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. 55
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 25
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, 1996 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-2(a)(1). The Notice for
the Registrant's fiscal year ending September 30, 1996 was filed on
November 26, 1996.
<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) ..................... About the Management and Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... Expenses; About the Management and Expenses
of the Fund
(g)...................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account; About
the Management and Expenses of the Fund
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... 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) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... Portfolio Transactions and Brokerage
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**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, 1996. 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, 1996
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...........................................3
EXPENSES..........................................................5
FINANCIAL HIGHLIGHTS..............................................6
PERFORMANCE.......................................................8
Explanation of Terms ............................................8
ABOUT WADDELL & REED..............................................9
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND......................12
Investment Goals and Principles ................................12
Risk Considerations ..........................................12
Securities and Investment Practices ............................10
ABOUT YOUR ACCOUNT...............................................18
Ways to Set Up Your Account ....................................18
Buying Shares ..................................................19
Minimum Investments ............................................22
Adding to Your Account .........................................22
Selling Shares .................................................23
Shareholder Services ...........................................25
Personal Service .............................................25
Reports ......................................................25
Exchanges ....................................................25
Automatic Transactions .......................................25
Distributions and Taxes ........................................26
Distributions ................................................26
Taxes ........................................................27
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND....................29
WRIMCO and Its Affiliates ......................................30
Breakdown of Expenses ..........................................31
Management Fee ...............................................31
Other Expenses ...............................................32
<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 0.16%
Other expenses1 0.24%
Total Fund operating
expenses2 1.11%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return3 and (2) redemption at the end of each time
period:
1 year $ 68
3 years $ 91
5 years $115
10 years $185
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."
1Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
2Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
3Use of an assumed annual return of 5% is for illustration purposes only
and is not a representation of the Fund's future performance, which may be
greater or lesser.
<PAGE>
Financial Highlights
(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>
<CAPTION>
For the fiscal year ended September 30,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ...... $8.97 $7.73 $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23 $6.92
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income .... 0.03 0.07 0.00 0.04 0.06 0.14 0.17 0.22 0.14 0.16
Net realized and unrealized gain
(loss) on investments .. 0.26 1.82 0.83 1.07 (0.10) 1.39 (0.95) 1.12 (1.00) 2.28
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment operations 0.29 1.89 0.83 1.11 (0.04) 1.53 (0.78) 1.34 (0.86) 2.44
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income ...... (0.04) (0.03) (0.02) (0.04) (0.09) (0.14) (0.22) (0.18) (0.18) (0.16)
Distributions from
capital gains .......... (0.45) (0.62) (0.18) (0.00) (0.20) (0.21) (0.73) (0.07) (1.37) (0.97)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ........ (0.49) (0.65) (0.20) (0.04) (0.29) (0.35) (0.95) (0.25) (1.55) (1.13)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ............ $8.77 $8.97 $7.73 $7.10 $6.03 $6.36 $5.18 $6.91 $5.82 $8.23
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ............. 3.59% 26.82% 11.86% 18.38% -0.58% 30.88% -12.67% 23.69% -8.52% 40.12%
Net assets, end of
period (000 omitted) .....$1,291,017$1,284,951$1,014,263 $921,816 $843,978 $875,293 $679,765 $781,650 $659,184 $727,022
Ratio of expenses to
average net assets ....... 1.09% 1.05% 1.05% 0.97% 0.96% 0.97% 0.98% 0.95% 1.00% 0.93%
Ratio of net investment
income to average
net assets ............... 0.36% 0.87% 0.04% 0.50% 0.96% 2.28% 2.85% 3.62% 2.39% 2.30%
Portfolio
turnover rate ............ 57.10% 30.01% 36.70% 62.12% 84.82% 173.44% 161.54% 172.59% 128.91% 160.63%
Average commission rate
paid ..... $0.0347
*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 other
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may not reflect deduction of the applicable sales charge or
may be for periods other than those required to be presented or may
otherwise differ from standardized total return. Total return quotations
that do not reflect the applicable sales charge will reflect a higher rate
of return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 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: (i) changes in
economic and political conditions; (ii) the short-term and long-term
outlook for the industry being analyzed; (iii) the management capability of
the company being considered; and (iv) 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 investment 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 and the type of securities in
which the Fund may invest are fundamental policies. Unless otherwise
indicated, the types of other assets in which the Fund may invest, the
proportion of its assets that the Fund may invest in each such type 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 generally have higher yields than common stocks of
the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than
the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase
and increasing as interest rates decline. The credit standing of the
issuer and other factors also may have an effect on the convertible
security's investment value.
Policies and Restrictions: The Fund does not intend to invest 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, futures contracts
and certain other strategies described herein. 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.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity while a
prepayment rate that is slower than expected will have the opposite effect
of increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium
also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of
the Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of the Fund. It is possible that the availability and marketability
(i.e., liquidity) of these securities could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
Risks of Derivative Instruments. The use of options, futures
contracts and options on futures contracts, and the investment in mortgage-
backed securities, involve special risks, including (i) possible imperfect
or no correlation between price movements of the portfolio investments
(held or intended to be purchased) involved in the transaction and price
movements of the instruments involved in the transaction, (ii) possible
lack of a liquid secondary market for any particular instrument at a
particular time, (iii) the need for additional portfolio management skills
and techniques, (iv) losses due to unanticipated market price movements,
(v) the fact that, while such strategies can reduce the risk of loss, they
can also reduce the opportunity for gain, or even result in losses, by
offsetting favorable price movements in investments involved in the
transaction, (vi) incorrect forecasts by WRIMCO concerning interest 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. This restriction
does not apply to any obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or to collateralized
mortgage obligations, other mortgage-related securities, asset-backed
securities or indexed securities.
<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.
For 1997, the maximum for an investor and his or her spouse is $4,000
($2,000 for each spouse) or, if less, the couple's combined earned
income for the taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions
from employer-sponsored retirement plans.
_ 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 transfer 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 third-party 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 NAVs of its shares
as of the later of the close of business of the NYSE, normally 4 p.m.
Eastern time, or the close of the regular session of any other securities
or commodities exchange on which an option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which
may trade on Saturdays or on customary U.S. national business holidays when
the NYSE is closed. Consequently, the NAV of Fund shares may be
significantly affected on days when the Fund does not price its shares and
when you have no access to the Fund.
When you place an order to buy shares, your order will be processed at
the next offering price calculated after your order is received and
accepted. Note the following:
_ Orders are accepted only at the home office of Waddell & Reed, Inc.
_ All of your purchases must be made in U.S. dollars.
_ If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous
investment has cleared.
When you sign your account application, you will be asked to
certify that your Social Security or other taxpayer identification number
is correct and whether you are subject to backup withholding for failing
to report income to the 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 Class A shares of any of the funds in the United Group, to the extent
otherwise permitted, except United Municipal Bond Fund, Inc., United Cash
Management, Inc., United Government Securities Fund, Inc. and United
Municipal High Income Fund, Inc., with the NAV of Class A shares already
held ("rights of accumulation") and by grouping all purchases of Class A
shares made during a thirteen-month period ("Statement of Intention").
Class A shares of this Fund or another fund purchased through a contractual
plan may not be included unless the plan has been completed. Purchases by
certain related persons may be grouped. Holders of an uncompleted United
Vanguard Investment Program ("Program") on May 30, 1996 with a face amount
of less than $12,000 may purchase Class A shares of the Fund at NAV plus a
maximum sales charge of 2%, up to the amount representing the unpaid
balance of his or her Program, if the purchase order is so designated.
Additional information and applicable forms are available from Waddell &
Reed account representatives.
Class A shares may be purchased at NAV by the Directors and officers
of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, account representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and account representative. Holders of an
uncompleted Program on May 30, 1996 with a face amount of $12,000 or more
may purchase Class A shares of the Fund at NAV, up to the amount
representing the unpaid balance of the Program, if the purchase order is so
designated. In addition, any person who was a Program holder on May 30,
1996 may purchase Class A shares of the Fund at NAV up to the amount
representing partial Program withdrawals, provided the purchase order is so
designated. Purchases of Class A shares in certain retirement plans and
certain trusts for these persons may also be made at NAV. Purchases of
Class A shares in a 401(k) plan having 100 or more eligible employees and
purchases of Class A shares in a 457 plan having 100 or more eligible
employees may be made at NAV. Shares may also be issued at NAV in a
merger, acquisition or exchange offer made pursuant to a plan of
reorganization to which the Fund is a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic
Investment Service $50
For certain retirement accounts and accounts opened through payroll
deductions for or by employees of WRIMCO, Waddell & Reed, Inc. and their
affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can
make additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed,
Inc. Mail the check along with:
_ the detachable form that accompanies the confirmation of a prior
purchase by you or your year-to-date statement; or
_ a letter stating your account number, the account registration and that
you wish to purchase Class A shares of the Fund.
Mail to Waddell & Reed, Inc. at the address printed on your
confirmation or year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's
Class A NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell
& Reed account representative, or write a letter of instruction with:
_ the name on the account registration;
_ the Fund's name;
_ the Fund account number;
_ the dollar amount or number of shares to be redeemed; and
_ any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or 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 for redemption
in good order by Waddell & Reed, Inc. at its home office. Note the
following:
If more than one person owns the shares, each owner must sign the_
written request.
_ If you hold a certificate, it must be properly endorsed and sent to the
Fund.
_ If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
_ Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted, or as permitted by the Securities and Exchange
Commission.
_ Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on
certain redemption requests. This requirement is designed to protect you
and Waddell & Reed from fraud. The Fund may require a signature guarantee
in certain situations such as:
_ the request for redemption is made by a corporation, partnership or
fiduciary;
_ the request for redemption is made by someone other than the owner of
record; or
_ the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
You may reinvest without charge all or part of the amount you redeemed
by sending to the Fund the amount you want to reinvest. The reinvested
amounts must be received by the Fund within thirty days after the date of
your redemption. You may do this only once as to Class A shares of the
Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed,
Inc. has available, the plan may have the right to make a loan to a plan
participant by redeeming Fund shares held by the plan. Principal and
interest payments on the loan made in accordance with the terms of the plan
may be reinvested by the plan, without payment of a sales charge, in Class
A shares of any of the funds in the United Group in which the plan may
invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to
provide personal service. Additionally, 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, other than those
purchases made through Automatic Investment Service, and after every
exchange, transfer or redemption)
_ year-to-date statements (quarterly)
_ annual and semiannual reports (every six months)
To reduce expenses, only one copy of 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 Class A shares of other
funds in the United Group. You may exchange only into funds that are
legally registered for sale in your state of residence. Note that
exchanges out of the Fund may have tax consequences for you. Before
exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund
account automatically. While Regular Investment Plans do not guarantee a
profit and will not protect you against loss in a declining market, they
can be an excellent way to invest for retirement, a home, educational
expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also
apply for retirement accounts. Speak with your Waddell & Reed account
representative for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the
same or a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income
and net capital gains to 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 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 tax 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 generally are taxable to you as ordinary income,
whether received in cash or paid in additional Fund shares. Distributions
of the Fund's net capital gain, when designated as such, are taxable to you
as long-term capital gain, 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 gain distributions also is required
for such shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result
in taxable gain or loss to you, depending on whether the redemption
proceeds are more or less than your adjusted basis for the redeemed shares
(which normally includes any sales charge paid). An exchange of Fund
shares for shares of any other fund in the United Group generally will have
similar tax consequences. However, special rules apply when you dispose of
Fund shares through a redemption or exchange within ninety days after your
purchase thereof and subsequently reacquire Fund shares or acquire shares
of another fund in the United Group without paying a sales charge due to
the thirty-day reinvestment privilege or exchange privilege. See "About
Your Account." In these cases, any gain on the disposition of the original
Fund shares would be increased, or loss decreased, by the amount of the
sales charge you paid when those shares were acquired, and that amount will
increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares (regardless of class) at a loss, part or all of
that loss will not be deductible and will increase the basis of the newly-
purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the
SAI for a more detailed discussion. There may be other Federal, state or
local tax considerations applicable to a particular investor. You are
urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United 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 A
shares offered by this Prospectus, the Fund has issued and outstanding
Class Y shares which are offered by Waddell & Reed, Inc. through a separate
Prospectus. Class Y shares are designed for institutional investors.
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 have served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United
Asset Strategy Fund, Inc., since 1940 or the inception of the company,
whichever was later, and to 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 acts as the principal underwriter and
distributor of the variable life insurance and variable annuity policies
issued by United Investors Life Insurance Company for which TMK/United
Funds, Inc. is the underlying investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell
& Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
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 $14.7 billion as of September 30, 1996.
Management fees for the fiscal year ended September 30, 1996 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, 1996 for
the Fund's Class A shares were 1.09% 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.
<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 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Deloitte & Touche 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) 236-2000
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, 1996
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.
NUP1005(12-96)
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, 1996. 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, 1996
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...........................................3
EXPENSES..........................................................4
FINANCIAL HIGHLIGHTS..............................................5
PERFORMANCE.......................................................6
Explanation of Terms ............................................6
ABOUT WADDELL & REED..............................................7
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND.......................8
Investment Goals and Principles .................................8
Risk Considerations ...........................................8
Securities and Investment Practices .............................8
ABOUT YOUR ACCOUNT...............................................17
Buying Shares ..................................................17
Minimum Investments ............................................19
Adding to Your Account .........................................19
Selling Shares .................................................19
Telephone Transactions .........................................21
Shareholder Services ...........................................21
Personal Service .............................................21
Reports ......................................................21
Exchanges ....................................................21
Distributions and Taxes ........................................22
Distributions ................................................22
Taxes ........................................................22
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND....................24
WRIMCO and Its Affiliates ......................................25
Breakdown of Expenses ..........................................26
Management Fee ...............................................26
Other Expenses ...............................................27
<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).
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
5 years $ 51
10 years $113
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."
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 each period.*
For the
period from
For the fiscal September 8,
year ended 1995 through
September September 30,
30, 1996 1995
-------------- ---------
Net asset value,
beginning of period $8.97 $9.05
----- -----
Income from investment operations:
Net investment income 0.07 0.00
Net realized and unrealized gain
(loss) on investments 0.24 (0.08)
----- -----
Total from investment
operations ............... 0.31 (0.08)
----- -----
Less distributions:
Dividends from net
investment income ...... (0.05) (0.00)
Distributions from
capital gains .......... (0.45) (0.00)
----- -----
Total distributions ........ (0.50) (0.00)
----- -----
Net asset value,
end of period ............ $8.78 $8.97
===== =====
Total return ............... 3.80% -0.99%
Net assets, end of
period (000 omitted) ..... $4,152 $1,765
Ratio of expenses to
average net assets ....... 0.91% 0.00%
Ratio of net investment
income to average
net assets ............... 0.69% 0.00%
Portfolio
turnover rate ............ 57.10% 30.01%**
Average commission
rate paid ................ $0.0347
*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.
**Annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The
Fund may also advertise its performance by showing performance rankings.
Performance information is calculated and presented separately for each
class of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the
Fund over a given period, assuming reinvestment of any dividends and other
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may be for periods other than those required to be presented
or may otherwise differ from standardized total return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 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: (i) changes in
economic and political conditions; (ii) the short-term and long-term
outlook for the industry being analyzed; (iii) the management capability of
the company being considered; and (iv) 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 investment 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 and the type of securities in
which the Fund may invest are fundamental policies. Unless otherwise
indicated, the types of other assets in which the Fund may invest, the
proportion of its assets that the Fund may invest in each such type 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 generally have higher yields than common stocks of
the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than
the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase
and increasing as interest rates decline. The credit standing of the
issuer and other factors also may have an effect on the convertible
security's investment value.
Policies and Restrictions: The Fund does not intend to invest 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, futures contracts
and certain other strategies described herein. 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.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity while a
prepayment rate that is slower than expected will have the opposite effect
of increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium
also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of
the Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of the Fund. It is possible that the availability and marketability
(i.e., liquidity) of these securities could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
Risks of Derivative Instruments. The use of options, futures
contracts and options on futures contracts, and the investment in mortgage-
backed securities, involve special risks, including (i) possible imperfect
or no correlation between price movements of the portfolio investments
(held or intended to be purchased) involved in the transaction and price
movements of the instruments involved in the transaction, (ii) possible
lack of a liquid secondary market for any particular instrument at a
particular time, (iii) the need for additional portfolio management skills
and techniques, (iv) losses due to unanticipated market price movements,
(v) the fact that, while such strategies can reduce the risk of loss, they
can also reduce the opportunity for gain, or even result in losses, by
offsetting favorable price movements in investments involved in the
transaction, (vi) incorrect forecasts by WRIMCO concerning interest 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. This restriction
does not apply to any obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities, or to collateralized
mortgage obligations, other mortgage-related securities, asset-backed
securities or indexed securities.
<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 third-party 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 NAVs of its shares
as of the later of the close of business of the NYSE, normally 4 p.m.
Eastern time, or the close of the regular session of any other securities
or commodities exchange on which an option 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 other 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 stating your account
number, the account registration and that you wish to purchase Class Y
shares of the Fund to Waddell & Reed, Inc., P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
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 for redemption
in good order by Waddell & Reed, Inc. at its home office. Note the
following:
_ If more than one person owns the shares, each owner must sign the
written request.
_ If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
_ Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted or as permitted by the Securities and Exchange
Commission.
_ Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
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.
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 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 tax 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 generally taxable to you as ordinary income,
whether received in cash or paid in additional Fund shares. Distributions
of the Fund's net capital gain, when designated as such, are taxable to you
as long-term capital gain, 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; see
the SAI for a more detailed discussion. There may be other Federal, state
or local tax considerations applicable to a particular investor. You are
urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United 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. 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 have served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United
Asset Strategy Fund, Inc., since 1940 or the inception of the company,
whichever was later, and to 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 acts as the principal underwriter and
distributor of the variable life insurance and variable annuity policies
issued by United Investors Life Insurance Company for which TMK/United
Funds, Inc. is the underlying investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell
& Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
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 $14.7 billion as of September 30, 1996.
Management fees for the fiscal year ended September 30, 1996 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 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 total expenses for the fiscal year ended September 30, 1996 for
the Fund's Class Y shares were 0.91% of the average net assets of the
Fund's Class Y 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.
<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 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Deloitte & Touche 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) 236-2000
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, 1996
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.
NUP1005-Y(12-96)
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, 1996
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,
1996, 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.......... 25
Purchase, Redemption and Pricing of Shares........ 29
Directors and Officers............................ 44
Payments to Shareholders.......................... 49
Taxes ............................................ 50
Portfolio Transactions and Brokerage.............. 55
Other Information................................. 57
<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, 1996, 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, 1995 to
September 30, 1996: -2.37% 3.59%
Five-year period from October 1, 1991 to
September 30, 1996: 10.26 11.58%
Ten-year period from October 1, 1986 to
September 30, 1996: 11.44% 12.10%
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 average annual total return quotations for Class Y shares as of
September 30, 1996, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
One year period from October 1,
1995 to September 30, 1996: 3.80%
Period from September 8, 1995* to
September 30, 1996: ____2.69%
*United Vanguard Fund, Inc. first issued Class Y shares on September 8,
1995.
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 the Fund's portfolio in an attempt to determine if the
issuers will have sufficient cash flow and profits to meet required
principal and interest payments.
The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the Fund's shareholders.
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 by a pool of mortgage assets. If the securities are
not backed by the full faith and credit of the United States, the owner of
the securities must look principally to the agency issuing the obligation
for repayment and may not be able to assert a claim against the United
States in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government Securities may include mortgage-backed securities
issued by U.S. Government agencies or instrumentalities including, but not
limited to, 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"). See "Mortgage-Backed
Securities." Timely payment of principal and interest on Ginnie Mae pass-
throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S.
Government, but their obligations are not backed by the full faith and
credit of the United States. It is possible that the availability and the
marketability (i.e., liquidity) of the securities discussed in this section
could be adversely affected by actions of the U.S. Government to tighten
the availability of its credit.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed
by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Mortgage-backed securities are based on different types
of mortgages including those on commercial real estate or residential
properties. Some mortgage-backed securities, such as CMOs, make payments
of both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with
interests sold in the pool; the assembly is made by an "issuer," such as a
mortgage banker, commercial bank or savings and loan association, which
assembles the mortgages in the pool and passes through payments of
principal and interest for a fee payable to it. Payments of principal and
interest by individual mortgagors are passed through to the holders of the
interest in the pool. Monthly or other regular payments on pass-through
securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments.
The Fund may purchase mortgage-backed securities issued by both
government and non-government entities such as banks, mortgage lenders, or
other financial institutions. Other types of mortgage-backed securities
will likely be developed in the future, and the Fund may invest in them if
WRIMCO determines they are consistent with the Fund's investment goal and
policies.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers. In addition, regulatory or tax changes
may adversely affect the mortgage securities market as a whole. Non-
government mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject to
prepayment risk. Prepayment, which occurs when unscheduled or early
payments are made on the underlying mortgages, may shorten the effective
maturities and may lower their total returns.
Asset-Backed Securities
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as
pass-through securities. Interest and principal payments ultimately depend
upon payment of the underlying loans by individuals, although the
securities may be supported by letters of credit or other credit
enhancements. The value of asset-backed securities may also depend on the
creditworthiness of the servicing agent for the loan pool, the originator
of the loans, or the financial institution providing the credit
enhancement.
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 might enable it to take
advantage of these differences and strengths where they are favorable.
Further, an investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations (i.e.,
currency blockage). The Fund may bear a transaction charge in connection
with the exchange of currency. There may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. Most foreign stock markets have substantially less volume than
the New York Stock Exchange (the "NYSE") and securities of some foreign
companies are less liquid and more volatile than securities of comparable
domestic companies. There is generally less government regulation of stock
exchanges, brokers and listed companies than in the United States. In
addition, with respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, political or social instability
or diplomatic developments that could adversely affect investments in
securities of issuers located in those countries. If it should become
necessary, the Fund would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a U.S. issuer.
Warrants
As a fundamental policy, 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. The prices do not necessarily move
parallel to the prices of the underlying securities. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. 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.
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 investments, which
include repurchase agreements not terminable within seven days. See
"Illiquid Investments." A repurchase agreement is an instrument under
which the Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will
repurchase the security at a specified time and price. The amount by which
the resale price is greater than the purchase price reflects an agreed-upon
market interest rate effective for the period of the agreement. The return
on the securities subject to the repurchase agreement may be more or less
than the return on the repurchase agreement.
The majority of the repurchase agreements in which the Fund would
engage are overnight transactions, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The primary
risk is that the Fund may suffer a loss if the seller fails to pay the
agreed-upon amount on the delivery date and that amount is greater than the
resale price of the underlying securities and other collateral held by the
Fund. In the event of bankruptcy or other default by the seller, there may
be possible delays or expenses in liquidating the underlying securities or
other collateral, decline in their value and loss of interest. The return
on such collateral may be more or less than that from the repurchase
agreement. The Fund's repurchase agreements will be structured so as to
fully collateralize the loans, 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"). 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 goal and permitted by the
Fund's investment limitations and applicable regulatory authorities. The
Fund's Prospectus or SAI will be supplemented to the extent that new
products or techniques involve materially different risks than those
described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the
sections that follow.
(1) Successful use of most Financial Instruments depends upon
WRIMCO's ability to predict movements of the overall securities 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 and liquid assets with a value marked-to-market
daily, sufficient to cover its potential obligations to the extent not
covered as provided in (1) above. The Fund will comply with SEC guidelines
regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in a segregated account with its
custodian in the prescribed amount as determined daily.
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 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; or
(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 57.10% for the fiscal year
ended September 30, 1996 and was 30.01% for the fiscal year ended September
30, 1995.
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. The management
fees paid to WRIMCO during the Fund's fiscal years ended September 30,
1996, 1995 and 1994 were $9,020,391, $7,870,715 and $6,826,535,
respectively.
For purposes of calculating the daily fee, the Fund does not include
money owed to it by Waddell & Reed, Inc. for shares which it has sold but
not yet paid the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A
shares the Fund pays the Agent a monthly fee of $1.3125 ($1.0208 prior to
April 1, 1996) 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, 1996, 1995 and 1994 were $100,000, $100,000 and
$86,250, respectively.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO
and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Fund under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates 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, 1996, 1995 and 1994 were
$3,514,918, $3,648,513 and $3,180,392, respectively, and the amounts
retained by Waddell & Reed, Inc. for each fiscal year were $1,591,350,
$1,651,533 and $1,517,376, 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,
1996 were $2,046,992.
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. Deloitte & Touche 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, 1996 was as follows:
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $8.77
Add: selling commission (5.75% of offering
price) ................................... .54
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $9.31
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge.
The offering price of a Class Y share is its net asset value next
determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily
computed once on each day that the NYSE is open for trading as of the later
of the close of the regular session of the NYSE or the close of the regular
session of any 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 third-party pricing
system. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Short-term debt securities are valued
at amortized cost, which approximates market. When market quotations are
not readily available, securities and other assets are valued at fair value
as determined in good faith under procedures established by and under the
general supervision and responsibility of the Fund's Board of
Directors.
Options and futures contracts purchased and held by the Fund are
valued at the last sales price thereof on the securities or commodities
exchanges on which they are traded, or, if there are no transactions, at
the mean between the bid and asked prices. Ordinarily, the close of the
regular session for options trading on national securities exchanges is
4:10 p.m. Eastern time and the close of the regular session for commodities
exchanges is 4:15 p.m. Eastern time. Futures contracts will be valued 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 such plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a
Statement of Intention form, which is available from Waddell & Reed, Inc.,
the purchaser indicates an intention to invest, over a 13-month period, a
dollar amount which is sufficient to qualify for a reduced sales charge.
The 13-month period begins on the date the first purchase made under the
Statement of Intention is accepted by 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 an
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.
Holders of an uncompleted United Vanguard Investment Program
("Program") on May 30, 1996 with a face amount of less than $12,000 may
purchase Class A shares of the Fund at net asset value plus a maximum sales
charge of 2%, up to the amount representing the unpaid balance of his or
her Program, if the purchase order is so designated.
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.
Holders of an uncompleted Program on May 30, 1996 with a face
amount of $12,000 or more may purchase Class A shares of the Fund at net
asset value, up to the amount representing the unpaid balance of the
Program, if the purchase order is so designated. In addition, any person
who was a Program holder on May 30, 1996 may purchase Class A shares of the
Fund at net asset value up to the amount representing partial Program
withdrawals outstanding on May 30, 1996, provided the purchase is so
designated.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for Class A shares, there
are a number of instances in which the Fund's Class A shares are sold or
issued on a basis other than the maximum public offering price, that is,
the net asset value plus the highest sales charge. Some of these relate to
lower or eliminated sales charges for larger purchases of Class A shares,
whether made at one time or over a period of time as under a Statement of
Intention or right of accumulation. See the table of sales charges in the
Prospectus. The reasons for these quantity discounts are, in general, that
(i) they are traditional and have long been permitted in the industry and
are therefore necessary to meet competition as to sales of shares of other
funds having such discounts, (ii) certain quantity discounts are required
by rules of the National Association of Securities Dealers, Inc. (as are
elimination of sales charges on the reinvestment of dividends and
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 through the Flexible
Withdrawal Service (the "Service") regular monthly, quarterly, semiannual
or annual payments by redeeming on a regular basis Class A shares that you
own of the Fund or of any of the funds in the United Group. It would be a
disadvantage to an investor to make additional purchases of shares while a
withdrawal program is in effect because it would result in duplication of
sales charges. Applicable forms to start the Service are available through
Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
Class A shares which you still own of any of the funds in the United Group;
or, you must own Class A shares having a value of at least $10,000. The
value for this purpose is the value at the offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to one-
twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
3. 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 Class A shares, which may involve a gain
or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of Class A shares you own will decrease. When
all of the shares in your account are redeemed, you will not receive any
further payments. Thus, the payments are not an annuity or an income or
return on your investment.
You may, at any time, change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to
you. You 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 dividends or
distributions paid in shares may be freely exchanged for Class A shares of
another fund in the United Group. The shares you exchange must be worth at
least $100 or you must already own shares of the fund in the United Group
into which you want to exchange.
You may exchange Class A shares you own in another fund in the United
Group for Class A shares of the Fund without charge if (i) a sales charge
was paid on these shares, or (ii) the shares were received in exchange for
shares for which a sales charge was paid, or (iii) the shares were acquired
from reinvestment of dividends and distributions paid on such shares.
There may have been one or more such exchanges so long as a sales charge
was paid on the shares originally purchased. Also, shares acquired without
a sales charge because the purchase was $2 million or more will be treated
the same as shares on which a sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities
Fund, Inc. and United Municipal High Income Fund, Inc. shares are the
exception and special rules apply. Class A shares of these funds may be
exchanged for Class A shares of the Fund only if (i) you received those
shares as a result of one or more exchanges of shares on which a sales
charge was originally paid, or (ii) the shares have been held from the date
of 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. For tax years after 1996, the annual
maximum for a married couple is $4,000 ($2,000 per spouse) or if less, the
couple's combined earned income for the taxable year, even if one spouse
has no earned income. 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
that is either (a) a direct rollover distribution from an employer's plan
or (b) a rollover of an eligible distribution paid to the investor from an
employer's plan or another IRA. To the extent a rollover contribution is
made to 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. Employers can make
contributions to SEP-IRAs established for employees. Generally, an
employer may contribute up to 15% of compensation or $24,000, whichever is
less, per year for each employee.
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. Wise 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, an actuarial consulting
company; President, Buchanan Ranch Corporation; formerly, Professor and
Chairman 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
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Kansas
Bankshares; Director of Central Properties, Inc.; Chairman, Gilliland &
Hayes, P.A., a law firm; formerly, President, 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.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
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.
WILLIAM L. ROGERS
1999 Avenue of the Stars
Los Angeles, California 90067
Principal, Colony Capital, Inc., a real estate related investment
company; formerly, partner in Trivest, a private investment concern.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Partner, Polsinelli, White, Vardeman & Shalton, a law firm.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, 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.
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, six 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. Mr. Leslie S. Wright retired as a Director of the Fund and of
each of the funds in the Fund Complex effective April 1, 1996, and has
elected a position as Director Emeritus. During the Fund's fiscal year
ended September 30, 1996, Mr. Wright received total compensation for his
service as a Director of $43,000 from the Fund Complex and aggregate
compensation from the Fund of $3,667.
The funds in the United Group, TMK/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $44,000 per year, plus
$1,000 for each meeting of the Board of Directors attended (prior to April
1, 1996, the funds in the United Group (with the exception of United Asset
Strategy Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
paid to each Director a fee of $40,000 per year plus $1,000 for each
meeting of the Board of Directors attended) and $500 for each committee
meeting attended which is not held in conjunction with a Board of
Directors' meeting other than Directors who are affiliates of Waddell &
Reed, Inc. The fees to the Directors who receive them are divided among
the funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. based on their relative size.
During the Fund's fiscal year ended September 30, 1996, 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 4,097 0 48,000
Dodds I. Buchanan 4,097 0 48,000
Jay B. Dillingham 4,097 0 48,000
Linda Graves 4,097 0 48,000
John F. Hayes 4,097 0 48,000
Glendon E. Johnson 4,097 0 48,000
William T. Morgan 4,097 0 48,000
Doyle Patterson 4,097 0 48,000
Eleanor B. Schwartz 4,012 0 47,000
Frederick Vogel III 4,097 0 48,000
Paul S. Wise 4,097 0 48,000
Mr. Rogers and Mr. Ross were elected as Directors on October 16,
1996. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of November 30, 1996, 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 net 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 attributable to that difference
less losses from sales of securities at a price lower than the Fund's basis
therein; these gains can be either long-term or short-term, depending on
how long the Fund has owned the securities before it sells them. The third
source is net realized gains from foreign currency transactions. The
payments made to shareholders from net investment income, net short-term
capital gain and net realized gains from certain foreign currency
transactions are called dividends.
The Fund pays distributions from net capital gains (the excess of
net long-term capital gains over net short-term capital losses). It may or
may not have such gains, depending on whether or not securities are sold
and at what price. If the Fund has net capital gains, it will pay
distributions once each year, in the latter part of the fourth calendar
quarter, except to the extent it has prior year net capital 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 taxable net investment income, net
short-term capital gains and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale
or other disposition of securities or foreign currencies, or other income
(including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three
months -- (i) options, futures contracts or forward contracts (other than
those on foreign currencies) or (ii) foreign currencies (or options,
futures contracts or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or in
options and futures contracts with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must be represented by cash
and cash items, 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; 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 the shareholders 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 the shareholders for the year
in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares.
Investors 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 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 will be required to include in income each
year its pro rata share of the QEF's annual ordinary earnings and net
capital gain -- which probably would have to be distributed to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if
those earnings and gain were not distributed to the Fund by the QEF. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Pursuant to proposed regulations, 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 Contracts and Currencies
The use of hedging strategies, such as writing (selling) and
purchasing options and futures contracts 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. Gains from the disposition of
foreign currencies (except certain gains that may be excluded by future
regulations), and gains from options, futures contracts and forward
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under
the Income Requirement. 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 contracts and forward contracts thereon, that are not
directly related to the Fund's principal business of investing in
securities (or options and futures contracts 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 contracts and forward contracts and/or foreign currency
positions 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 treated 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 lapses
without being exercised, the premium it received also will be a short-term
capital gain. If such an option is exercised and the Fund thus sells the
securities subject to the option, the premium the Fund 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 gains or losses
recognized on these deemed sales, and 60% of any net realized gains or
losses from any actual sales of section 1256 contracts, are treated as
long-term capital gains or losses, and the balance is treated as short-term
capital gains or losses. Section 1256 contracts also may be marked-to-
market for purposes of the Excise Tax and for other purposes. The Fund
must distribute any such gains to its shareholders even though it may not
have closed the transactions and received cash to pay the distributions.
Code section 1092 (dealing with straddles) also may affect the
taxation of options and futures contracts in which the Fund may invest.
That section defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, that apply
to transactions where a position is sold at a loss and a new offsetting
position is acquired within a prescribed period, and "short sale" rules
applicable to straddles. If the Fund makes certain elections, the amount,
character and timing of the recognition of gains and losses from the
affected straddle positions will be determined under rules that vary
according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences
of straddle transactions to the Fund are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
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, 1996, 1995 and 1994, it paid brokerage commissions of
$1,698,766, $696,769 and $729,817, 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, 1996, the
transactions, other than principal transactions, which were directed to
broker-dealers who provided research as well as execution totaled
$546,772,204 on which $783,712 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. 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, 1996
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.49%
Walt Disney Company (The) .............. 100,000 $ 6,337,500
Business Services - 20.21%
America Online, Inc.* .................. 500,000 17,812,500
Broderbund Software, Inc.* ............. 633,000 18,198,750
cisco Systems, Inc.* ................... 300,000 18,618,600
CUC International Inc.* ................ 800,000 31,900,000
Computer Associates International, Inc. 400,000 23,900,000
Electronic Arts Inc.* .................. 500,000 18,656,000
Electronic Data Systems Corporation .... 450,000 27,618,750
First Data Corporation ................. 400,000 32,650,000
Informix Corporation* .................. 1,246,200 34,815,089
Intuit Inc.* ........................... 304,200 9,544,275
Microsoft Corporation* ................. 100,000 13,181,200
Oracle Systems Corporation* ............ 350,000 14,896,700
Total ................................. 261,791,864
Chemicals and Allied Products - 13.17%
ALZA Corporation* ..................... 750,000 20,156,250
Amgen Inc.* ............................ 300,000 18,956,100
Biogen, Inc.* .......................... 150,000 11,418,750
Ciba-Geigy AG, Registered (A) .......... 22,000 28,122,410
Eastman Chemical Company ............... 250,000 14,593,750
Johnson & Johnson ...................... 450,000 23,062,500
Merck & Co., Inc. ...................... 350,000 24,631,250
Pfizer Inc. ............................ 375,000 29,671,875
Total ................................. 170,612,885
Communication - 4.26%
British Sky Broadcasting Group
plc, ADS .............................. 200,000 11,000,000
MFS Communications Company, Inc.* ...... 700,000 30,493,400
Vodafone Group Plc, ADR ................ 400,000 13,650,000
Total ................................. 55,143,400
Depository Institutions - 4.26%
HSBC Holdings Plc (A) .................. 1,705,316 31,645,676
Wells Fargo & Company .................. 90,400 23,504,000
Total ................................. 55,149,676
Electric, Gas and Sanitary Services - 1.03%
Sonat Inc. ............................. 300,000 13,275,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 9.34%
Ascend Communications, Inc.* ........... 150,000 $ 9,909,300
Atmel Corporation* ..................... 450,000 13,865,400
Emerson Electric Co. ................... 175,000 15,771,875
Intel Corporation ...................... 300,000 28,631,100
Motorola, Inc. ......................... 300,000 15,487,500
Nokia Corporation, Series K (A) ........ 500,000 22,064,782
Xilinx, Inc.* .......................... 450,000 15,271,650
Total ................................. 121,001,607
Fabricated Metal Products - 1.11%
Gillette Company (The) ................. 200,000 14,425,000
General Merchandise Stores - 1.53%
Wal-Mart Stores, Inc. .................. 750,000 19,781,250
Holding and Other Investment Offices - 0.75%
Grupo Carso, S.A. de C.V.,
Series 1A (A) ......................... 2,100,000 9,658,052
Industrial Machinery and Equipment - 6.12%
Applied Materials, Inc.* ............... 500,000 13,843,500
Mannesmann AG (A) ...................... 60,000 22,488,697
Seagate Technology, Inc.* .............. 500,000 27,937,500
Silicon Valley Group, Inc.* ............ 850,000 15,033,950
Total ................................. 79,303,647
Instruments and Related Products - 2.34%
General Motors Corporation, Class H .... 175,000 10,106,250
SMH Swiss Corporation for Microelectronics
and Watchmaking Industries Ltd. (A) ... 30,000 20,178,514
Total ................................. 30,284,764
Insurance Carriers - 5.18%
American International Group, Inc. ..... 200,000 20,150,000
Chubb Corporation (The) ................ 100,000 4,600,000
MBIA Inc. .............................. 300,300 25,750,725
United HealthCare Corporation .......... 400,000 16,650,000
Total ................................. 67,150,725
Nondepository Institutions - 3.23%
Federal National Mortgage Association .. 1,200,000 41,850,000
Paper and Allied Products - 0.66%
International Paper Company ............ 200,000 8,500,000
Petroleum and Coal Products - 1.93%
Royal Dutch Petroleum Company .......... 160,000 24,980,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Printing and Publishing - 1.86%
Berkshire Hathaway Inc., Class B* ....... 5,000 $ 5,365,000
News Corporation Limited (The), ADR .... 900,000 18,787,500
Total ................................. 24,152,500
Special Trade Contractors - 1.17%
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 600,000 15,187,200
TOTAL COMMON STOCKS - 78.64% $1,018,585,070
(Cost: $718,745,429)
PREFERRED STOCK - 1.30%
Business Services
SAP Aktiengesellschaft (A) ............. 100,000 $ 16,807,549
(Cost: $16,192,236)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 0.58%
Hercules, Inc.,
5.34%, 10-28-96 ....................... $ 7,540 7,509,802
Communication - 0.91%
Bell Atlantic Financial Services Inc.,
5.43%, 10-24-96 ....................... 6,000 5,979,185
GTE Corporation,
5.42%, 10-8-96 ........................ 5,780 5,773,909
Total ................................. 11,753,094
Depository Institutions - 0.02%
U.S. Bancorp,
Master Note ........................... 242 242,000
Electric, Gas and Sanitary Services - 3.40%
Dominion Resources Inc.,
5.42%, 10-28-96 ....................... 5,600 5,577,236
Michigan Consolidated Gas Co.,
5.35%, 10-18-96 ....................... 4,180 4,169,440
Public Service Company of Colorado,
5.56%, 10-4-96 ........................ 2,050 2,049,050
Public Service Electric & Gas Co.:
5.47%, 10-9-96 ........................ 6,000 5,992,707
5.5%, 10-16-96 ........................ 4,130 4,120,535
5.54%, 10-28-96 ....................... 7,600 7,568,422
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services (Continued)
Questar Corp.:
5.32%, 10-2-96 ........................ $ 5,000 $ 4,999,261
5.4%, 10-31-96 ........................ 3,000 2,986,500
Western Resources Inc.,
5.58%, 10-15-96 ....................... 6,630 6,615,613
Total.................................. 44,078,764
Food and Kindred Products - 3.25%
ConAgra, Inc.,
5.55%, 11-1-96......................... 15,435 15,361,234
General Mills, Inc.,
Master Note ........................... 9,181 9,181,000
Quaker Oats Co.,
5.67%, 10-21-96 ....................... 5,570 5,552,454
Ralston Purina Co.,
5.47%, 10-25-96 ....................... 2,000 1,992,707
Seagram (Joseph E.) & Sons Inc.:
5.34%, 10-17-96 ....................... 6,095 6,080,534
5.35%, 10-17-96 ....................... 3,905 3,895,715
Total ................................. 42,063,644
Insurance Carriers - 1.34%
Transamerica Finance Corporation,
5.42%, 10-23-96 ....................... 7,500 7,475,158
USAA Capital Corp.,
5.4%, 11-7-96 ......................... 10,000 9,944,500
Total ................................. 17,419,658
Nondepository Institutions - 4.55%
Ford Credit Europe PLC:
5.36%, 10-21-96 ....................... 20,000 19,940,445
5.38%, 10-21-96 ....................... 15,000 14,955,167
International Business Machines Credit Corp.,
5.35%, 10-25-96 ....................... 12,870 12,824,097
Island Finance Puerto Rico Inc.,
5.41%, 11-8-96 ........................ 10,000 9,942,894
Textron Financial Corp.,
5.47%, 10-18-96 ....................... 1,345 1,341,526
Total ................................. 59,004,129
Personal Services - 0.92%
Block Financial Corp.,
5.35%, 10-15-96 ....................... 11,960 11,935,117
Petroleum and Coal Products - 0.45%
Kerr-McGee Credit Corp.,
5.45%, 10-15-96 ....................... 5,865 5,852,569
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Tobacco Products - 0.72%
B.A.T. Capital Corp.,
5.37%, 10-3-96 ........................ $ 9,325 $ 9,322,218
Transportation Equipment - 0.92%
Echlin Inc.,
5.41%, 11-8-96 ........................ 2,305 2,291,837
Textron Inc.:
5.48%, 10-4-96 ........................ 3,900 3,898,219
5.54%, 10-22-96 ....................... 5,730 5,711,483
Total ................................. 11,901,539
Wholesale Trade - Nondurable Goods - 0.01%
Sara Lee Corporation,
Master Note ........................... 32 32,000
Total Commercial Paper - 17.07% 221,114,534
Commercial Paper (backed by irrevocable
bank letter of credit)
Electric, Gas and Sanitary Services - 0.69%
AES Barbers Point Inc. (Bank of America NT & SA),
5.37%, 10-18-96 ....................... 8,980 8,957,228
Petroleum and Coal Products - 1.16%
Petroleo Brasileiro S.A. - Petrobras
(Barclays Bank PLC),
5.37%, 10-11-96 ....................... 15,000 14,977,625
Rubber and Miscellaneous Plastics Products - 0.39%
Michelin North America Inc. (Societe Generale),
5.37%, 10-7-96 ........................ 5,000 4,995,525
Total Commercial Paper (backed by irrevocable
bank letter of credit) - 2.24% 28,930,378
Municipal Obligations - 0.77%
California
Oakland-Alameda County Coliseum Lease
Revenue Bonds (Oakland Coliseum Project),
1995 Series B-1 (Canadian Imperial Bank
of Commerce):
5.43%, 10-4-96 ........................ 4,000 4,000,000
5.4%, 10-10-96 ........................ 6,000 6,000,000
Total ................................. 10,000,000
TOTAL SHORT-TERM SECURITIES - 20.08% $ 260,044,912
(Cost: $260,044,912)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1996
Value
TOTAL INVESTMENT SECURITIES - 100.02% $1,295,437,531
(Cost: $994,982,577)
LIABILITIES, NET OF
CASH AND OTHER ASSETS - (0.02%) (268,577)
NET ASSETS - 100.00% $1,295,168,954
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, 1996
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $1,295,437,531
Cash ............................................ 93,165
Receivables:
Investment securities sold ...................... 2,190,000
Dividends and interest .......................... 1,435,538
Fund shares sold ................................ 648,169
Prepaid insurance premium ........................ 37,660
--------------
Total assets .................................. 1,299,842,063
--------------
Liabilities
Payable for Fund shares redeemed ................. 3,068,006
Payable for investment securities purchased ...... 954,525
Accrued service fee .............................. 397,100
Accrued transfer agency and dividend
disbursing ...................................... 195,626
Accrued accounting services fee .................. 8,333
Other ............................................ 49,519
--------------
Total liabilities ............................. 4,673,109
--------------
Total net assets ............................. $1,295,168,954
==============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 147,614,500
Additional paid-in capital ...................... 696,539,373
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 3,979,782
Accumulated undistributed net realized gain on
investment transactions ....................... 146,580,304
Net unrealized appreciation in value of
investments at end of period ................... 300,454,995
--------------
Net assets applicable to outstanding
units of capital ............................. $1,295,168,954
==============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $8.77
Class Y .......................................... $8.78
Capital shares outstanding
Class A .......................................... 147,141,646
Class Y .......................................... 472,854
Capital shares authorized .......................... 600,000,000
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1996
Investment Income
Income:
Interest ........................................ $ 9,769,244
Dividends ....................................... 8,726,688
------------
Total income .................................. 18,495,932
------------
Expenses (Note 2):
Investment management fee ....................... 9,020,391
Service fee - Class A ........................... 2,046,992
Transfer agency and dividend disbursing - Class A 2,198,235
Custodian fees .................................. 212,114
Accounting services fee ......................... 100,000
Audit fees ...................................... 35,556
Legal fees ...................................... 17,206
Shareholder servicing - Class Y.................. 6,852
Other ........................................... 258,567
------------
Total expenses ................................ 13,895,913
------------
Net investment income ........................ 4,600,019
------------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 146,572,520
Realized net loss on foreign currency
transactions .................................... (359,457)
------------
Realized net gain on investments ................ 146,213,063
Unrealized depreciation in value of investments
during the period ............................... (104,771,885)
------------
Net gain on investments ....................... 41,441,178
------------
Net increase in net assets resulting
from operations ............................ $ 46,041,197
============
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
-----------------------------
1996 1995
Increase in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 4,600,019 $ 9,556,581
Realized net gain on investments . 146,213,063 68,377,208
Unrealized appreciation
(depreciation) ................. (104,771,885) 194,298,937
-------------- --------------
Net increase in net assets
resulting from operations ..... 46,041,197 272,232,726
-------------- --------------
Dividends to shareholders from:*
Net investment income
Class A ........................ (5,362,420) (4,857,502)
Class Y ........................ (18,377) ---
Realized gains on securities
transactions
Class A ........................ (64,486,580) (81,376,803)
Class Y ........................ (115,078) ---
-------------- --------------
(69,982,455) (86,234,305)
Capital share transactions: -------------- --------------
Proceeds from sale of shares:
Class A (10,454,280 and 24,614,638
shares, respectively) ......... 89,257,617 181,684,410
Class Y (575,709 and 196,892
shares, respectively) ......... 5,007,444 1,781,870
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (8,400,456 and
622,043 shares, respectively).. 68,790,612 4,701,960
Class Y (16,225 and 0
shares, respectively) ......... 133,455 ---
Payments for shares redeemed:
Class A (15,014,137 and 13,070,843
shares, respectively) ......... (128,046,129) (101,713,982)
Class Y (315,972 and 0
shares, respectively) ......... (2,748,347) ---
-------------- --------------
Net increase in net assets
resulting from capital
share transactions ............ 32,394,652 86,454,258
-------------- --------------
Total increase ................ 8,453,394 272,452,679
Net Assets
Beginning of period ............... 1,286,715,560 1,014,262,881
-------------- --------------
End of period, including undistributed
net investment income of $3,979,782
and $5,120,017, respectively ..... $1,295,168,954 $1,286,715,560
============== ==============
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of period $8.97 $7.73 $7.10 $6.03 $6.36
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.03 0.07 .00 .04 .06
Net realized and
unrealized gain
(loss) on
investments...... 0.26 1.82 .83 1.07 (0.10)
----- ----- ----- ----- -----
Total from investment
operations ........ 0.29 1.89 .83 1.11 (0.04)
----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income........... (0.04) (0.03) (0.02) (0.04) (0.09)
Distribution from
capital gains.... (0.45) (0.62) (0.18) (0.00) (0.20)
----- ----- ----- ----- -----
Total distributions. (0.49) (0.65) (0.20) (0.04) (0.29)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $8.77 $8.97 $7.73 $7.10 $6.03
===== ===== ===== ===== =====
Total return*....... 3.59% 26.82% 11.86% 18.38% -0.58%
Net assets, end of
period (000
omitted) ......... $1,291,017$1,284,951$1,014,263$921,816
$843,978
Ratio of expenses
to average net
assets ............ 1.09% 1.05% 1.05% 0.97% 0.96%
Ratio of net
investment income
to average net
assets ............ 0.36% 0.87% 0.04% 0.50% 0.96%
Portfolio
turnover rate ..... 57.10% 30.01% 36.70% 62.12% 84.82%
Average commission
rate paid ......... $0.0347
*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.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
fiscal period
year from 9/08/95
ended through
9/30/96 9/30/95*
-------- --------
Net asset value,
beginning of period $8.97 $9.05
----- -----
Income from investment
operations:
Net investment
income .......... 0.07 0.00
Net realized and
unrealized gain
(loss) on
investments...... 0.24 (0.08)
----- -----
Total from investment
operations ........ 0.31 (0.08)
----- -----
Less distributions:
Dividends from net
investment
income........... (0.05) (0.00)
Distribution from
capital gains.... (0.45) (0.00)
----- -----
Total distributions. (0.50) (0.00)
----- -----
Net asset value,
end of period ..... $8.78 $8.97
===== =====
Total return ....... 3.80% -0.88%
Net assets, end of
period (000
omitted) ......... $4,152 $1,765
Ratio of expenses
to average net
assets........... 0.91% 0.00%
Ratio of net
investment income
to average net
assets ............ 0.69% 0.00%
Portfolio
turnover rate ..... 57.10% 30.01%**
Average commission
rate paid ......... $0.0347
*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.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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. Its investment objective is appreciation 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. The following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal
period as reported by the principal securities exchange on which the
issue is traded or, if no sale is reported for a stock, the average of
the latest bid and asked prices. Bonds, other than convertible bonds,
are valued using a pricing system provided by a pricing service or
dealer in bonds. Convertible bonds are valued using this pricing
system only on days when there is no sale reported. Stocks which are
traded over-the-counter are priced using Nasdaq (National Association
of Securities Dealers Automated Quotations System) 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 September 30,
1996, $359,457 was reclassified between accumulated undistributed net
investment income and accumulated undistributed net realized gain on
investment transactions.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The
fee consists of two elements: (i) a "Specific" fee computed on net asset
value as of the close of business each day at the annual rate of .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 $14.7 billion of combined net assets at September 30, 1996)
at annual rates of .51% of the first $750 million of combined net assets,
.49% on that amount between $750 million and $1.5 billion, .47% between
$1.5 billion and $2.25 billion, .45% between $2.25 billion and $3 billion,
.43% between $3 billion and $3.75 billion, .40% between $3.75 billion and
$7.5 billion, .38% between $7.5 billion and $12 billion, and .36% of that
amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays WARSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account
charge for transfer agency and dividend disbursement services of $1.3125
for each shareholder account which was in existence at any time during the
prior month ($1.0208 per account prior to April 1, 1996), plus $0.30 for
each account on which a dividend or distribution of cash or shares had a
record date in that month. With respect to Class Y shares, the Fund pays
WARSCO a monthly fee at an annual rate of .15% of the average daily net
assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct
and indirect gross sales commissions for Class A shares (which are not an
expense of the Fund) of $3,514,918, out of which W&R paid sales commissions
of $1,923,568 and all expenses in connection with the sale of Fund shares,
except for registration fees and related expenses.
Under a Service Plan for Class A shares adopted by the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay
monthly a 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 $50,747.
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 $630,270,590 while proceeds from
maturities and sales aggregated $755,036,051. Purchases of short-term
securities aggregated $2,134,969,554 while proceeds from maturities and
sales aggregated $2,049,915,219.
For Federal income tax purposes, cost of investments owned at
September 30, 1996 was $994,982,577, resulting in net unrealized
appreciation of $300,454,954, of which $310,814,272 related to appreciated
securities and $10,359,318 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $146,572,520 during its fiscal year ended September 30, 1996, of
which a portion was paid to shareholders during the period ended September
30, 1996. Remaining net capital gains will be distributed to the Fund's
shareholders.
NOTE 5 -- 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, each of which has equal
rights as to assets and voting privileges. Class Y shares are not subject
to a sales charge on purchases; they are not subject to a Rule 12b-1
Service Plan and have a separate transfer agency and dividend disbursement
services fee structure. A comprehensive discussion of the terms under
which shares of either class are offered is contained in the prospectus and
Statement of Additional Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains
and losses are allocated daily to each Class of shares based on the value
of relative net assets as of the beginning of the day adjusted for the
prior day's capital share activity.
<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, 1996, the results of its
operations for the year then ended and the changes in its net assets and
the financial highlights for each of 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, 1996 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 8, 1996
<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, 1996
Statements of Assets and Liabilities
For the year ended September 30, 1996
Statements of Operations
For the two years ended September 30, 1996
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1996
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 as amended, attached hereto as EX-99.B2-vfbylaw
(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 attached
hereto as EX-99.B2-vfbylaw
(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 attached hereto as EX-99.B9-
vfssa
Fund Class A application attached hereto as EX-99.B9-vfappca
Fund Class Y application filed June 16, 1995 as EX-99.B9-
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*
- ---------------------------------
*Incorporated herein by reference
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*
Class Y letter of understanding attached hereto as EX-99.B9-
vflou
(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
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
- ---------------------------------
*Incorporated herein by reference
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) 1. Schedule for computation of average annual total return
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*
2. Schedule for computation of average annual total return
performance quotations for Class Y shares attached
hereto as EX-99.B16-vftrcly
(17) Financial Data Schedule, attached hereto as EX-27.B17-vffds
(18) Multiple Class Plan, as amended, filed December 28, 1995 as
- ---------------------------------
*Incorporated herein by reference
EX-99.B18-vfmcp to Post-Effective Amendment No. 54 to the
Registration Statement on Form N-1A*
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class September 30, 1996
-------------- -------------------------------
Class A Capital Stock 144,308
Class Y Capital Stock 342
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
address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment
Management Company, reference is made to the Prospectus and SAI of
this Registrant.
- ---------------------------------
*Incorporated herein by reference
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter 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.
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.
- ---------------------------------
*Incorporated herein by reference
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 27th day of December, 1996.
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 27, 1996
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 27, 1996
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 27, 1996
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 27, 1996
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 27, 1996
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director December 27, 1996
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 27, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director December 27, 1996
- ------------------ ----------------
Linda Graves
/s/John F. Hayes* Director December 27, 1996
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 27, 1996
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director December 27, 1996
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director December 27, 1996
- ------------------- ----------------
Doyle Patterson
/s/William L. Rogers* Director December 27, 1996
- ------------------ ----------------
William L. Rogers
/s/Frank J. Ross, Jr.* Director December 27, 1996
- ------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director December 27, 1996
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director December 27, 1996
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director December 27, 1996
- ------------------- ----------------
Paul S. Wise
*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. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: October 16, 1996 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board October 16, 1996
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director October 16, 1996
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer October 16, 1996
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and October 16, 1996
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director October 16, 1996
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director October 16, 1996
- -------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director October 16, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves Director October 16, 1996
- -------------------- ----------------
Linda Graves
/s/John F. Hayes Director October 16, 1996
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director October 16, 1996
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director October 16, 1996
- -------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director October 16, 1996
- -------------------- ----------------
Doyle Patterson
/s/William L. Rogers Director October 16, 1996
- -------------------- ----------------
William L. Rogers
/s/Frank J. Ross, Jr. Director October 16, 1996
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor Schwartz Director October 16, 1996
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director October 16, 1996
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director October 16, 1996
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B2-vfbylaw
UNITED VANGUARD FUND, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such dated
within 31 days after the 1st day of June in each year as may be fixed by the
Board of Directors for the purpose of election directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at
such meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
eleven Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until the annual
meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board; may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. No Director shall receive any
stated salary or fees from the Corporation for his services as such Director if
such Director is, otherwise than by reason of being such Director, affiliated
(as such term is defined in the Investment Company Act of 1940) with the
Corporation or with any investment adviser of the Corporation. Except as
provided in the preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
Section 11. Power to Declare Dividends and/or Distributions: The Board of
Directors, from time to time as it may deem advisable, may declare and pay
dividends and/or distributions in shares of the Fund, cash or other property of
the Corporation, as determined by resolution of the Board of Directors out of
any source available for dividends and/or distributions, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
MISCELLANEOUS
Section 1. Custodianship. All cash and securities owned by the
Corporation shall be held by one or more banks or trust companies of good
standing, each having a capital, surplus and undivided profits aggregating not
less than two million ($2,000,000), provided such a bank or trust company can be
found ready and willing to act. Upon the resignation or inability to serve of
any such bank or trust company the Corporation shall (i) use its best efforts to
obtain a qualified successor, (ii) require the cash and securities of the
Corporation held by such bank or trust company to be delivered directly to the
successor, and (iii) in the event that no qualified successor can be found,
submit to the holders of the shares of the capital stock of the Corporation at
the time outstanding and entitled to vote, before permitting delivery of such
cash and securities to anyone other than a qualified successor, the question
whether the Corporation shall be dissolved and liquidated or shall function
without a qualified bank or trust company selected by it, such assets to be held
subject to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article VII.
Nothing herein contained, however, shall prevent the termination of any
agreement between the Corporation and any such bank or trust company by the
Corporation at the discretion of the Board of Directors, and any such agreement
shall be terminated upon the affirmative vote of the holders of a majority of
all the shares of the capital stock of the Corporation at the time outstanding
and entitled to vote.
Section 2. Certain Transactions. The Corporation shall not purchase or
sell any securities (other than stock which may be issued by the Corporation)
from or to any of the following acting as principals and shall not make any loan
to any of the following: (i) any officer or director of the Corporation; (ii)
any person or organization furnishing managerial or supervisory services to the
Corporation; or (iii) any officer, director or partner of any person or
organization furnishing such managerial or supervisory services.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment, addition or
repeal of the By-Laws by action of the Board of Directors may be altered or
repealed by the stockholders. Article VII may be altered, amended or repealed
only by the stockholders.
EX-99.B9-vfssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and between
UNITED VANGUARD FUND, INC., and Waddell & Reed Services Company (the "Agent"),
as amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder under a
particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement and
charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's or any Subagent's facilities in accordance with reasonable
procedures at the frequency necessary to assure proper administration of the
Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED VANGUARD FUND, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015196B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $18,500,000
Audit Expense 500,000
On Premises 18,500,000
In Transit 18,500,000
Forgery or Alteration 18,500,000
Securities 18,500,000
Counterfeit Currency 18,500,000
Uncollectible Items of Deposit 25,000
Total Limit 18,500,000
Directors and Officers/ 87015196D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
and Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-vfappca
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office Stamp
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We make application for an account to be established as follows:
___________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: _________
Date Transmitted: ____________
___________________________________________________________________________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other: ______________________
(Use this section for
Retirement Plans with
Custodians other than
Fiduciary Trust Co.)
___________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co. -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new Plan, tear out
Page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457
(If billing is required, ____________________________________
attach form #CUF1417) Employer's Name (Do Not Abbreviate)
_____________________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________________ Amt
$______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: ______________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
___________________________________________________________________________
REGISTRATION [ ]NEW ACCOUNT or [ ]NEW FUND FOR EXISTING ACCOUNT:
[][][][][][][]-[]
(Must have same ownership) Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
______________________
______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
______________________ ______________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
________________ ____________ ____________ _____/_____-___________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
Code Code
621 - Income 626 - Gold & Government
622 - Science and Technology 627 - Continental Income
623 - Accumulative 628 - High Income
624 - Bond 629 - Vanguard
625 - International Growth 630 - New Concepts
Code Code
634 - High Income II 760 - Municipal Bond (not
680 - Retirement Shares available for Ret. Plans)
684 - Asset Strategy 762 - Municipal High Income (not
750 - Cash Management available for Reg. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
FUND Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
Total $__________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
$______________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[] [] [] $_______ $_______ 19____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
__________ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671 [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___, ___, ___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time:
________________________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ _______%
________________________ ______________________ ____________ _______%
________________________ ______________________ ____________ _______%
________________________ ______________________ ____________ _______%
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $____ 2. Taxable Income $_____ 3. Number of Dependents
____ 4. Occupation:_________________________ 5. Employer Name:
________________________ 6. Employer Address: ____________________________
7. Savings and Liquid Assets: $_____ 8. Other Assets (excluding home,
furnishings, cars): $_____ 9. Net Worth (Assets minus liabilities): $___ 10. Are
you associated with an NASD Member? Yes ___ No ___
11. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Children's College [ ] Income
[ ] Other needs/goals (specify in Special Remarks)
12. Special Remarks/Considerations:
_______________________________________________
___________________________________________________________________________
13. Residence Address:
___________________________________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGMENT
* I (we) have received a copy of the current prospectus of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the
Retirement Plan and Custody Agreement and agree to the terms and
conditions set forth therein, and do hereby establish the Individual
Retirement Plan.
* Under penalties of perjury, I certify that the social security number
or other taxpayer identification number shown on reverse side is
correct and (strike the following if not true) that I am not subject
to tax withholding because I have not been notified by the IRS that I
am subject to withholding as a result of a failure to report all
interest and dividends or I was subject to withholding and the IRS
has notified me that I am no longer subject to withholding.
* Since a major portion of the sales charge for Variable Investment
Programs is deducted from payments made in the first year, I
understand that a loss will undoubtedly result if I withdraw or
discontinue payments during the early years of the program.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
______________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
______________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
______________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ____________________________
Date Representative Signature
[OSJ: (H.O.USE) ] [] [] [] [] []
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the
Custody Agreement:
By: ____________________________________________
Fiduciary Trust Company Authorized Signature
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Partnership Confidential Questionnaire (CRP1186)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications ____________________________________
[] Check enclosed $___________________________
[] Other _____________________________________
CAP0001(11/94)
EX-99.B9-vflou
DATE
ADDRESS
Dear:
The purpose of this Letter of Understanding is to confirm our mutual
understanding regarding the establishment of an account in the United Funds on
behalf of [NAME OF INSTITUTION OF PLAN] and our agreement as to subsequent
administrative procedures.
It is our understanding that the Plan wishes to establish an account in the
United Funds for the purpose of utilizing [FUND NAME] as a participant-directed
investment alternative. This Letter of Understanding shall serve as a
substitute application to open the account.
We will establish the mutual fund account upon receipt of the initial share
purchase with the following registration:
The Federal Tax Identification Number to be shown on the account is
.
We will set up the account to have dividend and capital gains (securities
profits) distributions reinvested rather than paid in cash. Exhibit A reflects
the frequency of anticipated distributions.
[The next two paragraphs are included only for employee benefit plan/accounts:]
By approving and signing the Letter of Understanding, you certify that the [PLAN
NAME] is a [401(k) / 403(b) / 457] plan having 100 or more eligible employees,
thereby qualifying the plan to establish an omnibus account, under the terms of
the [FUND NAME] Prospectus, for making purchases of Class Y shares, which are
priced at net asset value (no sales load).
The undersigned trustee on behalf of the Plan also certifies that it has the
authority to open such an account on behalf of [PLAN NAME].
It is our understanding that funds will be wire transferred from your bank for
the purpose of purchasing [FUND NAME] shares. To insure timely investment, any
wire must be received by United Missouri Bank by 2:00 p.m. (Central) on the day
of the wire. The following wire order instructions should be used:
United Missouri Bank, N.A.
ABA #101000695; United K.C.;
For Waddell & Reed Account #000-797-8
FBO (Registration of
Account)
Account No. (To be provided for each
account)
Notify Control Depart. 236-1978
When funds are to be wired from the account to your bank in accordance with your
request, the wire must be received by your bank by 1:00 p.m. Eastern on the day
of the wire. The following wire order instructions are to be used:
We offer to provide an enhanced level of service to ...your institution / the
Plan... and its authorized representatives. Contained in Exhibits B and C
hereto is information provided to allow us to provide this service. We cannot
overemphasize that our ability to serve the institutional client is dependent
upon the Plan's representatives interfacing with the members of our
institutional support staff as identified in Exhibit C.
If any of the above does not conform to your understanding and/or instructions,
or if you have questions or need additional information, please do not hesitate
to call me at the number shown on Exhibit C. We are very much looking forward
to our relationship with [NAME OF INSTITUTION OR NAMES OF PLAN AND TRUSTEE] and
are determined to provide the best possible service.
Sincerely,
SALES REP NAME
SALES REP TITLE
ACKNOWLEDGED AND APPROVED
[If signed by a plan trustee, add next line:]
AS TRUSTEE FOR
By:
Title:
Date:
The above signatory certifies that the following
persons are authorized to instruct transactions in the
account (type or print):
For Waddell & Reed use only:
Accepted:
<PAGE>
EXHIBIT A
FREQUENCY OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
[FUND NAME] ordinarily distributes investment income by way of a dividend once
per [NORMAL DIVIDEND FREQUENCY].
[FUND NAME] generally distributes capital gains (securities profits), if capital
gains are available for distribution, once each year in December, on the same
date as the December dividend distribution.
For the Fund and in the case of reinvested dividend and capital gain
distributions, the record date and the reinvestment date are the same. The per
share distribution amounts are applied to the share balance in the account after
the posting of that day's activity.
For the remainder of [YEAR], the ordinary dividend distribution dates would be
[DATES].
<PAGE>
EXHIBIT B
ADDITIONAL SERVICES WE WILL PROVIDE
The following services can be provided by us on an ongoing basis:
1. Coordinating purchases by notifying Waddell & Reed Services Company of each
incoming wire transfer and verifying the posting of the purchase(s) the
following business morning.
2. Confirming the purchase to you including: the date and dollar amount of the
investment, the purchase price and number of shares purchased, and the new Fund
account share balance.
3. Notifying you of dividend and/or capital gains distributions and
reinvestments including: the per share and dollar amount of distributions, the
date of reinvestment, the reinvestment price and number of shares purchased, and
the new Fund account share balance.
4. Processing redemptions based on your request by notifying Waddell & Reed
Services Company of the redemption, instructing them as to the outgoing wire
transfer, and verifying the posting of the redemption the following business
morning.
5. Confirming the redemption to you including: the date and dollar amount of
the redemption, the selling price and number of shares redeemed, and the new
Fund account share balance.
6. At the end of each month following the initial investment, we will provide
a report, if desired, which reflects all transactions in the account during the
previous month, and the share balance, net asset value per share and total
market value of the account.
Each of the confirmations, notifications and reports identified above will be
made available at your request, by telephone or facsimile transmission, as
appropriate to whomever you request.
<PAGE>
EXHIBIT C
LIST OF WADDELL & REED CONTACTS
During the period of account setup and initial wire transfer, your contacts at
Waddell & Reed are the following:
PRIMARY SECONDARY
Cynthia LaGree James McCroy
913-236-1722 913-236-1744
On an ongoing basis once the account is operational, your contacts are as
follows:
PRIMARY SECONDARY
Julie Herrick Dana Arth
913-236-1854 913-236-1853
BACKUP
Cynthia LaGree
913-236-1722
Our fax numbers are:
Primary: 913-236-1801
Secondary: 913-236-1888
EX-99.B11-vfconsnt
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 55 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
November 8, 1996, 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 "Financial Highlights" in the Class A Shares Prospectus and the Class Y
Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
December 27, 1996
UNITED VANGUARD FUND, INC.
Class Y Shares
The formula used to calculate the total return is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
For the one year period from October 1, 1995 to
September 30, 1996:
P = $1,000
n = 1
ERV = $1038.00
T = 3.80%
For the period from September 8, 1995 to
September 30, 1996:
P = $1,000
n = 1.063
ERV = $1,028.81
T = 2.71%
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1996 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-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 994,982,577
<INVESTMENTS-AT-VALUE> 1,295,437,531
<RECEIVABLES> 4,273,707
<ASSETS-OTHER> 37,660
<OTHER-ITEMS-ASSETS> 93,165
<TOTAL-ASSETS> 1,299,842,063
<PAYABLE-FOR-SECURITIES> 954,525
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,718,584
<TOTAL-LIABILITIES> 4,673,109
<SENIOR-EQUITY> 147,614,500
<PAID-IN-CAPITAL-COMMON> 696,539,373
<SHARES-COMMON-STOCK> 147,614,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,979,782
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 146,580,304
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 300,454,995
<NET-ASSETS> 1,295,168,954
<DIVIDEND-INCOME> 8,726,688
<INTEREST-INCOME> 9,769,244
<OTHER-INCOME> 0
<EXPENSES-NET> (13,895,913)
<NET-INVESTMENT-INCOME> 4,600,019
<REALIZED-GAINS-CURRENT> 146,213,063
<APPREC-INCREASE-CURRENT> (104,771,885)
<NET-CHANGE-FROM-OPS> 46,041,197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,380,797)
<DISTRIBUTIONS-OF-GAINS> (64,601,658)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,029,989
<NUMBER-OF-SHARES-REDEEMED> (15,330,109)
<SHARES-REINVESTED> 8,416,681
<NET-CHANGE-IN-ASSETS> 8,453,394
<ACCUMULATED-NII-PRIOR> 5,120,017
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,020,391
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,895,913
<AVERAGE-NET-ASSETS> 1,272,924,272
<PER-SHARE-NAV-BEGIN> 8.97
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> (.45)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.77
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
December 27, 1996
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Vanguard Fund, Inc.
Post-Effective Amendment No. 55
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:fr
