class of any of the funds in the United Group in which the
plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff
is available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
_ confirmation statements (after every purchase, exchange, transfer or
redemption)
_ year-to-date statements (quarterly)
_ annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the
Fund. Call 913-236-2000 if you need copies of annual or semiannual reports
or historical account information.
Exchanges
You may sell your Class A shares and buy corresponding shares of other
funds in the United Group. You may exchange only into funds that are
legally registered for sale in your state of residence. Note that
exchanges out of the Fund may have tax consequences for you. Before
exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses, and
other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account
representative for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service To move money from United Cash Management, Inc. to the
Fund whether in the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio
assets less expenses, semiannually in June and December. Net capital gains
(and any net realized gains from foreign currency transactions) ordinarily
are distributed in December. The Fund may make additional distributions if
necessary to avoid Federal income or excise taxes on certain undistributed
income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers
three options:
1. Share Payment Option. Your dividend and capital gains distributions
will be automatically paid in additional Class A shares of the Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital
gains distributions.
For retirement accounts, all distributions are automatically paid in Class
A shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment
as a regulated investment company under the Internal Revenue Code of 1986,
as amended, so that it will be relieved of Federal income tax on that part
of its investment company taxable income (consisting generally of net
investment income, net short-term capital gains and net gains from certain
foreign currency transactions) and net capital gains (the excess of net
long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are certain requirements that the Fund must follow in order to avoid
Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account,
you should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income, whether received in
cash or paid in additional Fund shares. Distributions of the Fund's net
capital gains, when designated as such, are taxable to you as long-term
capital gains, whether received in cash or paid in additional Fund shares
and regardless of the length of time you have owned your shares. The Fund
notifies you after each calendar year-end as to the amounts of dividends
and other distributions paid (or deemed paid) to you for that year. Under
certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund
will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant
to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals
and certain other noncorporate shareholders who do not furnish the Fund
with a correct taxpayer identification number. Withholding at that rate
from dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds
are more or less than your adjusted basis for the redeemed shares (which
normally includes any sales charge paid). An exchange of Fund shares for
shares of any other fund in the United Group generally will have similar
tax consequences. However, special rules apply when you dispose of Fund
shares through a redemption or exchange within ninety days after your
purchase thereof and subsequently reacquire Fund shares or acquire shares
of another fund in the United Group without paying a sales charge due to
the thirty-day reinvestment privilege or exchange privilege. See "About
Your Account." In these cases, any gain on the disposition of the Fund
shares would be increased, or loss decreased, by the amount of the sales
charge you paid when those shares were acquired, and that amount will
increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares (regardless of Class) at a loss, part or all of
that loss will not be deductible and will increase the basis of the newly
purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There
may be other Federal, state or local tax considerations applicable to a
particular investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Vanguard Fund, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end diversified management investment company
organized as a corporation under Maryland law on February 15, 1974, as
successor to a Delaware corporation which commenced operations in 1969.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of
directors are not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to August 15, 1995, the Fund
offered only one class of shares to the public. Shares outstanding on that
date were designated as Class A shares, which are offered by this
Prospectus. In addition, the Fund offers Class Y shares through a separate
Prospectus. Class Y shares are designed for institutional investors.
Class Y shares are not subject to a sales charge on purchases and are not
subject to redemption fees. Class Y shares are not subject to a Rule 12b-1
fee. Additional information about Class Y shares may be obtained by
calling 913-236-2000 or by writing to Waddell & Reed, Inc. at the address
on the inside back cover of the Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less
than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally
be no meeting of the shareholders for the purpose of electing directors
until such time as less than a majority of directors holding office have
been elected by shareholders, at which time the directors then in office
will call a shareholders' meeting for the election of directors. To the
extent that Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), applies to the Fund, the directors are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate
vote of any Class is required by the 1940 Act, and except as to any matter
which affects the interests of one or more particular Classes, in which
case only the shareholders of the affected Classes are entitled to vote,
each as a separate Class. Shares are fully paid and nonassessable when
purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's
Board of Directors. WRIMCO provides investment advice to the Fund and
supervises the Fund's investments. Waddell & Reed, Inc. and its
predecessors served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United
Asset Strategy Fund, Inc., since 1940 or the inception of the company,
whichever was later, and to TMK/United Funds, Inc. since that fund's
inception, until January 8, 1992, when it assigned its duties as investment
manager and assigned its professional staff for investment management
services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
James D. Wineland is primarily responsible for the day-to-day management of
the Fund. Mr. Wineland has held his Fund responsibilities since February
1992. He is Vice President of WRIMCO, Vice President of the Fund, and Vice
President of other investment companies for which WRIMCO serves as
investment manager. Mr. Wineland has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor,
WRIMCO, since January 1988 and has been an employee of Waddell & Reed, Inc.
and its successor, WRIMCO, since November 1984. Other members of WRIMCO's
investment management department provide input on market outlook, economic
conditions, investment research and other considerations relating to the
Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell
& Reed Funds, Inc., and serves as the distributor for TMK/United Funds,
Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which
are explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .30 of 1% of its net assets.
The group fee is a pro rata participation based on the relative net asset
size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown
in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group
were approximately $13.3 billion as of September 30, 1995. Management fees
for the fiscal year ended September 30, 1995 were 0.71% of the Fund's
average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to
its Class A shares, the Fund pays the Shareholder Servicing Agent a monthly
fee for each Class A shareholder account that was in existence at any time
during the month, and a fee for each account on which a dividend or
distribution had a record date during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act
with respect to its Class A shares. Under the Plan, the Fund may pay
monthly a fee to Waddell & Reed, Inc. in an amount not to exceed .25% of
the Fund's average annual net assets of its Class A shares. The fee is to
be paid to reimburse Waddell & Reed, Inc. for amounts it expends in
connection with the provision of personal services to Class A shareholders
and/or maintenance of Class A 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 account representatives,
sales managers and/or other appropriate personnel in providing personal
services to Class A shareholders and/or maintaining Class A shareholder
accounts; increasing services provided to Class A shareholders by office
personnel located at field sales offices; engaging in other activities
useful in providing personal services to Class A shareholders and/or the
maintenance of Class A shareholder accounts; and in compensating broker-
dealers who may regularly sell Class A shares, and other third parties, for
providing Class A shareholder services and/or maintaining Class A
shareholder accounts.
The total expenses for the fiscal year ended September 30, 1995 for the
Fund's Class A shares were 1.05% of the average net assets of the Fund's
Class A shares.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. A higher turnover will
increase transaction and commission costs and could generate taxable income
or loss. Portfolio turnover is usually considered to be high if it exceeds
100%.
<PAGE>
United Vanguard Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Vanguard Fund, Inc.
Class A Shares
PROSPECTUS
December 31, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP2005(12-95)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for
future reference. It sets forth concisely the information about the Fund
that you ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information
("SAI") dated December 31, 1995. The SAI is available free upon request to
the Fund or Waddell & Reed, Inc., the Fund's underwriter, at the address or
telephone number below. The SAI is incorporated by reference into this
Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
United Vanguard Fund, Inc. Class Y Shares
This Fund seeks the appreciation of your investment through a diversified
holding of securities issued primarily by companies that the Fund's
investment manager believes have appreciation possibilities and through
proper timing of purchases and sales of securities.
This Prospectus describes one class of shares of the Fund -- Class Y
Shares.
Prospectus
December 31, 1995
UNITED VANGUARD FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.......................
EXPENSES.........................................
FINANCIAL HIGHLIGHTS.............................
PERFORMANCE......................................
Explanation of Terms ...........................
ABOUT WADDELL & REED.............................
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND......
Investment Goals and Principles ................
Risk Considerations ..........................
Securities and Investment Practices ............
ABOUT YOUR ACCOUNT...............................
Buying Shares ..................................
Minimum Investments ............................
Adding to Your Account .........................
Selling Shares .................................
Telephone Transactions .........................
Shareholder Services ...........................
Personal Service .............................
Reports ......................................
Exchanges ....................................
Dividends, Distributions and Taxes .............
Distributions ................................
Taxes ........................................
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND....
WRIMCO and Its Affiliates ......................
Breakdown of Expenses ..........................
Management Fee ...............................
Other Expenses ...........................
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United Vanguard
Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United Vanguard Fund, Inc. (the "Fund") seeks the
appreciation of your investment. The Fund seeks to achieve this goal by
investing in a diversified holding of securities issued primarily by
companies that the Fund's investment manager believes have appreciation
possibilities and through proper timing of purchases and sales of
securities. See "About the Investment Principles of the Fund" for further
information.
Management: Waddell & Reed Investment Management Company ("WRIMCO")
provides investment advice to the Fund and manages the Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO,
Waddell & Reed, Inc. and its predecessors have provided investment
management services to registered investment companies since 1940. See
"About the Management and Expenses of the Fund" for further information
about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed,
Inc. and its account representatives. The price to buy a Class Y share of
the Fund is the net asset value of a Class Y share. There is no sales
charge incurred upon purchase of Class Y shares of the Fund. See "About
Your Account" for information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption procedures.
Risk Considerations: The value of the Fund's investments and the income
generated will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
See "About the Investment Principles of the Fund" for information about the
risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).3
Management fees 0.71%
12b-1 fees None
Other expenses 0.21%
Total Fund operating expenses 0.92%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return4 and (2) redemption at the end of each time
period:
1 year $ 9
3 years $29
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class Y shares of the Fund
will bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater
or lesser than those shown. For a more complete discussion of certain
expenses and fees, see "Breakdown of Expenses."
3 Expense ratios are based on the management fees and other Fund-level
expenses of the Fund for the fiscal year ended September 30, 1995, and the
expenses attributable to the Class Y shares that are anticipated for the
current year. Actual expenses may be greater or lesser than those shown.
4Use of an assumed annual return of 5% is for illustration purposes only
and is not a representation of the Fund's future performance, which may be
greater or lesser.
<PAGE>
Financial Highlights
(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, included in the SAI.
For a Class Y share outstanding throughout the period.*
For the
period from
September 11,
1995 through
September 30,
1995
----
Net asset value,
beginning of period ..... $9.06
-----
Income from investment operations:
Net investment income 0.00
Net realized and unrealized gain
(loss) on investments . (0.09)
-----
Total from investment operations (0.09)
-----
Less distributions:
Dividends from net
investment income (0.00)
Distributions from
capital gains (0.00)
-----
Total distributions (0.00)
-----
Net asset value,
end of period $8.97
=====
Total return -0.99%
Net assets, end of
period (000
omitted) $1,765
Ratio of expenses to
average net assets 0.00%
Ratio of net investment
income to average
net assets 0.00%
Portfolio
turnover rate 30.01%
*On August 15, 1995, the Fund began offering Class Y shares to the
public. Fund shares outstanding prior to that date were designated
Class A shares. The Fund first issued Class Y shares on Septembeer 11,
1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing performance rankings.
Performance information is calculated and presented separately for each
class of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may be for periods other than those required to be presented
or may otherwise differ from standardized total return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a
ranking, the Fund may provide additional information, such as the
particular category to which it relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of
sales charges, fee waivers and/or expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives
located throughout the United States. Your primary contact in your
dealings with Waddell & Reed will be your local account representative.
However, the Waddell & Reed shareholder services department, which is part
of the Waddell & Reed headquarters operations in Overland Park, Kansas, is
available to assist you and your Waddell & Reed account representative.
You may speak with a customer service representative by calling 913-236-
2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is the appreciation of your investment. The Fund
seeks to achieve this goal through a diversified holding of securities,
primarily issued by companies that WRIMCO believes have appreciation
possibilities and by trying to achieve proper timing of purchases and sales
relative to market conditions. There is no assurance that the Fund will
achieve its goal.
WRIMCO attempts 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. WRIMCO may
also analyze the demands of investors for the security relative to its
price. Securities may be chosen when WRIMCO anticipates a development that
might have an effect on the value of a security.
There are three main kinds of securities that the Fund owns: common
stock, preferred stock and debt securities. The Fund may also own
convertible securities. At times, as a temporary measure for defensive
purposes, the Fund may invest up to all of its assets in either debt
securities or preferred stocks or both.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate
that the share price of the Fund will fluctuate. Financial risk is based
on the financial situation of the issuer. The financial risk of the Fund
depends on the credit quality of the underlying securities. Prepayment
risk is the possibility that, during periods of falling interest rates, a
debt security with a high stated interest rate will be prepaid prior to its
expected maturity date.
The Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates or other factors that affect
security values. These techniques may involve certain derivative
instruments, including options, futures contracts, options on futures
contracts and indexed securities. The use of derivative instruments
involves special risks. See "Risks of Derivative Instruments" for further
information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies WRIMCO may employ
in pursuit of the Fund's goal. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies
and restrictions unless it believes that doing so will help the Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without
the approval of the shareholders of the Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal of the Fund, the type of securities in which the
Fund may invest and, unless otherwise indicated, the proportion of its
assets that the Fund may invest in each type are fundamental policies.
Unless otherwise indicated, the types of other assets in which the Fund may
invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a
subsequent change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote
on measures affecting the issuer's organization and operations. Although
common stocks and other equity securities have a history of long-term
growth in value, their prices tend to fluctuate in the short term,
particularly those of smaller companies. The equity securities in which
the Fund invests may include preferred stock that converts to common stock
either automatically or after a specified period of time or at the option
of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The debt
securities in which the Fund invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt
securities rise. The values of floating and adjustable-rate debt
securities are not as sensitive to changes in interest rates as the values
of fixed-rate debt securities. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency
or instrumentality of the U.S. Government. Not all U.S. Government
Securities are backed by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those
rated D by Standard & Poor's Ratings Services ("S&P") and C by Moody's
Investors Service, Inc. ("MIS")). In addition, the Fund will treat unrated
securities judged by WRIMCO to be of equivalent quality to a rated security
to be equivalent to securities having that rating. Debt securities rated D
by S&P or C by MIS are in payment default or are regarded as having
extremely poor prospects of ever attaining any real investment standing.
Debt securities rated at least BBB by S&P or Baa by MIS are considered to
be investment grade debt securities. Securities rated BBB or Baa may have
speculative characteristics. Credit ratings for individual securities may
change from time to time, and the Fund may retain a portfolio security
whose rating has been changed. See the SAI for additional information
about non-investment grade debt securities.
Preferred Stock. The Fund may invest in preferred stock rated in any
rating category by an established rating service and unrated preferred
stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally have higher yields than those of common stocks of the same or
similar issuers, but lower yields than comparable nonconvertible
securities, are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying
common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer
and other factors also may have an effect on the convertible security's
investment value.
Policies and Restrictions: The Fund does not intend to invest in non-
investment grade debt securities if, as a result of such investment, more
than 5% of the Fund's assets would consist of such investments.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars or other government intervention. There
may be a greater possibility of default by foreign governments or foreign
government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability,
military action or unrest or adverse diplomatic developments. There is no
assurance that WRIMCO will be able to anticipate these potential events or
counter their effects.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
an unlimited amount of foreign securities; however, the Fund does not
intend to invest more than 20% of its total assets in foreign securities.
Options, Futures and Other Strategies. The Fund may use certain options to
attempt to enhance income or yield or may attempt to reduce the overall
risk of its investments by using certain options and futures contracts.
The strategies described below may be used in an attempt to manage certain
risks of the Fund's investments that can affect fluctuation in its net
asset value.
Except as to covered call writing, the Fund intends to limit purchase and
sale of options and futures contracts to buying and selling futures
contracts on broadly-based stock indices ("Stock Index Futures") and
options thereon for the purposes of hedging not more than 10% of its total
assets.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not
use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these instruments and strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the
right to buy, and obligates the writer to sell, the underlying investment
at the agreed upon exercise price during the option period. A put option
gives the purchaser the right to sell, and obligates the writer to buy, the
underlying investment at the agreed upon exercise price during the option
period. Purchasers of options pay an amount, known as a premium, to the
option writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will
exist for exchange-listed options. The market for options that are not
listed on an exchange may be less active than the market for exchange-
listed options. The Fund will be able to close a position in an option it
has written only if there is a market for the put or call. 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 an index, subject to the call or the collateral underlying the
put until a closing purchase transaction can be entered into or the option
expires. Because index options are settled in cash, the Fund cannot
provide in advance for its potential settlement obligations on a call it
has written on an index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may write
calls on securities only if the calls are listed and covered (i.e., the
Fund must own the securities that are subject to the call or have the right
to acquire them without additional payment) on not more than 10% of its
total assets and may purchase call options to close out call options it has
written.
As a fundamental policy, the Fund may purchase calls and purchase and write
puts on securities in which the Fund may invest.
The Fund may purchase and write only options on securities that are
issued by the Options Clearing Corporation except that the Fund may write
unlisted put options and purchase unlisted put and call options on U.S.
Government Securities and may purchase optional delivery standby
commitments.
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.
As a fundamental policy, the Fund may, for non-speculative purposes, write
and purchase options on domestic stock indices that are not limited to
stocks of any industry or group of industries ("broadly-based stock
indices").
The Fund may write and purchase only listed options on broadly-based stock
indices.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the term of the option.
If the Fund has written a call, it assumes a short futures position. If it
has written a put, it assumes a long futures position. When the Fund
purchases an option on a futures contract, it acquires a right in return
for the premium it pays to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put).
Policies and Restrictions: As a fundamental policy, the Fund may, for
non-speculative purposes, buy and sell futures contracts on debt securities
("Debt Futures"), Stock Index Futures and options on Debt Futures and Stock
Index Futures.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities
involve special risks, including (i) possible imperfect or no correlation
between price movements of the portfolio investments (held or intended to
be purchased) involved in the transaction and price movements of the
instruments involved in the transaction, (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time, (iii)
the need for additional portfolio management skills and techniques, (iv)
losses due to unanticipated market price movements, (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in investments involved in the transaction, (vi) incorrect
forecasts by WRIMCO concerning interest rates or direction of price
fluctuations of the investment involved in the transaction, which may
result in the strategy being ineffective, (vii) loss of premiums paid by
the Fund on options it purchases, and (viii) the possible inability of the
Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for
the Fund to maintain "cover" or to segregate securities in connection with
such transactions and the possible inability of the Fund to close out or
liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being
hedged. The risk of imperfect correlation of these price changes increases
as the composition of the Fund's portfolio diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not
be the same investment that is being hedged. WRIMCO will attempt to create
a closely correlated hedge but hedging activity may not be completely
successful in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to
adjust the return characteristics of the Fund's portfolio of investments.
An embedded derivative is a derivative that is part of another financial
instrument. Embedded derivatives typically, but not always, are debt
securities whose return of principal or interest, in part, is determined by
reference to something that is not intrinsic to the security itself. The
use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate or stock market trends by WRIMCO may still not result in a
successful transaction. WRIMCO may be incorrect in its expectations as to
the extent of various interest rate movements or stock market movements or
the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and
transaction costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and restrictions and
regulatory requirements applicable to investment companies.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
securities subject to repurchase agreements but may not cause more than 10%
of its assets to be subject to repurchase agreements not terminable within
seven days.
Illiquid Investments. Illiquid investments may be difficult to sell
promptly at an acceptable price. Difficulty in selling securities may
result in a loss or may be costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid
investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting
securities of an issuer, or if more than 5% of the Fund's total assets
would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in
securities of companies in any one industry.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing the Fund's income. This practice could
result in a loss or a delay in recovering the Fund's securities. Loans
will be made only to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not
lend more than 10% of its assets at any one time, and such loans must be on
a collateralized basis in accordance with applicable regulatory
requirements.
Other Instruments may include warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund
would bear its pro rata share of that investment company's expenses, which
could result in duplication of certain fees, including management and
administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
warrants if, as a result of such purchase, no more than 2% of its net
assets would consist of warrants.
As a fundamental policy, the Fund may buy shares of other investment
companies that do not redeem their shares only if it does so in a regular
transaction in the open market and not more than 10% of the Fund's total
assets would be invested in such shares. The Fund does not currently
intend to invest more than 5% of its assets in such securities.
The Fund does not intend to purchase the securities of any issuer if, as a
result, more than 10% of its total assets would be invested in the
securities of business enterprises that, including predecessors, have a
record of less than three years of continuous operation.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares
are available for purchase by:
_ participants of employee benefit plans established under section 403(b)
or section 457, or qualified under section 401, including 401(k) plans,
of the Internal Revenue Code of 1986, as amended (the "Code"), when the
plan has 100 or more eligible employees and holds the shares in an
omnibus account on the Fund's records;
_ banks, trust institutions, investment fund administrators and other
third parties investing for their own accounts or for the accounts of
their customers where such investments for customer accounts are held in
an omnibus account on the Fund's records;
_ government entities or authorities and corporations whose investment
within the first twelve months after initial investment is $10 million
or more; and
_ certain retirement plans and trusts for employees and account
representatives of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with
any questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share) is
the Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are
sold without a sales charge.
To purchase by wire, you must first obtain an account number by calling
1-800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
P. O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-
5044. Instruct your bank to wire the amount you wish to invest to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978,
FBO Customer Name and Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc.,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding with respect to that Class the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market
quotations are not available, at their fair value in a manner determined in
good faith by or at the direction of the Board of Directors. Bonds are
generally valued according to prices quoted by a dealer in bonds that
offers a pricing service. Short-term debt securities are valued at
amortized cost, which approximates market value. Other assets are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the later of the close of business of the NYSE, normally 4
p.m. Eastern time, or the close of the regular session of any other
securities or commodities exchange on which an option held by the Fund is
traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the
NYSE is closed. Consequently, the NAV of Fund shares may be significantly
affected on days when the Fund does not price its shares and when you have
no access to the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
_ Orders are accepted only at the home office of Waddell & Reed, Inc.
_ All of your purchases must be made in U.S. dollars.
_ If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous
investment has cleared.
_ The Fund does not issue certificates representing Class Y shares of the
Fund.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income
to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first twelve
months)
For other
investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978,
FBO Customer Name and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc. Mail the check along with a letter showing your account number, the
account registration and stating the fund whose shares you wish to purchase
to Waddell & Reed, Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-
9217.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax
your request to 913-236-5044 and give your instructions to redeem shares
and make payment by wire to your pre-designated bank account or by check to
you at the address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
the name on the account registration,_
the Fund's name,_
the Fund account number,_
the dollar amount or number of shares to be redeemed, and_
any other applicable requirements listed in the table below._
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by
Waddell & Reed, Inc. at its home office. Note the following:
_ If more than one person owns the shares, each owner must sign the
written request.
_ If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
_ Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted or as permitted by the Securities and Exchange
Commission.
_ Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Fund may require a signature guarantee in
certain situations such as:
_ the request for redemption is made by a corporation, partnership or
fiduciary,
_ the request for redemption is made by someone other than the owner of
record, or
_ the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Fund fails to do so, the
Fund may be liable for losses due to unauthorized or fraudulent
instructions. Current procedures relating to instructions communicated by
telephone include tape recording instructions, requiring personal
identification and providing written confirmations of transactions effected
pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff
is available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
_ confirmation statements (after every purchase, exchange, transfer or
redemption)
_ year-to-date statements (quarterly)
_ annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account
with the Fund. Call 913-236-2000 if you need copies of annual or
semiannual reports or historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group. You may exchange only into funds that are legally
registered for sale in your state of residence. Note that exchanges out of
the Fund may have tax consequences for you. Before exchanging into a fund,
read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio
assets less expenses, semiannually in June and December. Net capital gains
(and any net realized gains from foreign currency transactions) ordinarily
are distributed in December. The Fund may make additional distributions if
necessary to avoid Federal income or excise taxes on certain undistributed
income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers
three options:
1. Share Payment Option. Your dividend and capital gains distributions
will be automatically paid in additional Class Y shares of the Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital
gains distributions.
For retirement accounts, all distributions are automatically paid in Class
Y shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Code so that it will be relieved
of Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital
gains and net gains from certain foreign currency transactions) and net
capital gains (the excess of net long-term capital gain over net short-term
capital loss) that are distributed to its shareholders.
There are certain requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the
Fund may have to limit its investment activity in some types of
instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account,
you should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income, whether received in
cash or paid in additional Fund shares. Distributions of the Fund's net
capital gains, when designated as such, are taxable to you as long-term
capital gains, whether received in cash or paid in additional Fund shares
and regardless of the length of time you have owned your shares. The Fund
notifies you after each calendar year-end as to the amounts of dividends
and other distributions paid (or deemed paid) to you for that year. Under
certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund
will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant
to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals
and certain other noncorporate shareholders who do not furnish the Fund
with a correct taxpayer identification number. Withholding at that rate
from dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds
are more or less than your adjusted basis for the redeemed shares. An
exchange of Fund shares for shares of any other fund in the United Group
generally will have similar tax consequences. In addition, if you purchase
Fund shares within thirty days before or after redeeming other Fund shares
(regardless of Class) at a loss, part or all of that loss will not be
deductible and will increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There
may be other Federal, state or local tax considerations applicable to a
particular investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Vanguard Fund, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end diversified management investment company
organized as a corporation under Maryland law on February 15, 1974, as
successor to a Delaware corporation which commenced operations in 1969.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of
directors are not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Fund has issued and outstanding Class A
shares which are offered by Waddell & Reed, Inc. through a separate
Prospectus. Prior to August 15, 1995, the Fund offered only one class of
shares to the public. Shares outstanding on that date were designated as
Class A shares. Class A shares are subject to a sales charge on purchases
but are not subject to redemption fees. Class A shares are subject to a
Rule 12b-1 fee at an annual rate of up to 0.25% of the Fund's average net
assets attributable to Class A shares. Additional information about Class
A shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of the Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less
than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally
be no meeting of the shareholders for the purpose of electing directors
until such time as less than a majority of directors holding office have
been elected by shareholders, at which time the directors then in office
will call a shareholders' meeting for the election of directors. To the
extent that Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), applies to the Fund, the directors are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate
vote of any Class is required by the 1940 Act, and except as to any matter
which affects the interests of one or more particular Classes, in which
case only the shareholders of the affected Classes are entitled to vote,
each as a separate Class. Shares are fully paid and nonassessable when
purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's
Board of Directors. WRIMCO provides investment advice to the Fund and
supervises the Fund's investments. Waddell & Reed, Inc. and its
predecessors served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United
Asset Strategy Fund, Inc., since 1940 or the inception of the company,
whichever was later, and to TMK/United Funds, Inc. since that fund's
inception, until January 8, 1992, when it assigned its duties as investment
manager and assigned its professional staff for investment management
services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
James D. Wineland is primarily responsible for the day-to-day management of
the Fund. Mr. Wineland has held his Fund responsibilities since February
1992. He is Vice President of WRIMCO, Vice President of the Fund, and Vice
President of other investment companies for which WRIMCO serves as
investment manager. Mr. Wineland has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor,
WRIMCO, since January 1988 and has been an employee of Waddell & Reed, Inc.
and its successor, WRIMCO, since November 1984. Other members of WRIMCO's
investment management department provide input on market outlook, economic
conditions, investment research and other considerations relating to the
Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell
& Reed Funds, Inc., and serves as the distributor for TMK/United Funds,
Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which
are explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .30 of 1% of its net assets.
The group fee is a pro rata participation based on the relative net asset
size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown
in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group
were approximately $13.3 billion as of September 30, 1995. Management fees
for the fiscal year ended September 30, 1995 were 0.71% of the Fund's
average net assets, which during that period consisted only of the Fund's
Class A shares.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to
its Class Y shares, the Fund pays the Shareholder Servicing Agent a monthly
fee based on the average daily net assets of the Class for the preceding
month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities
laws and to the Investment Company Institute, and extraordinary expenses
including litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. A higher turnover will
increase transaction and commission costs and could generate taxable income
or loss. Portfolio turnover is usually considered to be high it is exceeds
100%.
<PAGE>
United Vanguard Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Vanguard Fund, Inc.
Class Y Shares
PROSPECTUS
December 31, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP2005-Y(12-95)
printed on recycled paper
<PAGE>
UNITED VANGUARD FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
December 31, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a
prospectus ("Prospectus") for the Class A shares or the Class Y shares, as
applicable, of United Vanguard Fund, Inc. (the "Fund"), dated December 31,
1995, 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
Goals and Investment Policies..................... 3
Investment Management and Other Services.......... 22
Purchase, Redemption and Pricing of Shares........ 26
Directors and Officers............................ 39
Payments to Shareholders.......................... 44
Taxes ............................................ 45
Portfolio Transactions and Brokerage.............. 48
Other Information................................. 50
<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 and, for Class A shares, from which
the maximum sales load of 5.75% is deducted. All dividends and
distributions are assumed to be reinvested in shares of the applicable
class at net asset value for the class as of the day the dividend or
distribution is paid. No sales load is charged on reinvested dividends or
distributions on Class A shares. The formula used to calculate the total
return for a particular class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for
the periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares
without deduction of the sales load in which case the same formula noted
above will be used but the entire amount of the $1,000 initial payment will
be assumed to have been invested. If the sales charge applicable to Class
A shares were reflected, it would reduce the performance quoted for that
class.
The average annual total return quotations for Class A shares as of
September 30, 1995, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from October 1, 1994 to
September 30, 1995: 19.53% 26.82%
Five-year period from October 1, 1990 to
September 30, 1995: 15.54% 16.92%
Ten-year period from October 1, 1985 to
September 30, 1995: 13.76% 14.44%
Prior to August 15, 1995, the Fund offered only one class of shares to
the public. Shares outstanding on that date were designated as Class A
shares. Since that date, Class Y shares of the Fund have been available to
certain institutional investors.
The Fund may also quote unaveraged or cumulative total return for a
class which reflects the change in value of an investment in that class
over a stated period of time. Cumulative total 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. Each class of the Fund may also compare
its performance to that of other selected mutual funds or selected
recognized market indicators such as the Standard & Poor's 500 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 that the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of Fund shares when redeemed may be
more or less than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and
practices.
Securities - General
The Fund may invest in securities including common stock, preferred
stock, debt securities and convertible securities, as described in the
Prospectus. These securities may include the following described
securities from time to time.
The Fund may purchase debt securities whose principal amount at
maturity is dependent upon the performance of a specified equity security.
The issuer of such debt securities, typically an investment banking firm,
is unaffiliated with the issuer of the equity security to whose performance
the debt security is linked. Equity-linked debt securities differ from
ordinary debt securities in that the principal amount received at maturity
is not fixed, but is based on the price of the linked equity security at
the time the debt security matures. The performance of equity-linked debt
securities depends primarily on the performance of the linked equity
security and may also be influenced by interest rate changes. In addition,
although the debt securities are typically adjusted for diluting events
such as stock splits, stock dividends and certain other events affecting
the market value of the linked equity security, the debt securities are not
adjusted for subsequent issuances of the linked equity security for cash.
Such an issuance could adversely affect the price of the debt security. In
addition to the equity risk relating to the linked equity security, such
debt securities are also subject to credit risk with regard to the issuer
of the debt security. In general, however, such debt securities are less
volatile than the equity securities to which they are linked.
The Fund may also invest in a type of convertible preferred stock that
pays a cumulative, fixed dividend that is senior to, and expected to be in
excess of, the dividends paid on the common stock of the issuer. At the
mandatory conversion date, the preferred stock is converted into not more
than one share of the issuer's common stock at the "call price" that was
established at the time the preferred stock was issued. If the price per
share of the related common stock on the mandatory conversion date is less
than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock
(plus cash in the amount of any accrued but unpaid dividends). At any time
prior to the mandatory conversion date, the issuer may redeem the preferred
stock upon issuing to the holder a number of shares of common stock equal
to the call price of the preferred stock in effect on the date of
redemption divided by the market value of the common stock, with such
market value typically determined one or two trading days prior to the date
notice of redemption is given. The issuer must also pay the holder of the
preferred stock cash in an amount equal to any accrued but unpaid dividends
on the preferred stock. This convertible preferred stock is subject to the
same market risk as the common stock of the issuer, except to the extent
that such risk is mitigated by the higher dividend paid on the preferred
stock. The opportunity for equity appreciation afforded by an investment
in such convertible preferred stock, however, is limited, because in the
event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be
expected to) call the preferred stock for redemption at the call price.
This convertible preferred stock is also subject to credit risk with regard
to the ability of the issuer to pay the dividend established upon issuance
of the preferred stock. Generally, convertible preferred stock is less
volatile than the related common stock of the issuer.
The Fund does not intend to purchase any interests in oil and gas
or other mineral exploration or development programs if, as a result, more
than 10% of its total assets would be invested in such interests.
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. Lower quality debt securities (commonly called "junk bonds")
are considered to be speculative and involve greater risk of default or
price changes due to changes in the issuer's creditworthiness. The market
prices of these securities may fluctuate more than high-quality securities
and may decline significantly in periods of general economic difficulty.
While the market for high-yield, high-risk corporate debt securities has
been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of
the future performance of the high-yield, high-risk bond market, especially
during periods of economic recession. The market for lower-rated debt
securities may be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the former are
sold. Adverse publicity and changing investor perceptions may decrease the
values and liquidity of lower-rated debt securities, especially in a
thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, the research and credit analysis performed by Waddell & Reed
Investment Management Company ("WRIMCO") the Fund's investment manager, are
an especially important part of managing securities of this type held by
the Fund. WRIMCO continuously monitors the issuers of lower-rated debt
securities in its portfolio in an attempt to determine if the issuers will
have sufficient cash flow and profits to meet required principal and
interest payments.
The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the Fund's shareholders.
While credit ratings are only one factor WRIMCO 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.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government Securities") include Treasury Bills
(which mature within one year of the date they are issued), Treasury Notes
(which have maturities of one to ten years) and Treasury Bonds (which
generally have maturities of more than 10 years). All such Treasury
securities are backed by the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing
Administration, Federal National Mortgage Association, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Farm Credit Banks, Maritime
Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of
the United States. Some, such as securities issued by the Federal Home
Loan Banks, are backed by the right of the agency or instrumentality to
borrow from the Treasury. Others, such as securities issued by the Federal
National Mortgage Association, are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed
by the full faith and credit of the United States, the owner of the
securities must look principally to the agency issuing the obligation for
repayment and may not be able to assert a claim against the United States
in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government Securities may include mortgage-backed securities of
the Government National Mortgage Association ("Ginnie Mae"), the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National
Mortgage Association ("Fannie Mae"). These mortgage-backed securities
include "pass-through" securities and "participation certificates."
Another type of mortgage-backed security is a collateralized mortgage
obligation ("CMO"). Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United
States. Freddie Mac and Fannie Mae are both instrumentalities of the U.S.
Government, but their obligations are not backed by the full faith and
credit of the United States. It is possible that the availability and the
marketability (i.e., liquidity) of the securities discussed in this section
could be adversely affected by actions of the U.S. Government to tighten
the availability of its credit.
Foreign Securities and Currency
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.
WRIMCO believes that there are investment opportunities as well as
risks in investing in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual
foreign companies may also differ favorably or unfavorably from domestic
companies in the same industry. Foreign currencies may be stronger or
weaker than the U.S. dollar or than each other. WRIMCO believes that the
Fund's ability to invest its assets abroad may enable it to take advantage
of these differences and strengths where they are favorable.
Further, an investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations (i.e.,
currency blockage). The Fund may bear a transaction charge in connection
with the exchange of currency. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Most foreign stock markets have substantially less volume than
the New York Stock Exchange (the "NYSE") and securities of some foreign
companies are less liquid and more volatile than securities of comparable
domestic companies. There is generally less government regulation of stock
exchanges, brokers and listed companies than in the United States. In
addition, with respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, political or social instability
or diplomatic developments that could adversely affect investments in
securities of issuers located in those countries. If it should become
necessary, the Fund would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a U.S. issuer.
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 are options to purchase equity securities at specific
prices valid for a specific period of time. Their 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. Warrants are highly volatile
and, therefore, more susceptible to a sharp decline in value than the
underlying security might be. They are also generally less liquid than an
investment in the underlying shares.
Securities of Other Investment Companies
In order to comply with regulations of the State of Ohio, for so long
as such regulations are in effect and applicable to the Fund, the Fund will
not invest in securities of other investment companies, except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission, or
except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
Lending Securities
One of the ways in which the Fund may try to realize income is by
lending its securities. If the Fund does this, the borrower pays the Fund
an amount equal to the dividends or interest on the securities that the
Fund would have received if it had not loaned the securities. The Fund
also receives additional compensation.
Any securities loan that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines").
This policy can only be changed by shareholder vote. Under the present
Guidelines, the collateral must consist of cash, U.S. Government Securities
or bank letters of credit, at least equal in value to the market value of
the securities loaned on each day that the loan is outstanding. If the
market value of the loaned securities exceeds the value of the collateral,
the borrower must add more collateral so that it at least equals the market
value of the securities loaned. If the market value of the securities
decreases, the borrower is entitled to 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 U.S. Government Securities used as collateral.
Part of the interest received in either case may be shared with the
borrower.
The letters of credit that the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities),
entered into at the request of the borrower and for its account and risk,
under which the banks are obligated to pay to the Fund, while the letter is
in effect, amounts demanded by the Fund if the demand meets the terms of
the letter. The Fund's right to make this demand secures the borrower's
obligations to it. The terms of any such letters and the creditworthiness
of the banks providing them (which might include the Fund's custodian bank)
must be satisfactory to the Fund. Under the Fund's current lending
procedures, the Fund may lend securities only to broker-dealers and
financial institutions deemed creditworthy by WRIMCO. The Fund will make
loans only under rules of the NYSE, which presently require the borrower to
give the securities back to the Fund within five business days after the
Fund gives notice to do so. If the Fund loses its voting rights on
securities loaned, it will have the securities returned to it in time to
vote them if a material event affecting the investment is to be voted on.
The Fund may pay reasonable finder's, administrative and custodian fees in
connection with loans of securities.
There may be risks of delay in receiving additional collateral from
the borrower if the market value of the securities loaned 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.
Some, but not all, of these rules are necessary to meet requirements
of certain laws relating to securities loans. These rules will not be
changed unless the change is permitted under these requirements. These
requirements do not cover the present rules, which may be changed without
shareholder vote, as to: (i) whom securities may be loaned; (ii) the
investment of cash collateral; or (iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements.
The Fund will not enter into a repurchase transaction that will cause more
than 10% of its net assets to be invested in illiquid securities, which
include repurchase agreements not terminable within seven days. See
"Illiquid Investments." A repurchase agreement is an instrument under
which the Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will
repurchase the security at a specified time and price. The amount by which
the resale price is greater than the purchase price reflects an agreed-upon
market interest rate effective for the period of the agreement. The return
on the securities subject to the repurchase agreement may be more or less
than the return on the repurchase agreement.
The majority of the repurchase agreements in which the Fund would
engage are overnight transactions, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The primary
risk is that the Fund may suffer a loss if the seller fails to pay the
agreed-upon amount on the delivery date and that amount is greater than the
resale price of the underlying securities and other collateral held by the
Fund. In the event of bankruptcy or other default by the seller, there may
be possible delays or expenses in liquidating the underlying securities or
other collateral, decline in their value and loss of interest. The return
on such collateral may be more or less than that from the repurchase
agreement. The Fund's repurchase agreements will be structured so as to
fully collateralize the loans, i.e., the value of the underlying
securities, which will be held by the Fund's custodian bank or by a third
party that qualifies as a custodian under Section 17(f) of the Investment
Company Act of 1940, as amended (the "1940 Act"), is and, during the entire
term of the agreement, will remain at least equal to the value of the loan,
including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that the Fund may not invest more than
10% of its net assets in illiquid investments. Investments currently
considered to be illiquid include: (i) repurchase agreements not terminable
within seven days; (ii) securities for which market quotations are not
readily available; and (iii) over-the-counter ("OTC") options and their
underlying collateral. The assets used as cover for OTC options written by
the Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the
option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
Options and Futures
General. As discussed in the Prospectus, WRIMCO may use certain
options to attempt to enhance income or yield or may attempt to reduce
overall risk of its investments by using certain options and futures
contracts (sometimes referred to as "futures"). Options and futures are
sometimes referred to collectively as "Financial Instruments." The Fund's
ability to use a particular Financial Instrument may be limited by its
investment limitations or operating policies. See "Operating Restrictions"
and "Investment Restrictions."
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential declines in the
value of one or more investments held in the Fund's portfolio. Thus, in a
short hedge the Fund takes a position in a Financial Instrument whose price
is expected to move in the opposite direction of the price of the
investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that the Fund intends to
acquire. Thus, in a long hedge the Fund takes a position in a Financial
Instrument whose price is expected to move in the same direction as the
price of the prospective investment being hedged. A long hedge is
sometimes referred to as an anticipatory hedge. In an anticipatory hedge
transaction, the Fund does not own a corresponding security and, therefore,
the transaction does not relate to a security the Fund owns. Rather, it
relates to a security that the Fund intends to acquire. If the Fund does
not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the
transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities
positions that the Fund owns or intends to acquire. Financial Instruments
on indices, in contrast, generally are used to attempt to hedge against
price movements in market sectors in which the Fund has invested or expects
to invest. Financial Instruments on debt securities may be used to hedge
either individual securities or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations
of the Securities and Exchange Commission (the "SEC"), the several
exchanges upon which they are traded, the Commodity Futures Trading
Commission (the "CFTC") and various state regulatory authorities. In
addition, the Fund's ability to use Financial Instruments will be limited
by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below
and in the Prospectus, WRIMCO expects to discover additional opportunities
in connection with options, futures contracts, options on futures contracts
and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory
authorities broaden the range of permitted transactions and as new options,
futures contracts, options on futures contracts or other techniques are
developed. WRIMCO may utilize these opportunities to the extent that they
are consistent with the Fund's investment goal and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Fund's
Prospectus or this SAI will be supplemented to the extent that new products
or techniques involve materially different risks than those described below
or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the
sections that follow.
(1) Successful use of most Financial Instruments depends upon
WRIMCO's ability to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of
the investments being hedged. For example, if the value of a Financial
Instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which Financial Instruments are traded. The
effectiveness of hedges using Financial Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts
available will not match the Fund's current or anticipated investments
exactly. The Fund may invest in options and futures contracts based on
securities with different issuers, maturities, or other characteristics
from the securities in which it typically invests, which involves a risk
that the options or futures position will not track the performance of the
Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable
price movements. However, such strategies can also reduce opportunity for
gain by offsetting the positive effect of favorable price movements. For
example, if the Fund entered into a short hedge because WRIMCO projected a
decline in the price of a security in the Fund's portfolio, and the price
of that security increased instead, the gain from that increase might be
wholly or partially offset by a decline in the price of the Financial
Instrument. Moreover, if the price of the Financial Instrument declined by
more than the increase in the price of the security, the Fund could suffer
a loss. In either such case, the Fund would have been in a better position
had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain
assets as "cover," maintain segregated accounts or make margin payments
when it takes positions in Financial Instruments involving obligations to
third parties (i.e., Financial Instruments other than purchased options).
If the Fund were unable to close out its positions in such Financial
Instruments, it might be required to continue to maintain such assets or
accounts or make such payments until the position expired or matured.
These requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to close out a position in a
Financial Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction (the
"counterparty") to enter into a transaction closing out the position.
Therefore, there is no assurance that any position can be closed out at a
time and price that is favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will
not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash, receivables and short-term debt securities, with a
value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (1) above. The Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the
guidelines so require, set aside cash, U.S. Government Securities or other
liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount as determined daily on a mark-to-market
basis.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Financial Instrument is open,
unless they are replaced with other appropriate assets. As a result, the
commitment of a large portion of the Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Options. As a fundamental policy, the Fund may write call options on
securities only 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 that 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, as a fundamental policy, the Fund may purchase
calls and write and purchase put options on securities in which the Fund
may invest and may, for non-speculative purposes, write and purchase
options on broadly-based stock indices.
The purchase of call options serves as a long hedge, and the purchase
of put options serves as a short hedge. Writing put or call options can
enable the Fund to enhance income or yield by reason of the premiums paid
by the purchasers of such options. However, if the market price of the
security underlying a put option declines to less than the exercise price
on the option, minus the premium received, the Fund would expect to suffer
a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value. The
Fund will write calls when it considers that the amount of the premium
represents adequate compensation for the loss of the opportunity.
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the
Fund will be obligated to purchase the security at more than its market
value. 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. If
the put option is an OTC option, the securities or other assets used as
cover would be considered illiquid to the extent described under "Illiquid
Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of
the underlying investment, the historical price volatility of the
underlying investment and general market conditions. Options that expire
unexercised have no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing
purchase transaction. Conversely, the Fund may terminate a position in a
put or call option it had purchased by writing an identical put or call
option; this is known as a closing sale transaction. Closing transactions
permit the Fund to realize profits or limit losses on an option position
prior to its exercise or expiration.
A type of put that the Fund may purchase is an "optional delivery
standby commitment," which is entered into by parties selling debt
securities to the Fund. An optional delivery standby commitment gives the
Fund the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
Risks of Options on Securities. The Fund is authorized to write
listed covered call options on securities and to write put options and
purchase options that are listed or unlisted. The Fund has an operating
policy, however, that provides that it will only purchase calls or write
and purchase puts that are listed with two exceptions: (1) it may purchase
calls and write and purchase puts that are not listed if the security
underlying the option is a U.S. Government Security; and (2) optional
delivery standby commitments may be unlisted. The Fund may only purchase
or sell options on stock indices that are listed on a national securities
exchange. See "Operating Restrictions" below.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed
that, in effect, guarantees completion of every exchange-traded option
transaction. In contrast, OTC options are contracts between the Fund and
its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Fund purchases an OTC option, it
relies on the counterparty from whom it purchased the option to make or
take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in the loss of any
premium paid by the Fund as well as the loss of any expected benefit of the
transaction.
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating
directly with the counterparty, or by a transaction in the secondary market
if any such market exists. Although the Fund will enter into OTC options
only with major dealers in unlisted options, there is no assurance that the
Fund will in fact be able to close out an OTC option position at a
favorable price prior to expiration. WRIMCO will evaluate the ability to
enter into closing purchase transactions on unlisted options prior to
writing them. In the event of insolvency of the counterparty, the Fund
might be unable to close out an OTC option position at any time prior to
its expiration.
If the Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by the Fund could cause material losses because
the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
Options on Stock Indices. The Fund is permitted to write and purchase
options on broadly-based stock indices subject to the limitations set forth
under "Operating Restrictions" and "Investment Restrictions." Broadly-
based stock indices are indices that are not limited to stocks of any
particular industry or industries. The Fund may purchase calls on stock
indices to hedge against anticipated increases in the price of securities
it wishes to acquire and purchase puts on stock indices to hedge against
anticipated declines in the market value of portfolio securities.
Puts and calls on stock indices are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
gain or loss depends on changes in the broad-based index in question rather
than on price movements in individual securities or futures contracts.
When the Fund writes a call on a stock index, it receives a premium and
agrees that, prior to the expiration date, the purchaser of the call, upon
exercise of the call, will receive from the Fund an amount of cash if the
closing level of the 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. When the Fund buys a put on a stock
index, it pays a premium and has the right, prior to the expiration date,
to require the seller of the put, upon the Fund's exercise of the put, to
deliver to the Fund an amount of cash if the closing level of the stock
index upon which the put is based is less than the exercise price of the
put, which amount of cash is determined by the multiplier, as described
above for calls. When the Fund writes a put on a stock index, it receives
a premium and the purchaser of such a put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the stock index and
the exercise price times the multiplier if the closing level is less than
the exercise price.
Risks of Options on Stock Indices. The risks of investment in options
on stock indices may be greater than options on securities. Because 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 writing a call index option 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 underlie the index and, as
a result, bears a risk that the value of the securities held will vary from
the value of the index.
Even if the Fund could assemble a 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. 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 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."
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures
can serve as a short hedge. Writing call options on futures contracts can
serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indices. Similarly, writing put
options on futures contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration
of the Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of the Fund's fixed-income portfolio, the Fund may sell a
debt futures contract or a call option thereon, or purchase a put option on
that futures contract. If WRIMCO wishes to lengthen the average duration
of the Fund's fixed-income portfolio, the Fund may buy a debt futures
contract or a call option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at
the inception of a futures contract the Fund is required to deposit
"initial margin" consisting of cash or U.S. Government Securities in an
amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract,
in accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction
if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required
by an exchange to increase the level of its initial margin payment, and
initial margin requirements might be increased generally in the future by
regulatory action.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking-to-market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's obligations to or
from a futures broker. When the Fund purchases an option on a future, the
premium paid plus transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or writes a call or put
option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Fund has
insufficient cash to meet daily variation margin requirements, it might
need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions
on options, by selling or purchasing, respectively, an instrument identical
to the instrument purchased or sold. Positions in futures and options on
futures may be closed only on an exchange or board of trade that provides a
secondary market. The Fund intends to enter into futures and options on
futures only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time. In such
event, it may not be possible to close a futures contract or options
position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures or an option on a futures
contract can vary from the previous day's settlement price; once that limit
is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move
to the daily limit for several consecutive days with little or no trading,
thereby preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures or options on futures
position due to the absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue
to be required to make daily variation margin payments and might be
required to maintain the position being hedged by the future or option or
to maintain cash or securities in a segregated account.
As an operating policy, to the extent that the Fund enters into
futures contracts or options on futures contracts, in each case other than
for bona fide hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) will not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund has entered into. (In general, a call
option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of
the call; a put option on a futures contract is "in-the-money" if the value
of the underlying futures contract is exceeded by the strike price of the
put.) This policy does not limit to 5% the percentage of the Fund's assets
that are at risk in futures contracts and options on futures contracts.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures market (including the options on
futures market), due to the differences in the natures of those markets,
are subject to the following factors, which may create distortions. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions, which could distort the normal relationship between the cash
and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions, rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price distortions.
Due to the possibility of distortion, a correct forecast of general
interest or stock market trends by WRIMCO may still not result in a
successful transaction. WRIMCO may be incorrect in its expectations as to
the extent of various interest rate movements or stock market movements or
the time span within which the movements take place.
Stock Index Futures. The Fund may purchase and sell futures contracts
on broadly-based stock indices ("Stock Index Futures") and options thereon.
A stock index is broadly-based if it is not limited to stocks of any
industry or group of industries.
The risk of imperfect correlation between movements in the price of
a Stock Index Future and movements in the price of the securities that are
the subject of the hedge increases as the composition of the Fund's
portfolio diverges from the securities included in the applicable index.
The price of the 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 that are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction,
this advantage will be partially offset by the futures contract. If the
price of the futures contract moves more than the price of the securities,
the Fund will experience either a loss or a gain on the futures contract
that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of the securities being
hedged and movements in the price of the Stock Index Futures, the Fund may
buy or sell Stock Index Futures in a greater dollar amount than the dollar
amount of the securities being hedged if the historical volatility of the
prices of such securities being hedged is more than the historical
volatility of the prices of the securities included in the index. It is
also possible that, where the Fund has sold Stock Index Futures to hedge
against decline in the market, the market may advance and the value of
securities held in the portfolio may decline. If this occurred, the Fund
would lose money on the futures contract and also experience a decline in
value 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 securities 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 securities before the Fund is able to invest in
them in an orderly fashion, it is possible that the market may decline
instead. If the Fund then concludes not to invest in them at that time
because of concern as to possible further market decline or for other
reasons, it will realize a loss on the futures contract that is not offset
by a reduction in the price of the common stocks it had anticipated
purchasing.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures contracts, to
adjust the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult
to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or
puts written by the Fund, and the sale or purchase of futures contracts,
may cause it to sell or purchase related investments, thus increasing its
turnover rate. Once the Fund has received an exercise notice on an option
it has written, it cannot effect a closing transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price. The exercise of puts
purchased by the Fund may also cause the sale of related investments, also
increasing turnover; although such exercise is within the Fund's control,
holding a protective put might cause it to sell the related investments for
reasons that would not exist in the absence of the put. The Fund will pay
a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
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
WRIMCO 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 indices, 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 that are issued by the Options
Clearing Corporation may be purchased or sold except that the Fund
may write unlisted put options and purchase unlisted put and call
options on U.S. Government Securities and except for optional
delivery standby commitments; only options on stock indices,
options on futures contracts and futures contracts that 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 that 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
that 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 that are outstanding at any one time may not exceed 25%
of the net assets of the Fund computed at the time of sale.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and, together with
certain restrictions described in the Prospectus, cannot be changed without
shareholder approval. Under these additional restrictions, the Fund may
not:
(i) Buy or sell commodities or commodity contracts, except that it may,
for non-speculative purposes, buy or sell Stock Index Futures,
futures contracts on debt securities ("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 that redeem their shares.
The Fund can buy shares of investment companies that do not redeem
their shares if it does it in a regular transaction in the open
market and then does not have more than one tenth (i.e., 10%) of
its total assets in these shares;
(iv) Lend money or other assets, other than through certain limited
types of loans; the Fund can buy debt securities that 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 that 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 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 that 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 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 10% of the
issuer's voting securities, or if more than 5% of its total assets
would be invested in securities of that issuer, or if more than 25%
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 was 30.01% for the fiscal year
ended September 30, 1995 and was 36.70% for the fiscal year ended September
30, 1994.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell
& Reed, Inc. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Fund and provide investment advice to the
Fund. The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc.
is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer
agency services ("Shareholder Servicing Agreement") and a separate
agreement for accounting services ("Accounting Services Agreement") with
the Fund. The Management Agreement contains detailed provisions as to the
matters to be considered by the Fund's Board of Directors prior to
approving any Shareholder Servicing Agreement or Accounting Services
Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial
Services, Inc., a holding company. Waddell & Reed Financial Services, Inc.
is a wholly-owned subsidiary of 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, except United Asset Strategy Fund, Inc., 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 WRIMCO. WRIMCO has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September
1992 and United Asset Strategy Fund, Inc. since it commenced operations in
March 1995. Waddell & Reed, Inc. serves as principal underwriter for the
investment companies in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc. and serves as distributor for TMK/United Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Fund and Waddell & Reed Services Company (the "Agent"), a subsidiary of
Waddell & Reed, Inc., the Agent performs shareholder servicing functions,
including the maintenance of shareholder accounts, the issuance, transfer
and redemption of shares, distribution of dividends and payment of
redemptions, the furnishing of related information to the Fund and handling
of shareholder inquiries. A new Shareholder Servicing Agreement, or
amendments to the existing one, may be approved by the Fund's Board of
Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records,
pricing of the Fund's shares, and preparation of prospectuses for existing
shareholders, proxy statements and certain reports. A new Accounting
Services Agreement, or amendments to an existing one, may be approved by
the Fund's Board of Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services,
the Fund pays WRIMCO a fee as described in the Prospectus. 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 WRIMCO, as the case may
be, during the Fund's fiscal years ended September 30, 1995, 1994 and 1993
were $7,870,715, $6,826,535 and $6,340,220, 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 the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A
shares the Fund pays the Agent a monthly fee of $1.0208 for each
shareholder account that was in existence at any time during the prior
month, plus $0.30 for each account on which a dividend or distribution, of
cash or shares, had a record date in that month. For Class Y shares, the
Fund pays the Agent a monthly fee equal to one-twelfth of .15 of 1% of the
average daily net assets of that class for the preceding month. The Fund
also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs; microfilm and storage costs for
certain documents; forms, printing and mailing costs; and costs of legal
and special services not provided by Waddell & Reed, Inc., WRIMCO or the
Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for accounting services for the fiscal years
ended September 30, 1995, 1994 and 1993 were $100,000, $86,250 and $85,000,
respectively.
The State of California imposes limits on the amount of certain
expenses the Fund can pay and requires WRIMCO to reduce its fee to the
extent any included expenses exceed 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 limit
does not 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.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO
and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Fund under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates pay the
Fund's Directors and officers who are affiliated with WRIMCO and its
affiliates. The Fund pays the fees and expenses of the Fund's other
Directors.
Waddell & Reed, Inc., under an agreement separate from the
Management Agreement, Shareholder Servicing Agreement and Accounting 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, Waddell & Reed, Inc. pays the costs of
sales literature, including the costs of shareholder reports used as sales
literature, and the costs of printing the prospectus furnished to it by the
Fund. The aggregate dollar amounts of underwriting commissions for Class A
shares for the fiscal years ended September 30,1995, 1994 and 1993 were
$3,648,513, $3,180,392 and $3,548,594, respectively, and the amounts
retained by Waddell & Reed, Inc. for each fiscal year were $1,651,533,
$1,517,376 and $1,720,694, respectively.
A major portion of the sales charge for Class A shares is paid to
account representatives and managers of Waddell & Reed, Inc. Waddell &
Reed, Inc. may compensate its account representatives as to purchases for
which there is no sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Fund under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Under a Service Plan for Class A shares (the "Plan") adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay Waddell &
Reed, Inc., the principal underwriter for the Fund, a fee not to exceed
.25% of the Fund's average annual net assets attributable to Class A
shares, paid monthly, to reimburse Waddell & Reed, Inc. for its costs and
expenses in connection with the provision of personal services to Class A
shareholders of the Fund and/or maintenance of Class A 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 account representatives, sales managers and/or other appropriate
personnel in providing personal services to Class A shareholders of the
Fund and/or maintaining Class A shareholder accounts; increasing services
provided to Class A shareholders of the Fund by office personnel located at
field sales offices; engaging in other activities useful in providing
personal service to Class A shareholders of the Fund and/or maintenance of
Class A shareholder accounts; and in compensating broker-dealers who may
regularly sell Class A shares of the Fund, and other third parties, for
providing shareholder services and/or maintaining shareholder accounts with
respect to Class A shares. Fees paid (or accrued) as service fees by the
Fund with respect to Class A shares for the fiscal year ended September 30,
1995 were $1,348,046.
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 the affected
shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding Class A shares of the Fund, and (iv) while the Plan
remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, the Custodian is responsible for holding the Fund's cash and
securities. 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 class of the shares of the Fund is the
value of the assets of that class, less the class's liabilities, divided by
the total number of outstanding shares of that class.
Class A shares of the Fund are sold at their next determined net
asset value plus the sales charge described in the Prospectus. The price
makeup as of September 30, 1995 was as follows:
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. 8.97
Add: selling commission (5.75% of offering
price) ................................... .55
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) 9.52
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge.
The offering price of a Class Y share is its net asset value next
determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily
computed once on each day that the NYSE is open for trading as of the later
of the close of the regular session of the NYSE (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 NYSE annually announces the days on which it will not be open
for trading. The most recent announcement indicates that the NYSE will not
be open on the following days: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. However, it is possible that the NYSE may close on other
days. The net asset value will change every business day, since the value
of the assets and the number of shares outstanding change every business
day.
The securities in the portfolio of the Fund, except as otherwise
noted, that are listed or traded on a stock exchange, are valued on the
basis of the last sale on that day or, lacking any sales, at a price that
is the mean between the closing bid and asked prices. Other securities
that are traded over-the-counter are priced using 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.
Foreign currency exchange rates are generally determined prior to the
close of trading of the regular session of the NYSE. Occasionally events
affecting the value of foreign investments and such exchange rates occur
between the time at which they are determined and the close of the regular
session of trading on the NYSE, which events will not be reflected in a
computation of the Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange
rates occur during such time period, investments will be valued at their
fair value as determined in good faith by or under the direction of the
Board of Directors. The foreign currency exchange transactions of the Fund
conducted on a spot (that is, cash) basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market.
This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due
to the costs of converting from one currency to another.
Optional delivery standby commitments are valued at fair value under
the general supervision and responsibility of the Fund's Board of
Directors. They are accounted for in the same manner as exchange-listed
puts.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United
Group. A $50 minimum initial investment pertains to purchases for certain
retirement plan accounts and to accounts for which an investor has
arranged, at the time of initial investment, to make subsequent purchases
for the account by having regular monthly withdrawals of $25 or more made
from a bank account. A minimum initial investment of $25 is applicable to
purchases made through payroll deduction for or by employees of WRIMCO,
Waddell & Reed, Inc., their affiliates, or certain retirement plan
accounts. Except with respect to certain exchanges and automatic
withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
For Class Y shares, investments by government entities or authorities
or by corporations must total at least $10 million within the first twelve
months after initial investment. There is no initial investment minimum
for other Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges.
The schedule of sales charges appears in the Prospectus for Class A shares.
For the purpose of taking advantage of the lower sales charges available
for large purchases, a purchase in any of categories 1 through 7 listed
below made by an individual or deemed to be made by an individual may be
grouped with purchases in any other of these categories.
1. Purchases by an individual for his or her own account (includes
purchases under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or
spouse in a Uniform Gift to Minors Act ("UGMA") or Uniform Transfers
to Minors Act ("UTMA")account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), 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
("TSA"), or Keogh plan account provided that the individual and spouse
are the only participants in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or
her spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has
an account in her own name; A's father has an account in his own
name; the UGMA account may be grouped with A's father's account
but may not be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made
in the trust account is eligible for grouping with an IRA account
of W, H's wife;
C. H's will provides for the establishment of a trust for the
benefit of his minor children upon H's death; his bank is named
as trustee; upon H's death, an account is established in the name
of the bank, as trustee; a purchase in the account may be grouped
with an account held by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son,
as successor trustee and R and S as beneficiaries; upon X's
death, the account is transferred to R as trustee; a purchase in
the account may not be grouped with R's individual account. If
X's spouse, Y, was successor trustee, this purchase could be
grouped with Y's individual account.
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under
the same plan; a multi-participant Keogh plan is defined as a plan in which
there is more than one participant where one or more of the participants is
other than the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made
under the plan with any purchases in categories 1 through 7
above.
Example B: H has established a Keogh plan; his wife, W, is a participant
and they have hired one or more employees who also become
participants in the plan; H and W may not combine any purchases
made under the plan with any purchases in categories 1 through
7 above; however, all purchases made under the plan for H, W or
any other employee will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A "qualified"
employee benefit plan is established pursuant to Section 401 of the Code.
All qualified employee benefit plans of any one employer or affiliated
employers will also be grouped. An affiliate is defined as an employer
that directly, or indirectly, controls or is controlled by or is under
control with another employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made
under both plans will be grouped.
All purchases of Class A shares made under a simplified employee
pension plan ("SEP"), payroll deduction plan or similar arrangement adopted
by an employer or affiliated employers (as defined above) may be grouped
provided that the employer elects to have all such purchases grouped at the
time the plan is set up. If the employer does not make such an election,
the purchases made by individual employees under the plan may be grouped
with the other accounts of the individual employees described above in
"Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for
grouping may be combined for purposes of determining the availability of a
reduced sales charge. In order for an eligible purchase to be grouped, the
investor must advise Waddell & Reed, Inc. at the time the purchase is made
that it is eligible for grouping and identify the accounts with which it
may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the
same time, H's parents open up three UGMA accounts for H and W's
three minor children and invest $10,000 in each child's name; the
combined purchase of $105,000 of Class A shares is subject to a
reduced sales load of 4.75% provided that Waddell & Reed, Inc. is
advised that the purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase
is made in that account or in any account eligible for grouping with that
account, the additional purchase is combined with the net asset value of
the existing account as of the date the new purchase is accepted by Waddell
& Reed, Inc. for the purpose of determining the availability of a reduced
sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His
wife, W, now wishes to invest $20,000 in Class A shares of the
Fund. W's purchase will be combined with H's existing account
and will be entitled to a reduced sales charge of 4.75%. H's
original purchase was subject to a full sales charge and the
reduced charge does not apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced
charge and provide Waddell & Reed, Inc. with the name and number of the
existing account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under 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 of Class
A shares is also available under a Statement of Intention. By signing a
Statement of Intention form, which is available from Waddell & Reed, Inc.,
the purchaser indicates an intention to invest, over a 13-month period, a
dollar amount which is sufficient to qualify for a reduced sales charge.
The 13-month period begins on the date the first purchase made under the
Statement of Intention is accepted by Waddell & Reed, Inc. Each purchase
made from time to time under the Statement of Intention is treated as if
the purchaser were buying at one time the total amount which he or she
intends to invest. The sales charge applicable to all purchases of Class A
shares made under the terms of the Statement of Intention will be the sales
charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account;
that is, Class A shares already held in the same account in which the
purchase is being made or in any account eligible for grouping with that
account, as described above, will be included.
Example: H signs a Statement of Intention indicating his intent to
invest in his own name a dollar amount sufficient to entitle him
to purchase Class A shares at the sales charge applicable to a
purchase of $100,000. H has an IRA account and the Class A
shares held under the IRA in the Fund have a net asset value as
of the date the Statement of Intention is accepted by Waddell &
Reed, Inc. of $15,000; H's wife, W, has an account in her own
name invested in another fund in the United Group which charges
the same sales load as the Fund, with a net asset value as of the
date of acceptance of the Statement of Intention of $10,000; H
needs to invest $75,000 in Class A shares over the 13-month
period in order to qualify for the reduced sales load applicable
to a purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be
returned to the purchaser after it is accepted by Waddell & Reed, Inc. and
will set forth the dollar amount of Class A shares which must be purchased
within the 13-month period in order to qualify for the reduced sales
charge.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan will be taken into account
in determining the amount which must be invested under the Statement of
Intention only if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement of Intention.
An amount equal to 5% of the purchase required under the Statement of
Intention will be held "in escrow." If a purchaser does not, during the
period covered by the Statement of Intention, invest the amount required to
qualify for the reduced sales charge under the terms of the Statement of
Intention, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge
owed on purchases of Class A shares made under a Statement of Intention
which is not completed will be collected by redeeming part of the shares
purchased under the Statement of Intention and held "in escrow" unless the
purchaser makes payment of this amount to Waddell & Reed, Inc. within 20
days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the Statement of Intention, the lower sales
charge will apply.
A Statement of Intention does not bind the purchaser to buy, or
Waddell & Reed, Inc. to sell, the shares covered by the Statement of
Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement
of Intention, the initial investment must be at least $200,000, and the
value of any shares redeemed during the 13-month period which were acquired
under the Statement of Intention will be deducted in computing the
aggregate purchases under the Statement of Intention.
Statements of Intention are not available for purchases made under a
SEP where the employer has elected to have all purchases under the SEP
grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a
sales charge. A purchase of, or shares held, in any of the funds in the
United Group which are subject to the same sales charge as the Fund will be
treated as an investment in the Fund for the purpose of determining the
applicable sales charge. The following funds in the United Group have
shares that are subject to a maximum 5.75% ("full") sales charge as
described in the prospectus of each Fund: United Funds, Inc., United
International Growth Fund, Inc., United Continental Income Fund, Inc.,
United Vanguard Fund, Inc., United Retirement Shares, Inc., United High
Income Fund, Inc., United New Concepts Fund, Inc., United Gold & Government
Fund, Inc., United High Income Fund II, Inc. and United Asset Strategy
Fund, Inc. The following funds in the United Group have shares that are
subject to a "reduced" sales charge as described in the prospectus of each
fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of
obtaining the lower sales charge which applies to large purchases,
purchases in a fund in the United Group of shares that are subject to a
full sales charge may not be grouped with purchases of shares in a fund in
the United Group that are subject to a reduced sales charge; conversely,
purchases of shares in a fund with a reduced sales charge may not be
grouped or combined with purchases of shares of a fund that are subject to
a full sales charge.
United Cash Management, Inc. is not subject to a sales charge.
Purchases in that fund are not eligible for grouping with purchases in any
other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be
purchased at net asset value by the Directors and officers of the Fund,
employees of Waddell & Reed, Inc., employees of their affiliates, account
representatives of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each such Director, officer,
employee and account representative. "Child" includes stepchild; "parent"
includes stepparent Purchases of Class A shares in an IRA sponsored by
Waddell & Reed, Inc. established for any of these eligible purchasers may
also be at net asset value. Purchases in any tax qualified retirement plan
under which the eligible purchaser is the sole participant may also be made
at net asset value. Trusts under which the grantor and the trustee or a
co-trustee are each an eligible purchaser are also eligible for net asset
value purchases of Class A shares. "Employees" includes retired employees.
A retired employee is an individual separated from service from Waddell &
Reed, Inc. or affiliated companies with a vested interest in any Employee
Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated companies.
"Account representatives" includes retired account representatives. A
"retired account representative" is any account representative who was, at
the time of separation from service from Waddell & Reed, Inc., a Senior
Account Representative. A custodian under UGMA or UTMA purchasing for the
child or grandchild of any employee or account representative may purchase
Class A shares at net asset value whether or not the custodian himself is
an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100
or more eligible employees may be made at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of
instances in which the Fund's Class A shares are sold or issued on a basis
other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one
time or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The
reasons for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are therefore
necessary to meet competition as to sales of shares of other funds having
such discounts; (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and 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 for Class A shares are as follows. Exchanges at
net asset value are permitted because a sales charge has already been paid
on the shares exchanged. Sales of Class A shares without sales charge are
permitted to Directors, officers and certain others due to reduced or
eliminated selling expenses and since such sales may aid in the development
of a sound employee organization, encourage incentive, responsibility and
interest in the United Group and an identification with its aims and
policies. Limited reinvestments of redemptions of Class A shares at no
sales charge are permitted to attempt to protect against mistaken or not
fully informed redemption decisions. Class A shares may be issued at no
sales charge in plans of reorganization due to reduced or eliminated sales
expenses and since, in some cases, such issuance is exempted by the 1940
Act from the otherwise applicable restrictions as to what sales charge must
be imposed. In no case in which there is a reduced or eliminated sales
charge are the interest of existing Class A shareholders adversely affected
since, in each case, the Fund receives the net asset value per share of all
shares sold or issued.
Flexible Withdrawal Service For Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular
basis through the Flexible Withdrawal Service (the "Service"). The Service
is available not only for Class A shares of the Fund but also for
corresponding shares of any of the funds in the United Group. It would be
a disadvantage to an investor to make additional purchases of Class A
shares while 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
Class A or corresponding shares which you still own of any of the funds in
the United Group; or, you must own Class A or corresponding 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 the 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.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make
available for this Service, you must enclose the certificate with the form
initiating the Service.
The dividends and distributions on shares you have made available
for the Service are paid in additional Class A shares. All payments under
the Service are made by redeeming shares, which may involve a gain or loss
for tax purposes. To the extent that payments exceed dividends and
distributions, the number of Class A shares you own will decrease. When
all of the shares in your account are redeemed, you will not receive any
further payments. Thus, the payments are not an annuity or an income or
return on your investment.
You may, at any time change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to
you. 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
Class A Share Exchanges
Once a sales charge has been paid on shares of a fund in the United
Group, these shares and any shares added to them from reinvestment of
dividends or distributions may be freely exchanged for corresponding shares
of another fund in the United Group. The shares you exchange must be worth
at least $100 or you must already own shares of the fund in the United
Group into which you want to exchange.
You may exchange Class A shares you own in another fund in the
United Group for Class A shares of the Fund without charge if (i) a sales
charge was paid on these shares, or (ii) the shares were received in
exchange for shares for which a sales charge was paid, or (iii) the shares
were acquired from reinvestment of dividends and distributions paid on such
shares. There may have been one or more such exchanges so long as a sales
charge was paid on the shares originally purchased. Also, shares acquired
without a sales charge because the purchase was $2 million or more will be
treated the same as shares on which a sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. shares are the exception
and special rules apply. Class A shares of these funds may be exchanged for
Class A shares of the Fund only if (i) you 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 Class A shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any
other fund in the United Group. The shares of United Cash Management, Inc.
which you designate for automatic exchange must be worth at least $100 or
you must own Class A shares of the fund in the United Group into which you
want to exchange. The minimum value of shares which you may designate for
automatic exchange monthly is $100, which may be allocated among the Class
A shares of different funds in the United Group so long as each fund
receives a value of at least $25. Minimum initial investment and minimum
balance requirements apply to such automatic exchange service.
You may redeem your Class A shares of the Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for
purchasing Class Y shares.
Class Y Share Exchanges
Class Y shares of the Fund may be exchanged for Class Y shares of
any other fund in the United Group.
General Exchange Information
When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange. The
relative values are those next figured after your exchange request is
received in good order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can in most instances be eliminated or modified
at any time and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be
set up as a funding vehicle for a retirement plan. For individual
taxpayers meeting certain requirements, Waddell & Reed, Inc. offers
prototype documents for the following retirement plans. All of these plans
involve investment in shares of the Fund (or shares of certain other funds
in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income
may set up a plan that is commonly called an IRA. Under an IRA, an
investor can contribute each year up to 100% of his or her earned income,
up to an annual maximum of $2,000. The annual maximum is $2,250 if an
investor's spouse has earned income of $250 or less in a taxable year. If
an investor's spouse has at least $2,000 of earned income in a taxable
year, the annual maximum is $4,000 ($2,000 for each spouse). The
contributions are deductible unless the investor (or, if married, either
spouse) is an active participant in a qualified retirement plan or if,
notwithstanding that the investor or one or both spouses so participate,
their adjusted gross income does not exceed certain levels.
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.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP
(SARSEP) plans. Employers can make contributions to SEP-IRAs established
for employees. An employer may contribute up to 15% of compensation, not
to exceed $22,500, per year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money
purchase plan or a profit sharing plan. As a general rule, an investor
under a defined contribution Keogh plan can contribute each year up to 25%
of his or her annual earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local
government or of certain types of charitable organizations, he or she may
be able to enter into a deferred compensation arrangement in accordance
with Section 457 of the Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code.
Some organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute,
usually on a matching basis. An employee may defer each year up to 25% of
compensation, subject to certain annual maximums, which may be increased
each year based on cost-of-living adjustments.
More detailed information about these arrangements and applicable
forms are available from Waddell & Reed, Inc. These plans may involve
complex tax questions as to premature distributions and other matters.
Investors should consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days unless delayed because of
emergency conditions determined by the SEC, when the NYSE is closed other
than for weekends or holidays, or when trading on the NYSE is restricted.
Payment is made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities. Payment for redemption of
shares of the Fund may be made in portfolio securities when the Fund's
Board of Directors determines that conditions exist making cash payments
undesirable. Securities used for payment of redemptions are valued at the
value used in figuring net asset value. There would be brokerage costs to
the redeeming shareholder in selling such securities. The Fund, however,
has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to
which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege
for Class A shares under which, if you redeem your Class A shares and then
decide it was not a good idea, you may reinvest. If Class A shares of the
Fund are then being offered, you can put all or part of your redemption
payment back into Class A shares of the Fund without any sales charge at
the net asset value next determined after you have returned the amount.
Your written request to do this must be received within 30 days after your
redemption request was received. You can do this only once as to Class A
shares of the Fund. You do not use up this privilege by redeeming Class A
shares to invest the proceeds at net asset value in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside
organizations selected by the Board of Directors. The Board of Directors
has responsibility for establishing broad corporate policies for the Fund
and for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors.
The principal occupation during at least the past five years of
each Director and officer is given below. Each of the persons listed
through and including Mr. Wright is a member of the Fund's Board of
Directors. The other persons are officers but not Board members. For
purposes of this section, the term "Fund Complex" includes each of the
registered investment companies in the United Group of Mutual Funds,
Waddell & Reed Funds, Inc. and TMK/United Funds, Inc. Each of the Fund's
Directors is also a Director of each of the other funds in the Fund Complex
and each of its officers is also an officer of one or more of the funds in
the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors 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. Father of Linda Graves,
Director of the Fund and each of the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, 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
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor
of Oklahoma.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corporation; formerly, Senior Vice President and Director of Marketing
Services, The Meyer Group of Management Consultants; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Retired.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law
firm. Daughter of Ronald K. Richey, Chairman of the Board of the Fund and
each of the other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
Suite 260
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Chairman of Gilliland & Hayes,
P.A., a law firm; formerly, President of Gilliland & Hayes, P.A.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial
Corporation and subsidiaries.
JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to
Mr. Judd's property was filed under the Federal bankruptcy laws and is now
final.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in
the Fund Complex then in existence on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.;
formerly, Chairman of the Board of Directors of Waddell & Reed Services
Company; 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.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64110
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor
for Academic Affairs, University of Missouri-Kansas City.
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
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City
Federal Savings and Loan Association.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of
the other funds in the Fund Complex; Vice President, Chief Operations
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer of Waddell & Reed, Inc.; 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 and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell &
Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.; President,
Chief Executive Officer, Chief Investment Officer and Director of WRIMCO
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
and each of the other funds in the Fund Complex; Vice President of Waddell
& Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Vice President, Secretary and General
Counsel of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of WRIMCO 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
WRIMCO, 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 and eleven other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
James D. Wineland
Vice President of the Fund and three other funds in the Fund Complex;
Vice President of WRIMCO; 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, five of the Fund's Directors may be deemed
to be "interested persons" as defined in the 1940 Act of its underwriter,
Waddell & Reed, Inc., or of WRIMCO. The Directors who may be deemed to be
"interested persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the
Board provided the director has attained the age of 75 and has served as a
director of the funds in the United Group for a total of at least five
years. A Director Emeritus receives fees in recognition of his 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 (with the exception of United Asset
Strategy Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
pay to each Director a total of $40,000 per year, plus $1,000 for each
meeting of the Board of Directors attended (prior to January 1, 1995, the
fee was $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 (with the exception of United
Asset Strategy Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. based on their relative size. During the Fund's fiscal year
ended September 30, 1995, the Fund's Directors received the following fees
for service as a director:
Compensation Table
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 3,676 0 43,500
Dodds I. Buchanan 3,676 0 43,500
Jay B. Dillingham 3,676 0 43,500
John F. Hayes 3,676 0 43,500
Linda Graves 0 0 0
Glendon E. Johnson 3,676 0 43,500
James B. Judd 0 0 0
William T. Morgan 3,676 0 43,500
Doyle Patterson 3,676 0 43,500
Eleanor B. Schwartz 0 0 0
Frederick Vogel III 3,676 0 43,500
Paul S. Wise 3,676 0 43,500
Leslie S. Wright 3,591 0 42,500
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As ofNovember 30, 1995, 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 of a class of shares of the Fund, 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 expenses (which will vary by class). 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 gain 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 realized
capital gains, it will ordinarily pay distributions once each year, in the
latter part of the fourth calendar quarter. Even if the Fund 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
On your application form, you can give instructions that (i) you
want cash for your dividends and distributions, (ii) you want your
dividends and distributions paid in shares of the Fund of the same class as
that with respect to which they were paid, or (iii) you want cash for your
dividends and want your distributions paid in shares of the Fund of the
same class as that with respect to which they were paid. You can change
your instructions at any time. If you give no instructions, your dividends
and distributions will be paid in shares of the Fund of the same class as
that with respect to which they were paid. All payments in shares are at
net asset value without any sales charge. The net asset value used for
this purpose is that computed as of the record date for the dividend or
distribution, although this could be changed by the Board of Directors.
Even if you get dividends and distributions on Class A shares in cash,
you can thereafter reinvest them (or distributions only) in Class A shares
of the Fund at net asset value (i.e., with 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 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 or forward contracts (other than those on foreign currencies) or
(ii) foreign currencies (or options, futures 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 issuer's
outstanding voting securities ("50% Diversification Requirement"); 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 you 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 pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Fund
may 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.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general,
meets either of the following tests: (1) at least 75% of its gross income
is passive or (2) an average of at least 50% of its assets produce, or are
held for the production of, passive income. Under certain circumstances,
the Fund will be subject to Federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on disposition
of the stock (collectively "PFIC income"), plus interest thereon, even if
the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the
Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each
year its pro rata share of the QEF's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which probably would have to be distributed to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax -- even
if those earnings and gain were not received by the Fund. In most
instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Proposed regulations have been published pursuant to which open-end
RICs, such as the Fund, would be entitled to elect to "mark-to-market"
their stock in certain PFICs. "Marking-to-market," in this context, means
recognizing as gain for each taxable year the excess, as of the end of that
year, of the fair market value of such a PFIC's stock over the adjusted
basis in that stock (including mark-to-market gain for each prior year for
which an election was in effect).
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 and entering into forward contracts,
involves complex rules that will determine for income tax purposes the
character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and
income from transactions in options, futures and forward contracts derived
by the Fund with respect to its business of investing in securities, will
qualify as permissible income under the Income Requirement. However,
income from the disposition of options, futures and forward contracts
(other than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures and forward
contracts thereon, 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, futures and forward contracts beyond the time when it otherwise
would be advantageous to do so, in order for the Fund to continue to
qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital 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 received 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 received also will be a short-term capital gain.
If such an option is exercised and the Fund thus sells the securities
subject to the option, the premium the Fund received 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.
The Fund may acquire zero coupon or other securities issued with
original issue discount. As a holder of those securities, the Fund must
include in its income any original issue discount that accrues on the
securities during the taxable year, even if the Fund receives no
corresponding payment on the securities during the year. Because the Fund
annually must distribute substantially all of its investment company
taxable income, including any original issue discount, in order to satisfy
the distribution requirement described above and avoid imposition of the
Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it
actually receives. Those distributions will be made from the Fund's cash
assets or from the proceeds of sales of portfolio securities, if necessary.
The Fund may realize capital gains or losses from those sales, which would
increase or decrease its investment company taxable income and/or net
capital gain. In addition, any such gains may be realized on the
disposition of securities held for less than three months. Because of the
Short-Short Limitation, any such gains would reduce the Fund's ability to
sell other securities or certain options, futures or forward contracts held
for less than three months that it might wish to sell in the ordinary
course of its portfolio management.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the
portfolio of the Fund. Transactions in securities other than those for
which an exchange is the primary market are generally done with dealers
acting as principals or market makers. Brokerage commissions are paid
primarily for effecting transactions in securities traded on an exchange
and otherwise only if it appears likely that a better price or execution
can be obtained. The individual who manages the Fund may manage other
advisory accounts with similar investment objectives. It can be
anticipated that the manager will frequently place concurrent orders for
all or most accounts for which the manager has responsibility.
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, WRIMCO is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on
all relevant factors, will implement the policy of the Fund to achieve
"best execution" (prompt and reliable execution at the best price
obtainable) for reasonable and competitive commissions. WRIMCO need not
seek competitive commission bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies
of the Fund. Subject to review by the Board of Directors, such policies
include the selection of brokers which provide execution and/or research
services and other services, including pricing or quotation services
directly or through others ("brokerage services") considered by WRIMCO to
be useful or desirable for its investment management of the Fund and/or the
other funds and accounts over which WRIMCO 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 WRIMCO
that the commission is reasonable in relation to the brokerage services
provided. Subject to the foregoing considerations, WRIMCO may also
consider the willingness of particular brokers and dealers to sell shares
of the Fund and other funds managed by WRIMCO and its affiliates as a
factor in its selection. No allocation of brokerage or principal business
is made to provide any other benefits to WRIMCO 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 WRIMCO 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 WRIMCO in making investment management decisions are used
for administration or other non-research purposes, a reasonable allocation
of the cost of the product attributable to its non-research use is made by
WRIMCO.
Such investment research (which may be supplied by a third party at
the 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
WRIMCO; serves to make available additional views for consideration and
comparisons; and enables WRIMCO to obtain market information on the price
of securities held in the Fund's portfolio or being considered for
purchase.
In placing transactions for the Fund's portfolio, WRIMCO may
consider sales of shares of the Fund and other funds managed by WRIMCO and
its affiliates as a factor in the selection of brokers to execute portfolio
transactions. WRIMCO 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.
The Fund may also use its brokerage to pay for pricing or quotation
services to value Fund securities. During the Fund's fiscal years ended
September 30, 1995, 1994 and 1993, it paid brokerage commissions of
$696,769, $729,817 and 1,234,475, respectively. These figures do not
include principal transactions or spreads or concessions on principal
transactions, i.e., those in which the Fund sells securities to a broker-
dealer firm or buys from a broker-dealer firm securities owned by it.
During the Fund's fiscal year ended September 30, 1995, the
transactions, other than principal transactions, which were directed to
broker-dealers who provided research as well as execution totaled
$223,638,736 on which $345,556 in brokerage commissions were paid. These
transactions were allocated to these broker-dealers by the internal
allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of
their employees, officers and interested directors.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group,
TMK/United Funds, Inc. and Waddell & Reed Funds, 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 offers two classes of shares: Class A and Class Y. Prior to
August 15, 1995, the Fund offered only one class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Each
class represents an interest in the same assets of the Fund and differ as
follows: each class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that class; Class A shares
are subject to an initial sales charge and to an ongoing service fee; each
class may bear differing amounts of certain class-specific expenses; and
each class has a separate exchange privilege. The Fund does not anticipate
that there will be any conflicts between the interests of holders of the
different classes of shares of the Fund by virtue of those classes. On an
ongoing basis, the Board of Directors will consider whether any such
conflict exists and, if so, take appropriate action. Each share of the
Fund is entitled to equal voting, dividend, liquidation and redemption
rights, except that due to the differing expenses borne by the two classes,
dividends and liquidation proceeds of Class A shares are expected to be
lower than for Class Y shares of the Fund. Each fractional share of a
class has the same rights, in proportion, as a full share of that class.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON STOCKS
Airlines - 1.18%
Southwest Airlines Co. ................. 600,000 $ 15,150,000
Automotive - 0.94%
AB Volvo (A) ........................... 490,000 12,023,499
Banks and Savings and Loans - 1.29%
HSBC Holdings Plc (A) .................. 1,192,873 16,585,466
Beverages - 1.59%
PepsiCo, Inc. .......................... 400,000 20,400,000
Biotechnology and Medical Services - 2.34%
Biogen, Inc.* .......................... 300,000 18,075,000
Centocor, Inc.* ........................ 511,100 5,589,901
Ventritex, Inc.* ....................... 300,000 6,487,500
Total ................................. 30,152,401
Building - 0.77%
Metsa-Serla Oy, Series B (A) ........... 249,800 9,929,851
Chemicals Specialty and Miscellaneous
Technology - 0.46%
Calgon Carbon Corporation .............. 500,000 5,875,000
Computers and Office Equipment - 21.22%
Adobe Systems Incorporated ............. 450,000 23,371,650
America Online, Inc.* .................. 350,000 24,127,950
Broderbund Software, Inc.* ............. 370,000 28,189,190
Cerner Corporation* .................... 600,000 20,400,000
Compaq Computer Corporation* ........... 200,000 9,675,000
First Data Corporation ................. 500,000 31,000,000
General Motors Corporation, Class E .... 500,000 22,750,000
Informix Corporation* .................. 1,400,000 45,675,000
Intuit Inc.* ........................... 400,000 18,950,000
Microsoft Corporation* ................. 100,000 9,056,200
Oracle Systems Corporation* ............ 500,000 19,156,000
Silicon Graphics, Inc.* ................ 600,000 20,625,000
Total ................................. 272,975,990
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON STOCKS (Continued)
Electrical Equipment - 1.53%
Emerson Electric Co. ................... 275,000 $ 19,662,500
Electronics - 13.00%
AMP Incorporated ....................... 700,000 26,950,000
Applied Materials, Inc.* ............... 300,000 30,750,000
cisco Systems, Inc.* ................... 700,000 48,343,400
Intel Corporation ...................... 300,000 18,056,100
Photronics, Inc.* ...................... 167,000 5,636,250
Silicon Valley Group, Inc.* ............ 600,000 23,137,200
Xilinx, Inc.* .......................... 300,000 14,456,100
Total ................................. 167,329,050
Financial - 4.02%
Federal National Mortgage Association .. 500,000 51,750,000
Hospital Management - 4.89%
Quorum Health Group, Inc.* ............. 300,000 6,750,000
United HealthCare Corporation .......... 1,150,000 56,206,250
Total ................................. 62,956,250
Household Products - 1.11%
Gillette Company (The) ................. 300,000 14,287,500
Insurance - 1.37%
MBIA, Inc. ............................. 250,000 17,625,000
Leisure Time - 5.82%
British Sky Broadcasting Group
plc, ADS .............................. 217,000 7,839,125
Comcast Corporation, Class A ........... 1,250,000 25,077,500
Walt Disney Company (The) .............. 200,000 11,475,000
Tele-Communications, Inc., Class A* .... 1,000,000 17,562,000
Tele-Communications, Inc., Class A* .... 250,000 6,656,250
Viacom Inc., Class B* .................. 126,442 6,290,489
Total ................................. 74,900,364
Machinery - 1.53%
Mannesmann AG (A) ...................... 60,000 19,693,470
Multi-Industry - 1.95%
First Pacific Company Limited (A) ......11,831,037 12,624,139
Grupo Carso, S.A. de C.V.,
Series 1A (A)* ........................ 2,100,000 12,442,006
Total ................................. 25,066,145
Paper - 0.65%
International Paper Company ............ 200,000 8,400,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON STOCKS (Continued)
Publishing and Advertising - 1.54%
News Corporation Limited (The), ADR .... 900,000 $ 19,800,000
Retailing - 0.84%
Cifra, S.A. de C.V., C (A) ............. 9,315,000 10,804,232
Services, Consumer and Business - 2.99%
Block (H&R), Inc. ...................... 600,000 22,800,000
CUC International Inc.* ................ 450,000 15,693,750
Total ................................. 38,493,750
Telecommunications - 15.54%
General Instrument Corporation* ........ 300,000 9,000,000
MCI Communications Corporation ......... 800,000 20,849,600
MFS Communications Company, Inc.* ...... 500,000 21,937,500
Motorola, Inc. ......................... 500,000 38,187,500
Nokia Corporation, Series K (A) ........ 899,200 63,078,146
Petersburg Long Distance Inc.* ......... 225,000 1,462,500
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 800,000 19,549,600
Telefonos de Mexico S.A. de C.V., ADR .. 300,000 9,525,000
Vodafone Group Plc, ADR ................ 400,000 16,400,000
Total ................................. 199,989,846
TOTAL COMMON STOCKS - 86.57% $1,113,850,314
(Cost: $707,415,095)
PREFERRED STOCK - 0.39%
Publishing and Advertising
News Corporation Limited (The),
Convertible, ADR ...................... 250,000 $ 4,968,750
(Cost: $6,177,375)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals Major - 0.93%
Hercules, Inc.,
5.72%, 10-27-95 ....................... $12,000 11,950,427
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Financial, including Banks and Savings and Loans - 3.36%
Dana Credit Corp.:
5.88%, 10-13-95 ....................... $ 2,320 $ 2,315,453
5.87%, 10-23-95 ....................... 3,600 3,587,086
International Business Machines Credit
Corp.,
5.73%, 10-4-95 ........................ 3,680 3,678,243
Kerr-McGee Credit Corp.,
5.85%, 10-19-95 ....................... 3,560 3,549,587
Philip Morris Capital Corp.,
5.73%, 10-5-95 ........................ 4,150 4,147,358
GTE Finance Corp.,
5.83%, 10-24-95 ....................... 4,500 4,483,239
PS Colorado Credit Corp.,
5.83%, 10-19-95 ....................... 10,800 10,768,518
Textron Financial Corp.,
5.86%, 11-3-95 ........................ 10,800 10,741,986
U.S. Bancorp,
Master Note ........................... 26 26,000
Total ................................. 43,297,470
Food and Related - 1.96%
ConAgra, Inc.:
5.82%, 10-13-95 ....................... 6,260 6,247,856
5.85%, 11-1-95 ........................ 4,700 4,676,324
General Mills, Inc.,
Master Note ........................... 6,950 6,950,000
Sara Lee Corporation,
Master Note ........................... 7,330 7,330,000
Total ................................. 25,204,180
Machinery - 0.73%
Cooper Industries, Inc.,
5.78%, 10-12-95 ....................... 9,395 9,378,407
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Multi-Industry - 0.18%
Textron, Inc.,
5.88%, 10-16-95 ....................... $ 2,310 $ 2,304,340
Public Utilities - Electric - 0.31%
Idaho Power Company,
5.73%, 10-23-95 ....................... 4,000 3,985,993
Public Utilities - Gas - 1.16%
National Fuel Gas Company,
5.77%, 10-13-95 ....................... 5,000 4,990,383
5.77%, 10-20-95 ....................... 10,000 9,969,547
Total ................................. 14,959,930
Publishing and Advertising - 0.79%
American Greetings Corporation:
5.73%, 10-25-95 ....................... 8,825 8,791,289
5.75%, 10-25-95 ....................... 1,380 1,374,710
Total ................................. 10,165,999
Railroads - 0.10%
Burlington Northern Railroad Co.,
5.88%, 10-18-95 ....................... 1,305 1,301,376
Retailing - 0.08%
K Mart Corporation,
5.9%, 10-24-95 ........................ 1,000 996,231
Services, Consumer and Business - 1.20%
Hertz Corp.,
5.73%, 10-2-95 ........................ 15,425 15,422,545
Telecommunications - 1.45%
BellSouth Telecommunications Inc.,
5.71%, 10-11-95 ....................... 2,660 2,655,781
NYNEX Corporation:
5.8%, 10-23-95 ........................ 15,250 15,195,947
5.82%, 10-23-95 ....................... 890 886,835
Total ................................. 18,738,563
Tobacco - 0.36%
Philip Morris Companies Inc.,
5.72%, 10-20-95 ....................... 4,600 4,586,113
Total Commercial Paper - 12.61% 162,291,574
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (backed by irrevocable
bank letter of credit) - 0.26%
Spiegel Funding Corp. (Dresdner
Bank AG),
5.78%, 10-4-95 ........................ $ 3,375 $ 3,373,374
TOTAL SHORT-TERM SECURITIES - 12.87% $ 165,664,948
(Cost: $165,664,948)
TOTAL INVESTMENT SECURITIES - 99.83% $1,284,484,012
(Cost: $879,257,418)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 0.17% 2,231,548
NET ASSETS - 100.00% $1,286,715,560
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, 1995
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $1,284,484,012
Cash ............................................ 9,240
Receivables:
Investment securities sold ...................... 3,050,288
Dividends and interest .......................... 924,023
Fund shares sold ................................ 880,009
Prepaid insurance premium ........................ 42,252
--------------
Total assets .................................. 1,289,389,824
--------------
Liabilities
Payable for Fund shares redeemed ................. 2,106,412
Accrued service fee .............................. 255,760
Accrued transfer agency and dividend
disbursing ...................................... 162,447
Accrued accounting services fee .................. 8,333
Other ............................................ 141,312
--------------
Total liabilities ............................. 2,674,264
--------------
Total net assets ............................. $1,286,715,560
==============
Net Assets
$1.00 par value capital stock, authorized --
600,000,000; shares outstanding -- 143,497,939
Capital stock ................................... $ 143,497,939
Additional paid-in capital ...................... 668,261,282
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 5,120,017
Accumulated undistributed net realized gain on
investment transactions ....................... 64,609,442
Net unrealized appreciation in value of
investments at end of period ................... 405,226,880
--------------
Net assets applicable to outstanding
units of capital ............................. $1,286,715,560
==============
Net asset value per share (net assets divided
by shares outstanding) ........................... $8.97
Sales load (offering price x 5.75%)................. .55
-----
Offering price per share (net asset value
divided by 94.25%)............................... $9.52
=====
See notes to financial statements.
On sales of $100,000 or more the sales load is reduced as set forth
in the prospectus.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1995
Investment Income
Income:
Interest ........................................ $ 13,436,792
Dividends ....................................... 7,655,719
------------
Total income .................................. 21,092,511
------------
Expenses (Note 2):
Investment management fee ....................... 7,870,715
Transfer agency and dividend disbursing ......... 1,709,499
Service fee ..................................... 1,348,046
Custodian fees .................................. 208,488
Accounting services fee ......................... 100,000
Audit fees ...................................... 37,536
Legal fees ...................................... 28,298
Other ........................................... 233,348
------------
Total expenses ................................ 11,535,930
------------
Net investment income ........................ 9,556,581
------------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 68,304,281
Realized net gain on foreign currency
transactions .................................... 72,927
------------
Realized net gain on investments ................ 68,377,208
Unrealized appreciation in value of investments
during the period ............................... 194,298,937
------------
Net gain on investments ....................... 262,676,145
------------
Net increase in net assets resulting
from operations ............................ $272,232,726
============
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
-----------------------------
1995 1994
-------------- ------------
Increase in Net Assets
Operations:
Net investment income ............ $ 9,556,581 $ 356,304
Realized net gain on
investments .................... 68,377,208 77,998,361
Unrealized appreciation .......... 194,298,937 30,273,787
-------------- --------------
Net increase in net assets
resulting from operations ..... 272,232,726 108,628,452
-------------- --------------
Dividends to shareholders from:*
Net investment income ............ (4,857,502) (2,315,396)
Realized gains on securities
transactions ................... (81,376,803) (22,767,798)
-------------- --------------
(86,234,305) (25,083,194)
-------------- --------------
Capital share transactions:
Proceeds from sale of shares
(24,811,530 and 11,403,314
shares, respectively) .......... 183,466,280 83,173,561
Proceeds from reinvestment of
dividends and/or capital gains
distribution (622,043 and
3,461,005 shares, respectively) . 4,701,960 24,607,745
Payments for shares redeemed
(13,070,843 and 13,569,912 shares,
respectively) .................. (101,713,982) (98,880,083)
-------------- --------------
Net increase in net assets
resulting from capital
share transactions ............ 86,454,258 8,901,223
-------------- --------------
Total increase ................ 272,452,679 92,446,481
Net Assets
Beginning of period ............... 1,014,262,881 921,816,400
-------------- --------------
End of period, including undistributed
net investment income of $5,120,017
and $371,101, respectively ....... $1,286,715,560 $1,014,262,881
============== ==============
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net asset value,
beginning of period $7.73 $7.10 $6.03 $6.36 $5.18
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.07 .00 .04 .06 .14
Net realized and
unrealized gain
(loss) on
investments...... 1.82 .83 1.07 (0.10) 1.39
----- ----- ----- ----- -----
Total from investment
operations ........ 1.89 .83 1.11 (0.04) 1.53
----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income........... (0.03) (0.02) (0.04) (0.09) (0.14)
Distribution from
capital gains.... (0.62) (0.18) (0.00) (0.20) (0.21)
----- ----- ----- ----- -----
Total distributions. (0.65) (0.20) (0.04) (0.29) (0.35)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $8.97 $7.73 $7.10 $6.03 $6.36
===== ===== ===== ===== =====
Total return*....... 26.82% 11.86% 18.38% -0.58% 30.88%
Net assets, end of
period (000
omitted) ......... $1,286,716$1,014,263$921,816$843,978$875,293
Ratio of expenses
to average net
assets ............ 1.05% 1.05% 0.97% 0.96% 0.97%
Ratio of net
investment income
to average net
assets ............ 0.87% 0.04% 0.50% 0.96% 2.28%
Portfolio
turnover rate ..... 30.01% 36.70% 62.12% 84.82% 173.44%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 -- Significant Accounting Policies
United Vanguard Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal
period as reported by the principal securities exchange on which the
issue is traded or, if no sale is reported for a stock, the average of
the latest bid and asked prices. Bonds, other than convertible bonds,
are valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days
when there is no sale reported. Stocks which are traded over-the-
counter are priced using Nasdaq (National Association of Securities
Dealers Automated Quotations) which provides information on bid and
asked or closing prices quoted by major dealers in such stocks.
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. Net
investment income distributions and capital gains distributions are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
due to differing treatments for items such as deferral of wash sales
and post-October losses, foreign currency transactions, net operating
losses and expiring capital loss carryforwards. At October 1, 1994,
$23,090 was reclassified between undistributed net investment income
and accumulated undistributed net realized gain on investment
transactions.
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 $13.3 billion of combined net assets at September 30, 1995)
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 $3,648,513, out of which W&R paid sales commissions of $1,996,980 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 $39,235.
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 $337,551,684 while proceeds from
maturities and sales aggregated $263,662,438. Purchases of short-term
securities aggregated $2,714,101,849 while proceeds from maturities and
sales aggregated $2,721,203,848.
For Federal income tax purposes, cost of investments owned at
September 30, 1995 was $879,257,418, resulting in net unrealized
appreciation of $405,226,594, of which $425,599,227 related to appreciated
securities and $20,372,633 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $68,304,281 during its fiscal year ended September 30, 1995, of
which a portion was paid to shareholders during the period ended September
30, 1995. Remaining net capital gains will be distributed to the Fund's
shareholders.
NOTE 5 -- Commencement of Multiclass Operations
On August 15, 1995, the Fund was authorized to offer investors a
choice of two classes of shares, Class A and Class Y. A comprehensive
discussion of the terms under which shares of either class are offered is
contained in the prospectus and the Statement of Additional Information for
the Fund.
The Fund commenced multiclass operations on September 11, 1995. The
following class specific information is presented in footnote format in
lieu of presentation in the principal financial statements due to the small
amount of Class Y share transactions during the reporting period:
Class A Class Y Total
------------ ---------- ------------
Value issued from sale
of shares.......... $181,684,410 $1,781,870 183,466,280
Value issued from
reinvestment of
dividends ......... 4,701,960 --- 4,701,960
Value redeemed ..... (101,713,982) --- (101,713,982)
----------- ---------- -----------
Increase in outstanding
capital ........... $ 84,672,388 $1,781,870 $86,454,258
============= ============ =============
Shares outstanding . 143,301,047 196,892 143,497,939
Net asset value per share $8.97 $8.97
<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, 1995, 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, 1995 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
November 3, 1995
<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, 1995
Statements of Assets and Liabilities
For the year ended September 30, 1995
Statements of Operations
For the two years ended September 30, 1995
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1995
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation filed June 16, 1995 as EX-99.B1-
charter to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Articles Supplementary filed June 16, 1995 as EX-99.B1-
vfarsupa to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Articles Supplementary filed June 16, 1995 as EX-99.B1-
vfarsupy to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
(2) Bylaws filed June 16, 1995 as EX-99.B2-vfbylaw to Post-
Effective Amendment No. 53 to the Registration Statement on
Form N-1A*
Bylaws Amendment dated July 13, 1990 filed June 16, 1995 as
EX-99.B2-vfbylam1 to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Bylaws Amendment dated November 19, 1990 filed June 16, 1995
as EX-99.B2-vfbylam2 to Post-Effective Amendment No. 53 to
the Registration Statement on Form N-1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant filed June 16, 1995 as EX-99.B1-
charter to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*; Article I, Article IV
and Article VII of the Bylaws of the Registrant filed June
16, 1995 as EX-99.B2-vfbylaw to Post-Effective Amendment No.
53 to the Registration Statement on Form N-1A*
(5) Investment Management Agreement filed June 16, 1995 as EX-
99.B5-vfima to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreement filed June
16, 1995 as EX-99.B5-vfassign to Post-Effective Amendment
No. 53 to the Registration Statement on Form N-1A*
(6) Underwriting Agreement filed June 16, 1995 as EX-99.B6-vfua
to Post-Effective Amendment No. 53 to the Registration
Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement filed June 16, 1995 as EX-99.B8-vfca to
Post-Effective Amendment No. 53 to the Registration
Statement on Form N-1A*
(9) Shareholder Servicing Agreement filed June 16, 1995 as EX-
99.B9-vfssa to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Fund Class A application filed June 16, 1995 as EX-99.B9-
vfappca to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Fund Class Y application filed June 16, 1995 as EX-99.B9-
- ---------------------------------
*Incorporated herein by reference
vfappcy to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Fund NAV application filed June 16, 1995 as EX-99.B9-
vfappnav to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Accounting Services Agreement filed June 16, 1995 as EX-
99.B9-vfasa to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
Service Agreement filed by EDGAR 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 filed by EDGAR December 29,
1994 as Exhibit (b)(9) to Post-Effective Amendment No. 52 to
the Registration Statement on Form N-1A*
Amendment to Service Agreement filed June 16, 1995 as EX-
99.B9-vfsaa to Post-Effective Amendment No. 53 to the
Registration Statement on Form N-1A*
(10) Not Applicable
(11) Consent of Independent Accountants, attached hereto as EX-
99.B11-vfconsnt
(12) Not Applicable
(13) Not Applicable
(14) 1. Qualified Retirement Plan and Trust-Defined
Contribution Basic Plan Document filed December 16,
1994 as EX-99.B14-1-03bpd to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-2-03spd to Pre-
Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-
Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund,
Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan
Document filed December 16, 1994 as EX-99.B14-5-457bpd
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund,
Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-
Adoption Agreement filed December 16, 1994 as EX-
99.B14-6-ns401aa to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-
ns401gs to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset
- ---------------------------------
*Incorporated herein by reference
Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-
99.B14-8-nsmppaa to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-
nspspaa to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-10-
s401aa to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-
s401gis to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund,
Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund,
Inc.*
14. National Standardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-
99.B14-14-smppaa to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-
smppgis to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-16-spspaa to Pre-
Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan
Description field December 16, 1994 as EX-99.B14-17-
spspgis to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement
filed December 16, 1994 as EX-99.B14-18-tsa to Pre-
Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as
EX-99.B14-19-ttllpbd to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A of United
Asset Strategy Fund, Inc.*
(15) Service Plan filed June 16, 1995 as EX-99.B15-vfsp to Post-
Effective Amendment No. 53 to the Registration Statement on
Form N-1A*
(16) Schedule for computation of average annual total return
- ---------------------------------
*Incorporated herein by reference
performance quotations for Class A shares filed through
EDGAR 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 as EX-27.B17-vffds
(18) Multiple Classes Plan, as amended, attached hereto as EX-
99.B18-vfmcp
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 November 30, 1995
-------------- -------------------------------
Class A Capital Stock 146,340
Class Y Capital Stock 2
27. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through 6(f) of
the Articles of Incorporation, filed June 16, 1995 as EX-99.B1-charter
to Post-Effective Amendment No. 53 to the Registration Statement on
Form N-1A*; and to Article IV of the Underwriting Agreement, filed
June 16, 1995 as EX-99.B6-vfua to Post-Effective Amendment No. 53 to
the Registration Statement on Form N-1A* , both of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers and
employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is a corporation which is not engaged in any business other
than the provision of investment management services to those
registered investment companies described in Part A and Part B of this
Post-Effective Amendment.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation
or employment during the past two years only his duties as an
executive officer and/or employee of Waddell & Reed Investment
Management Company or its predecessors, except as to persons who are
directors and/or officers of the Registrant and have served in the
capacities shown in the Statement of Additional Information of the
Registrant, and except for Mr. Ronald K. Richey. Mr. Richey is
Chairman of the 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
- ---------------------------------
*Incorporated herein by reference
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 to the
Registrant. It is also the principal underwriter to the
following investment companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United New Concepts Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, 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.
- ---------------------------------
*Incorporated herein by reference
31. Management Services
-------------------
There is no service contract other than as discussed in Parts A and B
of this Post-Effective Amendment and listed in response to Items
(b)(9) and (b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to
shareholders upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if
requested in writing by the shareholders of record of not less
than 10% of the Fund's outstanding shares, to call a meeting of
the shareholders of the Fund for the purpose of voting upon the
question of removal of any director 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 28th day of December, 1995.
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 28, 1995
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 28, 1995
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 28, 1995
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 28, 1995
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 28, 1995
- ---------------------- ----------------
Henry L. Bellmon
Director
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 28, 1995
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director December 28, 1995
- ------------------ ----------------
Linda Graves
/s/John F. Hayes* Director December 28, 1995
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 28, 1995
- ------------------- ----------------
Glendon E. Johnson
/s/James B. Judd* Director December 28, 1995
- ------------------ ----------------
James B. Judd
/s/William T. Morgan* Director December 28, 1995
- ------------------- ----------------
William T. Morgan
Director
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B Schwartz* Director December 28, 1995
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel, III* Director December 28, 1995
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director December 28, 1995
- ------------------- ----------------
Paul S. Wise
Director
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
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: July 12, 1995 /s/Keith A. Tucker
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board July 12, 1995
- -------------------- --------------
Ronald K. Richey
/s/Keith A. Tucker President and Director July 12, 1995
- -------------------- (Principal Executive Officer) --------------
Keith A. Tucker
/s/Theodore W. Howard Vice President, Treasurer July 12, 1995
- -------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and July 12, 1995
- -------------------- Principal Financial --------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director July 12, 1995
- -------------------- --------------
Henry L. Bellmo
Director
- -------------------- --------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director July 12, 1995
- -------------------- --------------
Jay B. Dillingham
/s/Linda Graves Director July 12, 1995
- -------------------- --------------
Linda Graves
/s/John F. Hayes Director July 12, 1995
- -------------------- --------------
John F. Hayes
/s/Glendon E. Johnson Director July 12, 1995
- -------------------- --------------
Glendon E. Johnson
/s/James Judd Director July 12, 1995
- -------------------- --------------
James Judd
/s/William T. Morgan Director July 12, 1995
- -------------------- --------------
William T. Morgan
Director
- -------------------- --------------
Doyle Patterson
/s/Eleanor Schwartz Director July 12, 1995
- -------------------- --------------
Eleanor Schwartz
/s/Frederick Vogel III Director July 12, 1995
- -------------------- --------------
Frederick Vogel III
/s/Paul S. Wise Director July 12, 1995
- -------------------- --------------
Paul S. Wise
Director
- -------------------- --------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretar
EX-99.B11-consent
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 54 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
November 3, 1995, relating to the financial statements and financial highlights
of United Vanguard Fund, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the Class
A Shares Prospectus and the Class Y Shares Prospectus which constitute part of
this Registration Statement. We also consent to the reference to us under the
heading "Custodial and Auditing Services" in such Statement of Additional
Information, to the references to us under the heading "Financial Highlights" in
the Class A Shares Prospectus and the Class Y Shares Prospectus and to the
references to us under the heading "Independent Accountants" in the Class A
Shares Prospectus and the Class Y Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
December 28, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000101868
<NAME> UNITED VANGUARD FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 879,257,418
<INVESTMENTS-AT-VALUE> 1,284,484,012
<RECEIVABLES> 4,854,320
<ASSETS-OTHER> 42,252
<OTHER-ITEMS-ASSETS> 9,240
<TOTAL-ASSETS> 1,289,389,824
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,674,264
<TOTAL-LIABILITIES> 2,674,264
<SENIOR-EQUITY> 143,497,939
<PAID-IN-CAPITAL-COMMON> 668,261,282
<SHARES-COMMON-STOCK> 143,497,939
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 5,120,017
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 64,609,442
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 405,226,880
<NET-ASSETS> 1,286,715,560
<DIVIDEND-INCOME> 7,655,719
<INTEREST-INCOME> 13,436,792
<OTHER-INCOME> 0
<EXPENSES-NET> (11,535,930)
<NET-INVESTMENT-INCOME> 9,556,581
<REALIZED-GAINS-CURRENT> 68,377,208
<APPREC-INCREASE-CURRENT> 194,298,937
<NET-CHANGE-FROM-OPS> 272,232,726
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,857,502)
<DISTRIBUTIONS-OF-GAINS> (81,376,803)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,811,530
<NUMBER-OF-SHARES-REDEEMED> (13,070,843)
<SHARES-REINVESTED> 622,043
<NET-CHANGE-IN-ASSETS> 272,452,679
<ACCUMULATED-NII-PRIOR> 371,101
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,870,715
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,535,930
<AVERAGE-NET-ASSETS> 1,102,729,437
<PER-SHARE-NAV-BEGIN> 7.73
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 1.82
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.62)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B18-vfmcp
UNITED VANGUARD FUND, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for United Vanguard Fund, Inc. ("Fund"). This multiple class
structure was approved by the Board of Directors of United Vanguard Fund, Inc.
on February 8, 1995, under an order of exemption issued by the Securities and
Exchange Commission on January 11, 1995. Subsequent to such approval, Rule 18f-3
under the 1940 Act was adopted. It was determined that the Fund operate under
Rule 18f-3, and this Plan was adopted pursuant to Rule 18f-3. This Plan
describes the classes of shares of stock of the Fund -- Class A shares and Class
Y shares -- offered to the public on or after August 15, 1995 ("Implementation
Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 5.75% of the amount
invested and declines to 0% based on discounts for volume purchases. The
initial sales charge is waived for certain eligible purchasers.
Class A shares also will be subject to a service fee charged pursuant to a
Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1")
that provides for a maximum fee of .25% of the average annual net assets of the
Class A shares of the Fund. All of the shares of the Fund issued pursuant to a
Fund prospectus effective prior to the Implementation Date and that are
outstanding on the Implementation Date will be designated as Class A shares.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and without a 12b-1 fee. Class Y shares are designed for institutional
investors and will be available for purchase by: (i) participants of employee
benefit plans established under section 403(b) or section 457, or qualified
under section 401, including 401(k) plans, of the Internal Revenue Code of 1986
("Code"), when the plan has 100 or more eligible employees and holds the shares
in an omnibus account on the Fund's records; (ii) banks, trust institutions,
investment fund administrators and other third parties investing for their own
accounts or for the accounts of their customers where such investments for
customer accounts are held in an omnibus account on the Fund's records; (iii)
government entities or authorities and corporations whose investment within the
first twelve months after initial investment is $10 million or more; and (iv)
certain retirement plans and trusts for employees and sales representatives of
Waddell & Reed, Inc. and its affiliates.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class A shares
and Class Y shares of the Fund differ with respect to the applicable shareholder
servicing fees. Class A shares pay a monthly shareholder servicing fee of
$1.0208 for each Class A shareholder account which was in existence during the
prior month, plus $0.30 for each Class A account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class of shares;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
These expenses may, but are not required to, be directly attributed and
charged to a particular Class. The shareholder servicing fees and other
expenses listed above that are attributed and charged to a particular Class are
borne on a pro rata basis by the outstanding shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class A shares of the Fund may be exchanged for corresponding shares of any
other fund in the United Group of Mutual Funds.
Class Y shares may be exchanged for Class Y shares of any other fund in the
United Group of Mutual Funds.
These exchange privileges may be modified or terminated by the Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the Fund's multiple class structure.
Date: June 16, 1995
As Amended: October 18, 1995 and December 6, 1995
Effective: December 31, 1995
December 28, 1995
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Vanguard Fund, Inc.
Post-Effective Amendment No. 54
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:sw
December 28, 1995
Securities and Exchange Commission
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
Re: United Vanguard Fund, Inc.
File Nos. 2-31618 and 811-1806/CIK No. 101868
Dear Sir or Madam:
We are hereby transmitting for filing through EDGAR Post-Effective Amendment No.
54 to the Registration Statement under the Securities Act of 1933 and Amendment
No. 24 under the Investment Company Act of 1940 for the above-referenced Fund.
This filing is being made pursuant to paragraph (b) of Rule 485. It is proposed
that this filing will become effective on December 31, 1995.
If you have any questions, please contact me at (913) 236-1923.
Very truly yours,
Sheryl Strauss
Assistant Secretar
