File No. 811-09435
File No. 333-82447
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. __1__
Post-Effective Amendment No._____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. _1_
UNITED SMALL CAP FUND, INC.
- - - -------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66201-9217
- - - -------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas
66201-9217
- - - -------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering
- - - -------------------------------------------------------------------------
As soon as practical after effective date of Registration Statement
===========================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The Registrant requests registration of an indefinite amount
of shares of its capital stock, $.001 per share, by this Registration
Statement.
The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Commission, action pursuant to said Section 8(a), may
determine.
<PAGE>
United Small Cap Fund, Inc.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
This Prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such state.
This Fund seeks growth of capital.
Prospectus
_______________, 1999
<PAGE>
Table of Contents
<TABLE>
<S> <C>
AN OVERVIEW OF THE FUND...........................................................................................3
PERFORMANCE.......................................................................................................5
FEES AND EXPENSES.................................................................................................6
THE INVESTMENT PRINCIPLES OF THE FUND.............................................................................8
Investment Goals, Principal Strategies and Other Investments...................................................8
Risk Considerations of Principal Strategies and Other Investments..............................................9
Year 2000 and Euro Issues.....................................................................................10
YOUR ACCOUNT.....................................................................................................12
Choosing a Share Class........................................................................................12
Sales Charge Reductions and Waivers........................................................................14
Waivers for Certain Investors..............................................................................15
Ways to Set Up Your Account...................................................................................20
Buying Shares.................................................................................................22
Minimum Investments...........................................................................................24
Adding to Your Account........................................................................................25
Selling Shares................................................................................................26
Telephone Transactions........................................................................................29
Shareholder Services..........................................................................................30
Personal Service...........................................................................................30
Reports....................................................................................................30
Exchanges..................................................................................................31
Automatic Transactions for Class A, Class B and Class C Shareholders.......................................31
Distributions and Taxes.......................................................................................32
Distributions..............................................................................................32
Taxes......................................................................................................32
THE MANAGEMENT OF THE FUND.......................................................................................35
Portfolio Management..........................................................................................35
Management Fee................................................................................................35
</TABLE>
2
<PAGE>
An Overview of the Fund
Goal
United Small Cap Fund, Inc. (the "Fund") seeks growth of capital.
Principal Strategies
The Fund seeks to achieve its goal by investing primarily in small
capitalization common stocks of companies that are relatively new or unseasoned,
companies in their early stages of development, or smaller companies positioned
in new or emerging industries where there is an opportunity for rapid growth.
In selecting companies, Waddell & Reed Investment Management Company (WRIMCO),
the Fund's investment manager, seeks those whose earnings it believes are likely
to grow faster than the economy, and WRIMCO may look at a number of factors
relating to a company, such as:
o aggressive or creative management;
o technological or specialized expertise;
o new or unique products or services;
o entry into new or emerging industries; and
o special situations arising our of government priorities or programs
(e.g. Work to Welfare Reform Act, possible healthcare reimbursement by
the government).
In general, WRIMCO may sell a security if it determines that the stock no longer
offers significant growth potential which may be due to a change in the business
or management of the company or a change in the industry of the company. As
well, WRIMCO may sell a security to take advantage of more attractive investment
opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because the Fund owns different types of investments, a variety of factors can
affect its investment performance, such as:
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries;
3
<PAGE>
o adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
o the skill of WRIMCO in evaluating and selecting securities for the
Portfolio.
Market risk for small companies may be greater than that for medium and large
companies. Smaller companies are more likely to have limited financial resources
and inexperienced management. Stock of smaller companies may also experience
volatile trading and price fluctuations.
As with any mutual fund, the value of the Fund shares will change and you could
lose money on your investment. An investment in the Fund is not a bank deposit
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Who May Want to Invest
The Fund is designed for investors willing to accept greater risks than are
present with many other mutual funds. It is not intended for those investors who
desire assured income and conservation of capital. You should consider whether
the Fund fits your particular investment objectives.
4
<PAGE>
Performance
Since the Fund has not been in operation for a full calendar year, no
performance information (the bar chart or performance table) is included in this
Prospectus.
5
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(1) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and
Service (12b-1) Fees(3) 0.25% 1.00% 1.00% None
Other Expenses 0.40% 0.40% 0.40% 0.20%
Total Annual Fund
Operating Expenses 1.50% 2.25% 2.25% 1.05%
</TABLE>
(1) The contingent deferred sales charge ("CDSC") which is imposed on the
lesser of amount invested or redemption value of Class B shares declines
from 5% for redemptions made within the first calendar year of purchase,
to 4% for redemptions made within the second calendar year, to 3% for
redemptions made within the third and fourth calendar year, to 2% for
redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after
the sixth calendar year. Please note that the CDSC is not based on the
length of time that shares are held. Instead, the CDSC is based on the
calendar year of purchase and the calendar year of redemption. For Class C
shares, a 1% CDSC applies to the lesser of amount invested or redemption
value of Class C shares redeemed within twelve months.
(2) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has agreed to waive its investment management fee
if the Fund's net assets are less than $25 million, subject to its right to
change or teriminate this waiver. The expense ratios for Other Expenses are
based on estimated amounts for the current fiscal year. Actual expenses may
be greater or less than those shown.
(3) It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees that are more than the maximum
asset-based sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
6
<PAGE>
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the class expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
If shares are redeemed
at end of period: 1 year 3 years
<S> <C> <C>
Class A Shares $719 $1,022
Class B Shares $628 $1,003
Class C Shares $328 $ 703
Class Y Shares $107 $ 334
<CAPTION>
If shares are not
redeemed at end
of period: 1 year 3 years
<S> <C> <C>
Class A Shares $719 $1,022
Class B Shares $228 $ 703
Class C Shares $228 $ 703
Class Y Shares $107 $ 334
</TABLE>
7
<PAGE>
The Investment Principles of the Fund
Investment Goal, Principal Strategies and Other Investments
The goal of the Fund is growth of capital. The Fund seeks to achieve its goal by
investing primarily in a diversified portfolio of common stocks of domestic
companies whose market capitalizations do not exceed $1.5 billion at the time of
purchase by the Fund ("small cap stocks"). The Fund considers a company's
capitalization at the time the Fund acquires the company's securities. Companies
whose capitalization exceeds $1.5 billion after purchase continue to be
considered small cap stocks for purpose of the Fund's investment policy. There
is no guarantee that the Fund will achieve its goal.
The Fund will, under normal market conditions, invest at least 65% of its total
assets in small cap stocks. In addition to common stocks, the Fund may also
invest in securities convertible into common stocks, preferred stocks and debt
securities, mostly of investment grade (rated BBB and higher by Standard &
Poor's or Baa and higher by Moody's Investors Service, Inc. or, if unrated
deemed by WRIMCO to be of comparable quality). The Fund may also buy foreign
securities, however, it may not invest more than 10% of its net assets in
foreign securities.
8
<PAGE>
When WRIMCO believes that a temporary defensive position is desirable, the Fund
may invest up to all of its assets in debt securities (including commercial
paper or short-term U.S. Government securities) or preferred stocks, or both. By
taking a defensive position, the Fund may not achieve its investment objective.
WRIMCO may invest in and use other types of assets in seeking to achieve the
Fund's goal. For example, the Fund may invest in options, futures contracts,
asset-backed securities and other derivative instruments if it is permitted to
invest in the type of asset by which the return on, or value of, the derivative
is measured. At this time, the Fund does not anticipate investing in derivatives
except to a limited extent, if at all. You will find more information about the
Fund's permitted investments and strategies, as well as the restrictions that
apply to them, in the Statement of Additional Information ("SAI").
Risk Considerations of Principal Strategies
and Other Investments
Risks exist in any investment. The Fund is subject to market risk, financial
risk and, in some cases, prepayment risk.
o Market risk is the possibility of a change in the price of the security
because of market factors including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if
interest rates increase, the value of a bond with a longer maturity is more
likely to decrease. Because of market risk, the share price of the Fund
will likely change as well.
o Financial risk is based on the financial situation of the issuer of the
security. The financial risk of the Fund may depend, for example, on the
earnings performance of the issuer of stock held by the Fund. To the extent
the Fund invests in debt securities, the financial risk of the Fund may
also depend on the credit quality of the securities in which it invests.
o Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
before its expected maturity date.
9
<PAGE>
Due to the nature of the Fund's permitted investments (primarily, the small cap
stocks of new and/or unseasoned companies), the Funds may be subject to the
following risks:
o products offered may fail to sell as anticipated;
o a period of unprofitability may be experienced before a company develops
the expertise and clientele to succeed in an industry;
o the company may never achieve profitability; and
o economic, market and technological factors may cause the new industry
itself to lose favor with the public.
Certain types of the Fund's authorized investments and strategies (such as
foreign securities and derivative instruments) involve special risks. Depending
on how much the Fund invests or uses these strategies, these special risks may
become significant. For example, foreign investments may subject the Fund to
restrictions on receiving the investment proceeds from a foreign country,
foreign taxes, and potential difficulties in enforcing contractual obligations.
Also, fluctuations in foreign currency values and other political and economic
developments may adversely affect a foreign country. Derivative instruments may
expose the Fund to greater volatility than an investment in a more traditional
stock, bond or other security.
Because the Fund owns different types of investments, its performance will be
affected by a variety of factors. In general, the value of the Fund's
investments and the income it may generate will vary from day to day, generally
due to changes in market conditions, interest rates and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments.
Year 2000 and Euro Issues
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected
10
<PAGE>
if the computer systems used by WRIMCO and the Fund's other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. WRIMCO is taking steps that it believes are reasonably
designed to address Year 2000 computer-related problems with respect to the
computer systems that it uses and to obtain assurances that comparable steps are
being taken by the Fund's other major service providers. Although there can be
no assurances, WRIMCO believes these steps will be sufficient to avoid any
adverse impact on the Fund. Similarly, the companies and other issuers in which
the Fund invests could be adversely affected by Year 2000 computer-related
problems, and there can be no assurance that the steps taken, if any, by these
issuers will be sufficient to avoid any adverse impact on the Fund.
The Fund could also be adversely affected by the conversion of certain European
currencies into the Euro. This conversion, which is underway, is scheduled to be
completed in 2002. However, problems with the conversion process and delays
could increase volatility in world capital markets and affect European capital
markets in particular.
11
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for the Fund: Class A, Class B,
Class C and Class Y. Each class has its own sales charge, if any, and expense
structure. The decision as to which class of shares is best suited to your needs
depends on a number of factors that you should discuss with your financial
advisor. Some factors to consider are how much you plan to invest and how long
you plan to hold your investment. If you are investing a substantial amount and
plan to hold your shares for a long time, Class A shares may be the most
appropriate for you. If you are investing a lesser amount, you may want to
consider Class B shares (if investing for at least seven calendar years) or
Class C shares (if investing for less than seven calendar years). Class Y shares
are designed for institutional investors and others investing through certain
intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. All of your future investments in the
Fund will be made in the class you select when you open your account, unless you
inform the Fund otherwise, in writing, when you make a future investment.
General Comparison of Class A, Class B and Class C Shares
<TABLE>
<CAPTION>
Class A Class B Class C
- - - ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on shares o A 1% deferred sales charge on
you sell within six calendar shares you sell within twelve
years months
o Maximum distribution and service o Maximum distribution and o Maximum distribution and
(12b-1) fees of 0.25% service (12b-1) fees of 1.00% service (12b-1) fees of 1.00%
o For an investment or $2 o Converts to Class A shares at o Does not convert to Class A
million or more Waddell & the end of the seventh calendar shares, so annual expenses
Reed will place the year following the year of do not decrease
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
purchase in Class A shares purchase, thus reducing future annual
due to no sales charge and expenses
lower annual expenses
o For an investment of $3000,000 or
more Waddell & Reed financial
advisors often may recommend
purchase of Class A shares due
to a reduced sales charge and
lower annual expenses
</TABLE>
The Fund has adopted a Distribution and Service Plan ("Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, for each of its
Class A, Class B and Class C shares. Under the Class A Plan, the Fund may pay
Waddell & Reed, Inc. a fee of up to 0.25%, on an annual basis, of the average
daily net assets of the Class A shares. This fee is to reimburse Waddell & Reed,
Inc. for the amounts it spends for distributing the Fund's Class A shares,
providing service to Class A shareholders and/or maintaining Class A shareholder
accounts. Under the Class B Plan and the Class C Plan, the Fund may pay Waddell
& Reed, Inc., on an annual basis, a service fee of up to 0.25% of the average
daily net assets of the class to compensate Waddell & Reed, Inc. for providing
service to shareholders of that class and/or maintaining shareholder accounts
for that class and a distribution fee of up to 0.75% of the average daily net
assets of the class to compensate Waddell & Reed, Inc. for distributing shares
of that class. Because a class's fees are paid out of the assets of that class
on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Class A shares are subject to an initial sales charge when you buy them, based
on the amount of your investment, according to the table below. Class A shares
pay an annual 12b-1 fee of up to 0.25% of average Class A net assets. The
ongoing expenses of this class are lower than those for Class B or Class C
shares and higher than those for Class Y shares.
13
<PAGE>
<TABLE>
<CAPTION>
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- - - -------- -------- -------
<S> <C> <C>
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
</TABLE>
Sales Charge Reductions and Waivers
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the funds in the
United Group, except shares of United Cash Management, Inc., unless
acquired by exchange for Class A shares, on which a sales charge was paid
(or as a dividend or distribution on such acquired shares), with the net
asset value
14
<PAGE>
("NAV") of Class A shares already held ("Rights of Accumulation");
o Grouping all purchases of Class A shares, except shares of United Cash
Management, Inc., made during a thirteen-month period ("Letter of
Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell & Reed
financial advisors.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
o The Directors and officers of the Fund, employees of Waddell & Reed, Inc.,
employees of their affiliates, financial advisors of Waddell & Reed, Inc.
and the spouse, children, parents, children's spouses and spouse's parents
of each;
o Certain retirement plans and certain trusts for these persons; and
o A 401(k) plan or a 457 plan having 100 or more eligible employees.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A contingent deferred sales charge ("CDSC")
may be assessed against your redemption amount of Class B or Class C shares and
paid to Waddell & Reed, Inc. (the "Distributor"). The purpose of the CDSC is to
compensate the Distributor for the costs incurred by it in connection with the
sale of the Fund's Class B or Class C shares. The CDSC will not be imposed on
Class B or Class C shares representing payment of dividends or distributions or
on amounts which represent an increase in the value of a shareholder's account
resulting from capital appreciation above the amount paid for Class B or Class C
shares purchased during the CDSC period. The date of redemption is measured, in
calendar years, from the first calendar year of purchase. For example, if a
shareholder opens an account on November 1, 1999, then redeems all shares on
March 1, 2000, the shareholder would pay a CDSC of 4%, the rate applicable to
redemptions made within the second calendar year of purchase. Please note that
the CDSC is not based on the length of time that shares are held. Instead, the
CDSC is based on the calendar year of purchase and the calendar year of
redemption.
15
<PAGE>
The CDSC is applied to the lesser of amount invested or redemption value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund assumes that a redemption is made first of shares not subject
to a deferred sales charge (including shares which represent appreciation on
shares held, reinvested dividends and distributions), and then of shares that
represent the lowest sales charge.
Unless instructed otherwise, the Fund, when requested to redeem a specific
dollar amount, will redeem additional Class B or Class C shares equal in value
to the CDSC. For example, should you request a $1,000 redemption and the
applicable CDSC is $27, the Fund will redeem shares having an aggregate NAV of
$1,027, absent different instructions.
Class B shares are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six calendar
years of their purchase, based on the table below. Class B shares pay an annual
12b-1 service fee of up to 0.25% of average net assets and a distribution fee of
up to 0.75% of average net assets. Over time, these fees will increase the cost
of your investment and may cost you more than if you had bought Class A shares.
Class B shares will automatically convert to Class A shares of the Fund at the
end of the seventh calendar year following the year of purchase. The Class A
shares have lower on going expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
stated below.
<TABLE>
<CAPTION>
Deferred
Date of Sales
Redemption Charge
- - - ---------- ------
<S> <C>
anytime within 1st calendar year 5%
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
</TABLE>
All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC.
Class C shares are not subject to a sales charge when you buy them, but if you
sell your Class C shares within twelve months of buying them, you will pay a 1%
CDSC. For purposes of CDSC, purchases of Class C shares within a month will be
considered as being purchased on the first day of the month. Class C shares pay
an annual 12b-1 service fee of up to 0.25% of average net assets and a
distribution fee of up to 0.75% of average net assets. Over time, these fees
will increase the cost of your investment and may cost you more than if you had
bought Class A shares. Class C shares do not convert to any other class.
17
<PAGE>
For Class C shares, the CDSC will be applied to the lesser of amount invested or
redemption value of shares that have been held for twelve months or less.
The CDSC will not apply in the following circumstances:
o redemptions of Class B or Class C shares requested within one year of the
shareholder's death or disability, provided the Fund is notified of the
death or disability at the time of the request and furnished proof of such
event satisfactory to the Distributor.
o redemptions of Class B or Class C shares made to satisfy required minimum
distributions after age 70 1/2 from a qualified retirement plan, a required
minimum distribution from an individual retirement account, Keogh plan or
custodial account under section 403(b)(7) of the Internal Revenue Code of
1986, as amended, ("Code") a tax-free return of an excess contribution, or
that otherwise results from the death or disability of the employee, as
well as in connection with redemptions by any tax-exempt employee benefit
plan for which, as a result of a subsequent law or legislation, the
continuation of its investment would be improper.
o redemptions of Class B or Class C shares made pursuant to a shareholder's
participation in any systematic withdrawal service adopted for a Fund. (The
service and this exclusion from the CDSC do not apply to a one-time
withdrawal.)
18
<PAGE>
o redemptions the proceeds of which are reinvested in Class B or Class C
shares (must be reinvested in the same class as that which was redeemed) of
the Fund within thirty days after such redemption.
o the exercise of certain exchange privileges.
o redemptions effected pursuant to the Fund's right to liquidate a
shareholder's Class B or Class C shares if the aggregate NAV of those
shares is less than $500.
o redemptions effected by another registered investment company by virtue of
a merger or other reorganization with the Fund or by a former shareholder
of such investment company of Class B or Class C shares of the Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time without
prior notice to shareholders, except with respect to redemptions effected
pursuant to the Fund's right to liquidate a shareholder's shares, which requires
certain notices.
Class Y shares are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
o participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401 of the Code, including 401(k)
plans, when the plan has 100 or more eligible employees and holds the
shares in an omnibus account on the Fund's records;
o banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an
omnibus account on the Fund's records;
o government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more;
and
19
<PAGE>
o certain retirement plans and trusts for employees and financial advisors of
Waddell & Reed, Inc. and its affiliates.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- - - -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- - - -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- - - -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax-deductible.
o Individual Retirement Accounts (IRAs) allow an individual under 70 1/2,
with earned income, to invest up to $2,000 per tax year. The maximum annual
contribution for an investor and his or her spouse is $4,000 ($2,000 for
each spouse) or, if less, the couple's combined earned income for the
taxable year.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o Roth IRAs allow certain individuals to make nondeductible contributions up
to $2,000 per year. Withdrawals of earnings may be tax-free if the account
is at least five years old and certain other requirements are met.
20
<PAGE>
o Education IRAs are established for the benefit of a minor, with
nondeductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP-IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees' retirement
accounts and generally involve fewer administrative requirements than
401(k) or other qualified plans.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income,
with a maximum of $30,000 per year.
o Pension and Profit-Sharing Plans, including 401(k) Plans allow corporations
and nongovernmental tax-exempt organizations of all sizes and/or their
employees to contribute a percentage of the employees' wages or other
amounts on a tax-deferred basis. These accounts need to be established by
the administrator or trustee of the plan.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- - - -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under
21
<PAGE>
the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
- - - -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
- - - -------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its financial
advisors. To open your account you must complete and sign an application. Your
Waddell & Reed financial advisor can help you with any questions you might have.
To purchase any class of shares by check, make your check payable to Waddell &
Reed, Inc. Mail the check, along with your completed application, to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
To purchase Class Y shares by wire, you must first obtain an account number by
calling 1-800-366-2520, 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, along
with the account number and registration, to UMB Bank, n.a., ABA Number
101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and Account
Number.
You may also buy Class Y shares of the Fund indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements regarding the purchase of
Class Y shares.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular class)
is the next NAV calculated
22
<PAGE>
per share of that class, plus for Class A shares, the sales charge shown in the
table above.
In the calculation of the Fund's NAV:
o The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which approximates
market value.
o Other investment assets for which market prices are unavailable are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the "NYSE")
is open. The Fund normally calculates the NAVs of its shares as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by the Fund may be priced at the close of the regular
session of any other securities or commodities exchange on which that instrument
is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on U.S. national business holidays when the NYSE is closed.
Consequently, the NAV of Fund shares may be significantly affected on days when
the Fund does not price its shares and when you are not able to purchase or
redeem the Fund's shares. Similarly, if an event materially affecting the value
of foreign investments or foreign currency exchange rates occurs prior to the
close of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair value
as determined in good faith by or under the direction of the Board of Directors.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
23
<PAGE>
o If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
o The Fund does not issue certificates representing shares of the Fund.
o If you purchase Class Y shares of the Fund from certain broker-dealers,
banks or other authorized third parties, the Fund will be deemed to have
received your purchase order when that third party (or its designee) has
received your order. Your order will receive the Class Y offering price
next calculated after the order has been received in proper form by the
authorized third party (or its designee). You should consult that firm to
determine the time by which it must receive your order for you to purchase
shares of the Fund at that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Minimum Investments
For Class A, Class B and Class C:
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates 25
To Add to an Account Any amount
For certain exchanges $100
For Automatic Investment Service $25
24
<PAGE>
For Class Y:
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first
twelve
months)
For other
investors: Any amount
To Add to an Account Any amount
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail the
check to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior purchase
or your year-to-date statement; or
o a letter stating your account number, the account registration and the
class of shares that you wish to purchase.
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
If you purchase Class Y shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
25
<PAGE>
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class) is the NAV
per share of that class, subject to any CDSC applicable to Class B or Class C
shares.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
o the dollar amount or number, and the class, of shares to be redeemed;
and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a check
to the address on the account.
To sell Class Y shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465, or fax
your request to 913-236-5044, and give your instructions to redeem Class Y
shares and make payment by wire to your predesignated bank account or by check
to you at the address on the account.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated, subject to any applicable CDSC, after receipt of a written request
for redemption in good order by Waddell & Reed Services Company at the address
26
<PAGE>
listed above. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
o If you recently purchased the shares by check, the Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance that the check has cleared and been honored. If you do not,
payment of the redemption proceeds on these shares will be delayed until
the earlier of 10 days or the date the Fund can verify that your purchase
check has cleared and been honored.
o Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the Securities and Exchange Commission.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
o If you purchased Class Y shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms,
some of which may charge you a fee and may have additional requirements to
sell Fund shares. The Fund will be deemed to have received your order to
sell Class Y shares when that firm (or its designee) has received your
order. Your order will receive the Class Y NAV next calculated after the
order has been received in proper form by the authorized firm (or its
designee). You should consult that firm to determine the time by which it
must receive your order for you to sell Class Y shares at that day's price.
27
<PAGE>
Special Requirements for Selling Shares
<TABLE>
<CAPTION>
Account Type Special Requirements
------------ --------------------
<S> <C>
Individual or Joint Tenant The written instructions must be
signed by all persons required to
sign for transactions, exactly as
their names appear on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of
the business.
UGMA, UTMA The custodian must sign the
written instructions indicating
capacity as custodian.
Retirement Account The written instructions
must be signed by a properly
authorized person.
Trust The trustee must sign the written
instructions indicating capacity
as trustee. If the trustee's name
is not in the account
registration, provide a currently
certified copy of the trust
document.
Business or At least one person authorized
Organization corporate resolution to act on
the account must sign the written
instructions.
Conservator, Guardian
or Other Fiduciary The written instructions must be
signed by the person properly
authorized by court order to act
in the particular fiduciary
capacity.
</TABLE>
28
<PAGE>
The Fund may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
The Fund reserves the right to redeem at NAV all of your Fund shares if their
aggregate NAV is less than $500. The Fund will give you notice and a 60-day
opportunity to purchase a sufficient number of additional shares to bring the
aggregate NAV of your shares to $500.
You may reinvest, without charge, all or part of the amount of Class A shares
you redeemed by sending to the Fund the amount you want to reinvest. The
reinvested amounts must be received by the Fund within thirty days after the
date of your redemption. You may do this only once with Class A shares of the
Fund.
The CDSC will not apply to the proceeds of Class B or Class C shares which are
redeemed and then reinvested in Class B or Class C shares, as applicable, within
thirty days after such redemption. The Distributor will, with your reinvestment,
restore an amount equal to the deferred sales charge attributable to the amount
reinvested by adding the deferred sales charge amount to your reinvestment. For
purposes of determining future deferred sales charges, the reinvestment will be
treated as a new investment. You may do this only once as to Class B shares of
the Fund and once as to Class C shares of the Fund.
Payments of principal and interest on loans made pursuant to Waddell & Reed's
401(k) prototype plan (if such loans are permitted by the plan) may be
reinvested, without payment of a sales charge, in Class A shares of any United
Group fund in which the plan may invest.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures
29
<PAGE>
to confirm that instructions communicated by telephone are genuine. If the Fund
fails to do so, the Fund may be liable for losses due to unauthorized or
fraudulent instructions. Current procedures relating to instructions
communicated by telephone include tape recording instructions, requiring
personal identification and providing written confirmations of transactions
effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed financial advisor is available to provide personal
service. Additionally, a toll-free call, 1-800-366-5465, connects you to a
Customer Service Representative or our automated customer telephone service.
During normal business hours, our Customer Service staff is available to answer
your questions or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or from
our web site, www.waddell.com, to:
o obtain information about your accounts;
o obtain price information about other funds in the United Group; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone
30
<PAGE>
number listed above for Customer Service if you need additional copies of annual
or semiannual reports or account information.
Exchanges
You may sell your shares and buy shares of the same class of other funds in the
United Group without the payment of an additional sales charge if you buy Class
A shares or payment of a CDSC when you exchange Class B or Class C shares. For
Class B and Class C shares, the time period for the CDSC will continue to run.
In addition, exchanging Class Y shareholders may buy Class A shares of United
Cash Management, Inc. You may exchange only into funds that are legally
permitted for sale in your state of residence. Note that exchanges out of the
Fund may have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions for Class A, Class B and Class C Shareholders
Flexible withdrawal service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While Regular Investment Plans do not guarantee a profit and will
not protect you against loss in a declining market, they can be an excellent way
to invest for retirement, a home, educational expenses and other long-term
financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
<TABLE>
<CAPTION>
Minimum Amount Minimum Frequency
<S> <C>
$25 Monthly
</TABLE>
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the same
or a different account in the same class
<TABLE>
<CAPTION>
Minimum Amount Minimum Frequency
<S> <C>
$100 Monthly
</TABLE>
31
<PAGE>
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Usually the Fund distributes net
investment income annually in December. Net capital gains (and any net gains
from foreign currency transactions) usually are distributed in December.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividends, capital gains and other
distributions with respect to a class will be automatically paid in
additional shares of the same class of the Fund. If you do not indicate
a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains and other distributions with
respect to a class will be automatically paid in additional shares of
the same class, but you will be sent a check for each dividend
distribution. However, if the dividend distribution is less than five
dollars, the distribution will be automatically paid in additional
shares of the same class of the Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains
and other distributions if the total distribution is equal to or
greater than five dollars. If the distribution is less than five
dollars, it will be automatically paid in additional shares of the same
class of the Fund.
For retirement accounts, all distributions are automatically paid in additional
shares.
Taxes
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account (or you are
not otherwise exempt from income tax), you should be aware of the following tax
implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income generally are taxable to you as ordinary income whether received in cash
or paid in additional Fund shares.
32
<PAGE>
Distributions of the Fund's net capital gains, when designated as such, are
taxable to you as long-term capital gains, whether received in cash or paid in
additional Fund shares and regardless of the length of time you have owned your
shares. For Federal income tax purposes, your long-term capital gains generally
are taxed at a maximum rate of 20%.
The Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
A portion of the dividends paid by the Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the dividends
received deduction are subject indirectly to the Federal alternative minimum
tax.
Withholding. The Fund must withhold 31% of all dividends, capital gains and
other 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, capital
gains and other distributions also is required for shareholders subject to
backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the United Group generally will have similar tax consequences. However, special
rules apply when you dispose of Class A Fund shares through a redemption or
exchange within ninety days after your purchase and then reacquire Class A Fund
shares or acquire Class A shares of another fund in the United Group without
paying a sales charge due to the thirty-day reinvestment privilege or exchange
privilege. See "Your Account." In these cases, any gain on the disposition of
the original Class A Fund shares would be increased, or loss decreased, by the
amount of the sales charge you paid when those shares were acquired, and that
amount will increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares (regardless of class) at a loss, part or all of that
loss will not be deductible and will increase the basis of the newly purchased
shares.
33
<PAGE>
State and local income taxes. The portion of the dividends paid by the Fund
attributable to interest earned on its U.S. Government securities generally is
not subject to state and local income taxes, although distributions by the Fund
to its shareholders of net realized gains on the sale of those securities are
fully subject to those taxes. You should consult your tax adviser to determine
the taxability of dividends and other distributions by the Fund in your state
and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; you will find
more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
34
<PAGE>
The Management of the Fund
Portfolio Management
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. WRIMCO and its predecessors have served as investment
manager to each of the registered investment companies in the United Group of
Mutual Funds, Waddell & Reed Funds, Inc., and Target/United Funds, Inc. since
the inception of the company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the portfolio of the Fund. Mr. Seferovich has held his Fund
responsibilities since the inception of the Fund. He is Senior Vice President of
WRIMCO, Vice President of the Fund and Vice President of additional investment
companies for which WRIMCO serves as investment manager. Mr. Seferovich has
served as the portfolio manager of investment companies managed by WRIMCO and
its predecessor since February 1989 and has been an employee of such since
February 1989. From March 1996 to March 1998, Mr. Seferovich was Vice President
of, and a portfolio manager for, Waddell & Reed Asset Management Company, a
former affiliate of WRIMCO.
Mr. Sarris has held his Fund responsibilities since the inception of the Fund.
He is Vice President of WRIMCO, Vice President of the Fund and Vice President of
additional investment companies for which WRIMCO serves as investment manager.
Mr. Sarris served as an investment analyst with WRIMCO and its predecessor from
October 1, 1991 to January 1, 1996. From January, 1996 to May 1998 Mr. Sarris
served as an assistant portfolio manager and since May, 1998, he has served as a
portfolio manager for WRIMCO. He has been an employee of WRIMCO since October 1,
1991.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Management Fee
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected
35
<PAGE>
in its share price or dividends; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable by the Fund at the annual rates of: 0.85% of net
assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2
billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of
net assets over $3 billion. However, WRIMCO has agreed to waive its management
fee if the Fund's net assets are less than $25 million, subject to its right to
change or modify this waiver.
36
<PAGE>
<TABLE>
<CAPTION>
United Small Cap Fund, Inc.
<S> <C>
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
</TABLE>
37
<PAGE>
United Small Cap Fund, Inc.
_______________, 1999
You can get more information about the Fund in--
o its Statement of Additional Information (SAI) dated ______________, 1999,
which contains detailed information about the Fund, particularly its
investment policies and practices. You may not be aware of important
information about the Fund unless you read both the Prospectus and the SAI.
The current SAI is on file with the Securities and Exchange Commission
(SEC) and it is incorporated into this Prospectus by reference (that is,
the SAI is legally part of the Prospectus).
o its Annual and Semiannual Reports to Shareholders, which detail the Fund's
actual investments and include financial statements as of the close of the
particular annual or semiannual period. The annual report also contains a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the year covered by
the report.
To request a copy of the current SAI or copies of the Fund's most recent Annual
and Semiannual reports once available, without charge, or for other inquiries,
contact the Fund or Waddell & Reed, Inc. at the address and telephone number
below. Copies of the SAI, Annual and/or Semiannual reports may also be requested
via e-mail at [email protected].
Information about the Fund (including its current SAI and most recent Annual and
Semiannual Reports once available) is available from the SEC's web site at
http://www.sec.gov and from the SEC's Public Reference Room in Washington, D.C.
You can find out about the operation of the Public Reference Room and applicable
copying charges by calling 1-800-SEC-0330.
The Fund's SEC file number is: 811-09435.
WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-366-5465
NUP1018(__-99)
38
<PAGE>
UNITED SMALL CAP FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
________________, 1999
STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities is being filed with the
Securities and Exchange Commission. These securities may not be sold nor any
offers to buy accepted prior to the time the registration statement becomes
effective.
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the prospectus
("Prospectus") for the United Small Cap Fund, Inc. (the "Fund") dated
________________, 1999, which may be obtained from the Fund or its underwriter,
Waddell & Reed, Inc., at the address or telephone number shown above.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Performance Information ................................................ 2
Investment Strategies, Policies and Practices........................... 3
Investment Management and Other Services ............................... 38
Purchase, Redemption and Pricing of Shares ............................. 44
Directors and Officers ................................................. 62
Payments to Shareholders ............................................... 66
Taxes .................................................................. 68
Portfolio Transactions and Brokerage ................................... 73
Other Information ...................................................... 75
Financial Statements ................................................... 77
</TABLE>
<PAGE>
United Small Cap 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 company organized as a Maryland
corporation on June 3, 1999.
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may, from
time to time, publish the Fund's total return information and/or performance
rankings in advertisements and sales materials.
Total Return
Total return is the overall change in the value of an investment over a
given period of time. An average annual total return quotation is computed by
finding the average annual compounded rates of return over the one-, five-, and
ten-year periods that would equate the initial amount invested to the ending
redeemable value. Standardized total return information is calculated by
assuming an initial $1,000 investment and, for Class A shares, from deducting
the maximum sales load of 5.75%. All dividends and distributions are assumed to
be reinvested in shares of the applicable class at net asset value for the class
as of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions on Class A shares. The formula used to
calculate the total return for a particular class of the Fund is
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000
investment for the periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that class.
2
<PAGE>
The Fund may also quote unaveraged or cumulative total return for a
class which reflects the change in value of an investment in that class over a
stated period of time. Cumulative total returns will be calculated according to
the formula indicated above but without averaging the rate for the number of
years in the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may, from time to time, publish
in advertisements and sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each class of the Fund may also compare its
performance to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average. Performance information may be quoted numerically
or presented in a table, graph or other illustration. In connection with a
ranking, the Fund may provide additional information, such as the particular
category to which it related, the number of funds in the category, the criteria
upon which the ranking is based, and the effect of sales charges, fee waivers
and/or expense reimbursements.
All performance information that the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of the Fund's shares when redeemed may be
more or less than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Fund's investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which the Fund may
invest, in pursuit of the Fund's goal. A summary of the risks associated with
these instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by the Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help the Fund achieve its goal. See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-
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fundamental (e.g., operating) investment restrictions and policies of the Fund.
Securities - General
The Fund may invest in securities including common stock, preferred
stock, debt securities and convertible securities. Although common stocks and
other equity securities have a history of long-term growth in value, their
prices tend to fluctuate in the short term, particularly those of smaller
companies. The Fund may invest in preferred stock that is rated by an
established rating service or, if unrated, judged by WRIMCO to be of equivalent
quality. Debt securities have varying levels of sensitivity to changes in
interest rates and varying degrees of quality. As a general matter, however,
when interest rates rise, the values of fixed-rate securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt rise.
Similarly, long-term bonds are generally more sensitive to interest rate changes
than shorter-term bonds.
Lower quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. The market for
lower-rated debt securities may be thinner and less active than that for
higher-rated debt securities, which can adversely affect the prices at which the
former are sold. Adverse publicity and changing investor perceptions may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly traded market. Valuation becomes more difficult and judgment plays a
greater role in valuing lower-rated debt securities than with respect to
securities for which more external sources of quotations and last sale
information are available. Since the risk of default is higher for lower-rated
debt securities, WRIMCO's research and credit analysis are an especially
important part of managing securities of this type held by the Fund. WRIMCO
continuously monitors the issuers of lower-rated debt securities in the Fund's
portfolio in an attempt to determine if the issuers will have sufficient cash
flow and profits to meet required principal and interest payments. The Fund may
choose, at its expense or in conjunction with others, to pursue litigation or
otherwise exercise its rights as a security holder to seek to protect the
interests of security holders if it
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determines this to be in the best interest of the Fund's shareholders.
The Fund may invest in debt securities rated in any rating category of
the established rating services, including securities rated in the lowest
category (such as those rated D by Standard & Poor's ("S&P") and C by Moody's
Investor Services ("MIS")). Debt securities rated D by S&P or C by MIS are in
payment default or are regarded as having extremely poor prospects of ever
attaining any real investment standing. Debt securities rated at least BBB by
S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. In addition,
the Fund will treat unrated securities judged by WRIMCO to be of equivalent
quality to a rated security having that rating.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk. Credit ratings for individual securities may change from time
to time, and the Fund may retain a portfolio security whose rating has been
changed.
The Fund may purchase debt securities whose principal amount at
maturity is dependent upon the performance of a specified equity security. The
issuer of such debt securities, typically an investment banking firm, is
unaffiliated with the issuer of the equity security to whose performance the
debt security is linked. Equity-linked debt securities differ from ordinary debt
securities in that the principal amount received at maturity is not fixed, but
is based on the price of the linked equity security at the time the debt
security matures. The performance of equity-linked debt securities depends
primarily on the performance of the linked equity security and may also be
influenced by interest rate changes. In addition, although the debt securities
are typically adjusted for diluting events such as stock splits, stock dividends
and certain other events affecting the market value of the linked equity
security, the debt securities are not adjusted for subsequent issuances of the
linked equity security for cash. Such an issuance could adversely affect the
price of the debt security. In addition to the equity risk relating to the
linked equity security, such debt securities are also subject to credit risk
with regard to the issuer of the debt security. In general, however, such debt
securities are less volatile than the equity securities to which they are
linked.
The Fund may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed
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amount of common stock of the same or different issuer within a particular
period of time at a specified price or formula. Convertible securities generally
have higher yields than common stocks of the same or similar issuers, but lower
yields than comparable nonconvertible securities, are less subject to
fluctuation in the value that the underlying stock because they have fixed
income characteristics, and provide the potential for capital appreciation if
the market price of the underlying common stock increases.
The value of a convertible security is influenced by changes in
interest rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer and
other factors also may have an effect on the convertible security's investment
value.
The Fund may also invest in a type of convertible preferred stock that
pays a cumulative, fixed dividend that is senior to, and expected to be in
excess of, the dividends paid on the common 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.
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Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") are high quality debt
instruments issued or guaranteed as to principle or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
securities include Treasury Bills (which mature within one year of the date they
are issued), Treasury Notes (which have maturities of one to ten years) and
Treasury Bonds (which generally have maturities of more than 10 years). All such
Treasury securities are backed by the full faith and credit of the United
States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Fannie Mae, are supported
only by the credit of the instrumentality and by a pool of mortgage assets. If
the securities are not backed by the full faith and credit of the United States,
the owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government securities may include mortgage-backed securities
issued by U.S. Government agencies or instrumentalities including, but not
limited to, Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed
securities include pass-through securities, participation certificates and
collateralized mortgage obligations. See "Mortgage-Backed and Asset-Backed
Securities." Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United
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States. Freddie Mac and Fannie Mae are both instrumentalities of the U.S.
Government, but their obligations are not backed by the full faith and credit of
the United States. It is possible that the availability and the marketability
(i.e., liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments
that present minimal credit risk. They may include U.S. Government securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit and other financial institution obligations. These instruments may carry
fixed or variable interest rates.
Zero Coupon Securities
Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin to pay current interest; instead, they are
sold at a deep discount from their face value and are redeemed at face value
when they mature. Because zero coupon securities do not pay current income,
their prices can be very volatile when interest rates change and generally are
subject to greater price fluctuations in response to changing interest rates
than prices of comparable maturities that make current distributions of interest
in cash.
The Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). The Federal tax
law requires that a holder of a security with OID accrue a ratable portion of
the OID on the security as income each year, even though the holder may receive
no interest payment on the security during the year. Accordingly, although the
Fund will receive no payments on its zero coupon securities prior to their
maturity or disposition, it will have current income attributable to those
securities and includable in the dividends paid to its shareholders. Those
dividends will be paid from the Fund's cash assets or by liquidation of
portfolio securities, if necessary, at a time when the Fund otherwise might not
have done so.
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth
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Receipts), and TRs (Treasury Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. Original
issue zeros are zero coupon securities originally issued by the U.S. Government,
a government agency, or a corporation in zero coupon form.
Mortgage-Backed and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, mortgage
loans secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
in this SAI as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of the
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class.
The U.S. Government mortgage-backed securities in which the Fund may
invest include mortgage-backed securities issued or guaranteed as to the payment
of principal and interest (but not as to market value) by Ginnie Mae, Fannie Mae
or Freddie Mac. Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purpose entities. Payments of principal and interest (but not the market value)
of such private mortgage-backed securities may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or
indirectly, by the U.S. Government or one of its agencies or instrumentalities,
or they may be issued without any government guarantee of the underlying
mortgage assets but with some form of non-government credit enhancement. These
credit enhancements do not protect investors from changes in market value.
The Fund may purchase mortgage-backed securities issued by both
government and non-government entities such as banks, mortgage lenders or other
financial institutions. Other types of
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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 goal
and investment policies.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities are created when a U.S. Government agency or a financial institution
separates the interest and principal components of a mortgage-backed security
and sells them as individual securities. The holder of the "principal-only"
security ("PO") receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only" security
("IO") receives interest payments from the same underlying security.
For example, interest-only ("IO") classes are entitled to receive all
or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest allocable to the IO class, and therefore the yield
to investors, generally will be reduced. In some instances, an investor in an IO
may fail to recoup all of the investor's initial investment, even if the
security is government guaranteed or considered to be of the highest quality.
Conversely, principal-only ("PO") classes are entitled to receive all or a
portion of the principal payments, but none of the interest, from the underlying
mortgage assets. PO classes are purchased at substantial discounts from par, and
the yield to investors will be reduced if principal payments are slower than
expected. IOs, POs and other CMOs involve special risks, and evaluating them
requires special knowledge.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets are not first lien mortgage loans or interests
therein, but include assets such as motor vehicle installment sales contracts,
other installment sale contracts, home equity loans, leases of various types of
real and personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts or special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to a certain amount and for a certain time period by a letter of
credit or pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans or the financial
institution providing the credit enhancement.
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Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage-backed and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the
mortgage-backed securities, and this delay reduces the effective yield to the
holder of such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed-rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
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maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. However,
these effects may not be present, or may differ in degree, if the mortgage loans
in the pools have adjustable interest rates or other special payment terms, such
as a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in a
manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
Foreign Securities and Currencies
The Fund may invest in the securities of foreign issuers, including
depositary receipts. In general, depositary receipts are securities convertible
into and evidencing ownership of securities of foreign corporate issuers,
although depositary receipts may not necessarily be denominated in the same
currency as the securities into which they may be converted. American depositary
receipts, in registered form, are U.S. dollar-denominated receipts typically
issued by a U.S. bank or trust company evidencing ownership of the underlying
securities. International depositary receipts and European depositary receipts,
in bearer form, are foreign receipts evidencing a similar arrangement and are
designed for use by non-U.S. investors and traders in non-U.S. markets. Global
depositary receipts are designed to facilitate the trading of securities of
foreign issuers by U.S. and non-U.S. investors and traders..
WRIMCO believes that there are investment opportunities as well as
risks in investing in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national
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product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Individual foreign companies may also differ
favorably or unfavorably from domestic companies in the same industry. Foreign
currencies may be stronger or weaker than the U.S. dollar or than each other.
Thus, the value of securities denominated in or indexed to foreign currencies,
and of dividends and interest from such securities, can change significantly
when foreign currencies strengthen or weaken relative to the U.S. dollar. WRIMCO
believes that the Fund's ability to invest its assets abroad might enable it to
take advantage of these differences and strengths where they are favorable.
However, foreign securities and foreign currencies involve additional
significant risks, apart from the risks inherent in U.S. investments. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices on some foreign markets can be highly volatile. Many
foreign countries lack uniform accounting and disclosure standards comparable to
those applicable to U.S. companies, and it may be more difficult to obtain
reliable information regarding an issuer's financial conditions and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be greater possibility of
default by foreign governments or government-sponsored enterprises. Investments
in foreign countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
These is no assurance that WRIMCO will be able to anticipate these potential
events or counter their effects.
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The considerations noted above generally are intensified in developing
countries. A developing country is a nation that, in WRIMCO's opinion, is likely
to experience long-term gross domestic product growth above that expected to
occur in the United States, the United Kingdom, France, Germany, Italy, Japan
and Canada. Developing countries may have relatively unstable governments,
economies based on only a few industries and securities markets that trade a
small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
The Fund may purchase and sell foreign currency and invest in foreign
currency deposits, and may enter into forward currency contracts, as described
in the Prospectus and this SAI. The Fund may incur a transaction charge in
connection with the exchange of currency. Currency conversion involves dealer
spreads and other costs, although commissions are not usually charged. See
"Options, Futures and Other Strategies - Forward Currency Contracts" below.
Borrowing
From time to time the Fund may increase its ownership of securities by
borrowing on an unsecured basis at fixed rates of interest and investing the
borrowed funds. Any such borrowing will be made only from banks and only to the
extent that the value of the Fund's assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings including the proposed
borrowing. This 300% limit is contained in the Investment Company Act of 1940,
as amended (the "1940 Act"). If the value of the Fund's assets so computed
should fail to meet the 300% asset coverage requirement, it is required within
three days to reduce its bank debt to the extent necessary to meet that
requirement and may have to sell a portion of its investments at a time when
independent investment judgment would not dictate such sale.
Interest on money borrowed is an expense the Fund would not otherwise
incur, so that it may have little or no net investment income during periods of
substantial borrowings. Borrowing for investment increases both investment
opportunity and risk. Since substantially all of the Fund's assets fluctuate in
value, but borrowing obligations are fixed, the net asset value per share
correspondingly will tend to increase and decrease more when the portfolio
assets increase or decrease in value than would otherwise be the case. This
factor is known as "leverage."
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Warrants and Rights
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. Rights are similar to warrants, but
normally have a short duration and are distributed directly by the issuer to its
shareholders. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer. Warrants and rights
are highly volatile and, therefore, more susceptible to sharp decline in value
than the underlying security might be. They are also generally less liquid than
an investment in the underlying shares.
Lending Securities
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing the Fund's income. If the Fund lends securities, the
borrower pays the Fund an amount equal to the dividends or interest on the
securities that the Fund would have received if it had not lent the securities.
The Fund also receives additional compensation. The Fund makes loans of its
securities only to parties deemed by WRIMCO to be creditworthy.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). At the
time of each loan, the Fund must receive collateral equal to no less than 100%
of the market value of the securities loaned. Under the present Guidelines, the
collateral must consist of cash, U.S. Government securities or bank letters of
credit, at least equal in value to the market value of the securities lent on
each day that the loan is outstanding. If the market value of the lent
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities lent.
If the market value of the securities decreases, the borrower is entitled to
return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's
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securities), entered into at the request of the borrower and for its account and
risk, under which the banks are obligated to pay to the Fund, while the letter
is in effect, amounts demanded by the Fund if the demand meets the terms of the
letter. The Fund's right to make this demand secures the borrower's obligations
to it. The terms of any such letters and the creditworthiness of the banks
providing them (which might include the Fund's custodian bank) must be
satisfactory to the Fund. Under the Fund's current securities lending
procedures, the Fund may lend securities only to broker-dealers and financial
institutions deemed creditworthy by WRIMCO. The Fund will make loans only under
rules of the New York Stock Exchange ("NYSE"), which presently require the
borrower to give the securities back to the Fund within five business days after
the Fund gives notice to do so. If the Fund loses its voting rights on
securities loaned, it will have the securities returned to it in time to vote
them if a material event affecting the investment is to be voted on. The Fund
may pay reasonable finder's, administrative and custodian fees in connection
with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to (i) whom securities may be loaned; (ii) the investment of cash collateral; or
(iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 10%
of its net assets to be invested in illiquid investments, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or
broker-dealer) agrees, at the time of purchase, that it will repurchase the
security at a specified time and price. The amount by which the resale price is
greater than the purchase price reflects an agreed-upon market interest rate
effective for the period of the agreement. The return on the securities subject
to the repurchase agreement may be more or less than the return on the
repurchase agreement.
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The majority of the repurchase agreements in which the Fund would
engage are overnight transactions, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The primary risk
is that the Fund may suffer a loss if the seller fails to pay the agreed-upon
amount on the delivery date and that amount is greater than the resale price of
the underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays or
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans. In other
words, the value of the underlying securities, which will be held by the Fund's
custodian bank or by a third party that qualifies as a custodian under Section
17(f) of the 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.
Investment Company Securities
The Fund may purchase securities of closed-end investment companies. As
a shareholder in an investment company, the Fund would bear its pro rata share
of that investment company's expenses, which could result in duplication of
certain fees, including management and administrative fees.
Indexed Securities
The Fund may purchase securities the value of which varies in relation
to the value of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators, subject to its
operating policy regarding derivative instruments. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
The performance of indexed securities depends to a great extent on the
performance of the security, currency or other instrument to which they are
indexed and may also be influenced by interest rate changes in the United States
and abroad. At the same time, indexed securities are subject to the credit risks
associated with the issuer of the security and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying investments.
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Currency-indexed securities, for example, typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations,
and certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities generally can
be sold in privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, as amended, or in a registered
public offering. Where registration is required, the Fund may be obligated to
pay all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent the Fund from reselling the
securities at a time when such sale would be desirable. Restricted securities in
which the Fund seeks to invest need not be listed or admitted to trading on a
foreign or domestic exchange and may be less liquid than listed securities.
Certain restricted securities, e.g., Rule 144A securities, may be determined to
be liquid in accordance with guidelines adopted by the Board of Directors.
See "Illiquid Investments."
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Illiquid Investments
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Investments currently
considered to be illiquid include:
(i) repurchase agreements not terminable within seven days;
(ii) securities for which market quotations are not readily available;
(iii) restricted securities not determined to be liquid pursuant to
guidelines established by the Board of Directors;
(iv) bank deposits, unless they are payable at principal plus accrued
interest on demand or within seven days after demand;
(v) securities involved in swap, cap, collar and floor transactions;
(vi) non-government stripped fixed-rate mortgage-backed securities; and
(vii) 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.
If through a change in values, net assets, or other circumstances, the
Fund was in a position where more than 15% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Options, Futures and Other Strategies
General. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance income
or yield or to attempt to hedge the Fund's investments. The strategies described
below may be used in an attempt to manage the Fund's foreign currency exposure
as well as other risks of the Fund's investments that can affect fluctuation in
its net asset value.
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Generally, the Fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, the Fund will only purchase or sell
a particular Financial Instrument if the Fund is authorized to invest in the
type of asset by which the return on, or value of, the Financial Instrument is
primarily measured. Since the Fund is authorized to invest in foreign
securities, it may purchase and sell foreign currency derivatives.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in the Fund's portfolio. Thus, in a short hedge, the Fund
takes a position in a Financial Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that the Fund intends to acquire.
Thus, in a long hedge, the Fund takes a position in a Financial Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which the Fund has invested or expects to invest. Financial
Instruments on debt securities may be used to hedge either individual securities
or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several exchanges upon
which they are traded and the Commodity Futures Trading Commission (the "CFTC").
In addition, the Fund's ability to use Financial Instruments will be limited by
tax considerations. See "Taxes."
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In addition to the instruments, strategies and risks described below,
WRIMCO expects to discover additional opportunities in connection with Financial
Instruments and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new Financial Instruments or
other techniques are developed. WRIMCO may utilize these opportunities to the
extent that they are consistent with the Fund's goal and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Fund might not
use any of these strategies, and there can be no assurance that any strategy
used will succeed. The Fund's Prospectus or SAI will be supplemented to the
extent that new products or techniques involve materially different risks than
those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed and use of Financial Instruments could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of the
investments being hedged. For example, if the value of a Financial Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match the Fund's current or anticipated investments exactly. The Fund
may invest in
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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 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
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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.
(5) The Fund's ability to close out a position in a Financial
Instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction (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, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. The Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed-upon
price during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable the Fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put
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option declines to less than the exercise price of the option, minus the premium
received, the Fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid
Investments."
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, the Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Fund to
realize profits or limit losses on an option position prior to its exercise or
expiration. A type of put that the Fund may purchase is an "optional delivery
standby commitment," which is entered into by parties selling debt securities to
the Fund. An optional delivery standby commitment gives the Fund the right to
sell the security back to the seller on specified terms. This right is provided
as an inducement to purchase the security.
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Risks of Options on Securities. 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 instrument. The Fund may purchase or
write both exchange-traded and OTC options. Exchange-traded options in the
United States are issued by a clearing organization affiliated with the exchange
on which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its counterparty (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when the Fund purchases an OTC
option, it relies on the counterparty from whom it purchased the option to make
or take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. However,
there can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the counterparty, or by a transaction in the secondary market if any such
market exists. There can be no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, the Fund might be unable to close
out an OTC option position at any time prior to its expiration.
If the Fund were unable to effect 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 Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of, the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple (the
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"multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When the Fund buys a put on
an index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put, upon the Fund's exercise of the put, to deliver
to the Fund an amount of cash if the closing level of the index upon which the
put is based is less than the exercise price of the put, which amount of cash is
determined by the multiplier, as described above for calls. When the Fund writes
a put on an index, it receives a premium and the purchaser of the put has the
right, prior to the expiration date, to require the Fund to deliver to it an
amount of cash equal to the difference between the closing level of the index
and the exercise price times the multiplier if the closing level is less than
the exercise price.
Risks of Options on Indices. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when the Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The Fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, the Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to
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satisfy its assignment obligations by delivering those securities against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date. By the time it
learns that it has been assigned, the index may have declined, with a
corresponding decline in the value of its portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding securities positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by the Fund are
European-style options, This means that the option is only exercisable
immediately prior to its expiration. This is in contract to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average
duration of the Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of the Fund's fixed-income portfolio, the Fund may sell a debt
futures contract or a call option thereon, or purchase a put option on that
futures contract. If WRIMCO wishes to lengthen the average duration of the
Fund's
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fixed-income portfolio, the Fund may buy a debt futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions 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.
However, there can be no assurance that a liquid secondary market will exist for
a particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once that
limit is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move to
the daily
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limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on
a futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the futures contract or option or to maintain cash or
liquid assets in an account.
Risk of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
markets), due to the differences in the natures of those markets, are subject to
the following factors, which may create distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate, currency exchange rate or stock market trends by WRIMCO may still
not result in a successful transaction. WRIMCO may be incorrect in its
expectations as to the extent of various interest rate, currency exchange rate
or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in
the price of an index future and movements in the price of the securities that
are the subject of the hedge increases as the composition of the Fund's
portfolio diverges from the securities included in the applicable index. The
price of the index futures may move more than or less than the price of the
securities being hedged. If the price of the index future moves less than the
price of the securities that are the subject of the hedge, the hedge will not be
fully effective but, if the price of the securities being hedged has moved in an
unfavorable direction,
29
<PAGE>
the Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the futures contract. If the price of the
futures contract moves more than the price of the securities, the Fund will
experience either a loss or a gain on the futures contract that will not be
completely offset by movements in the price of the securities that are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of the securities being hedged and movements in the price of the
index futures, the Fund may buy or sell index futures in a greater dollar amount
than the dollar amount of 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 index futures contracts to hedge
against decline in the market, the market may advance and the value of the
securities held in the portfolio may decline. If this occurred, the Fund would
lose money on the futures contract and also experience a decline in value of its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the market indices upon
which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before the Fund is able to invest in them in an
orderly fashion, it is possible that the market may decline instead. If the Fund
then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) will not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund has entered into. (In general, a call option on a futures
contract is "in-the-money" if the value of the underlying futures contract
exceeds the strike, i.e., exercise, price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying futures contract is
exceeded by the strike price of the put.) This policy does not limit to 5% the
percentage of the Fund's
30
<PAGE>
assets that are at risk in futures contracts, options on futures contracts and
currency options.
Foreign Currency Hedging Strategies--Special Considerations. The Fund
may use options and futures contracts on foreign currencies (including the
Euro), as described above, and forward currency contracts, as described below,
to attempt to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated or to attempt to enhance income or
yield. Currency hedges can protect against price movements in a security that
the Fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
The Fund might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might
31
<PAGE>
take place in the underlying markets that cannot be reflected in the markets for
the Financial Instruments until they reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, the Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if the Fund owned securities denominated in Euros, it could enter
into a forward currency contract to sell Euros in return for U.S. dollars to
hedge against possible declines in the Euro's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the Euro. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
32
<PAGE>
The Fund also may use forward currency contracts to attempt to enhance
income or yield. The Fund could use forward currency contracts to increase its
exposure to foreign currencies that WRIMCO believes might rise in value relative
to the U.S. dollar, or shift its exposure to foreign currency fluctuations from
one country to another. For example, if the Fund owned securities denominated in
a foreign currency and WRIMCO believed that currency would decline relative to
another currency, it might enter into a forward currency contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or liquid assets in an account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements
33
<PAGE>
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward currency contracts
when it determines that the best interests of the Fund will be served.
Successful use of forward currency contracts depends on WRIMCO's skill
in analyzing and predicting currency values. Forward currency contracts may
substantially change the Fund's exposure to changes in currency exchange rates
and could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that WRIMCO will hedge at an
appropriate time.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures or forward
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.
34
<PAGE>
Swaps, Caps, Collars and Floors. The Fund may enter into swaps, caps,
collars and floors to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to attempt to
enhance yield. Swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
the cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar combines
elements of buying a cap and selling a floor.
Swap agreements, including caps, collars and floors, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the overall volatility of the Fund's
investments and its share price and yield because, and to the extent, these
agreements affect the Fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates, or other factors such as security prices or
inflation rates.
Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which the Fund enters into swaps,
caps or floors will be monitored by WRIMCO. If a firm's creditworthiness
declines, the value of the agreement would be likely to decline, potentially
resulting in losses. If a default occurs by the other party to such transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction.
The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
an amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian
35
<PAGE>
that satisfies the requirements of the 1940 Act. The Fund will also establish
and maintain such account with respect to its total obligations under any swaps
that are not entered into on a net basis and with respect to any caps or floors
that are written by the Fund. WRIMCO and the Fund believe that such obligations
do not constitute senior securities under the 1940 Act and, accordingly, will
not treat them as being subject to the Fund's borrowing restrictions. The Fund
understands that the position of the SEC is that assets involved in swap
transactions are illiquid and are, therefore, subject to the limitations on
investing in illiquid securities.
Investment Restrictions and Limitations
Certain of the Fund's investment restrictions and other limitations are
described in this SAI. The following are the Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's goal, cannot be
changed without shareholder approval. For this purpose, shareholder approval
means the approval, at a meeting of Fund shareholders, by the lesser of (1) the
holders of 67% or more of the Fund's shares represented at the meeting, if more
than 50% of the Fund's outstanding shares are present in person or by proxy or
(2) more than 50% of the Fund's outstanding shares. The Fund may not:
(i) Purchase or sell physical commodities; however, this policy
shall not prevent the Fund from purchasing and selling
foreign currency, futures contracts, options, forward
contracts, swaps, caps, collars, floors and other financial
instruments;
(ii) Buy real estate nor any nonliquid interest in real estate
investment trusts; however, the Fund may buy obligations or
instruments which it may otherwise buy even though the
issuer invests in real estate or interests in real estate;
(iii) Buy shares of other investment companies which redeem their
shares. The Fund can buy shares of investment companies that
do not redeem their shares if it does it in a regular
transaction in the open market and then does not have more
than one tenth (i.e., 10%) of its total assets in these
shares. The Fund may also buy these shares as part of a
merger or consolidation;
(iv) Lend money or other assets, other than through certain
limited types of loans described herein; the Fund can buy
debt securities and other obligations consistent with its
goal and its other investment policies and restrictions; it
can also lend its portfolio securities to the extent
allowed, and in accordance with the requirements, under the
1940 Act or, except as provided
36
<PAGE>
above, enter into repurchase agreements (see
"Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management
of other companies;
(vi) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vii) Sell securities short (unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short) or purchase securities on margin,
except that (1) this policy does not prevent the Fund from
entering into short positions in foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars,
floors and other financial instruments, (2) the Fund may
obtain such short-term credits as are necessary for the
clearance of transactions, and (3) the Fund may make margin
payments in connection with futures contracts, options,
forward contracts, swaps, caps, collars, floors and other
financial instruments;
(viii) Engage in the underwriting of securities, that is, the
selling of securities for others;
(ix) With respect to 75% of its total assets, purchase securities
of any one issuer (other than cash items and "Government
securities" as defined in the 1940 Act), if immediately
after and as a result of such purchase, (a) the value of the
holdings of the Fund in the securities of such issuer
exceeds 5% of the value of the Fund's total assets, or (b)
the Fund owns more than 10% of the outstanding voting
securities of such issuer; or buy the securities of
companies in any one industry if more than 25% of the Fund's
total assets would then be in companies in that industry; or
(x) Issue senior securities.
(xi) Borrow money except that, as a temporary measure for
extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks up to 5% of the
value of its total assets.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) At least 65% of the Fund's total assets will be invested
during normal market conditions in companies whose
37
<PAGE>
market capitalizations do not exceed $1.5 billion at the
time their securities are acquired by the Fund.
(ii) 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 total assets would consist of such
investments.
(iii) The Fund may not purchase a security if, as a result, more
than 15% of its net assets would consist of illiquid
investments.
(iv) The Fund does not currently intend to invest more than 10%
of its net assets in foreign securities.
(v) The Fund does not currently intend to invest more than 5% of
its total assets in the securities of other investment
companies.
An investment policy or limitation that states a maximum percentage of
the Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, the Fund's acquisition of an
asset. Accordingly, a subsequent change in the asset's value, net assets, or
other circumstances will not be considered when determining whether the
investment complies with the Fund's investment policies and limitations.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year and
dividing it by the monthly average of the market value of such securities during
the year, excluding certain short-term securities. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. 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
38
<PAGE>
29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
underwriter.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to
enter into a separate agreement for transfer agency services ("Shareholder
Servicing Agreement") and a separate agreement for accounting services
("Accounting Services Agreement") with the Fund. The Management Agreement
contains detailed provisions as to the matters to be considered by the Fund's
Board of Directors prior to approving any Shareholder Servicing Agreement or
Accounting Services Agreement.
Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly
owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The
address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
WRIMCO and its predecessors have served as investment manager to each
of the registered investment companies in the United Group of Mutual Funds,
except United Asset Strategy Fund, Inc., since 1940 or the company's inception
date, whichever was later, and to Target/United Funds, Inc. since that fund's
inception. WRIMCO has also served as investment manager for Waddell & Reed
Funds, Inc. since its inception in September 1992 and United Asset Strategy
Fund, Inc. since it commenced operations in March 1995. Waddell & Reed, Inc.
serves as principal underwriter for the investment companies in the United Group
of Mutual Funds and Waddell & Reed Funds, Inc. and acts as principal underwriter
and distributor for variable life insurance and variable annuity policies for
which Target/United Funds, Inc. is the underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund
and Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell &
Reed, Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
39
<PAGE>
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 the WRIMCO's management services,
the Fund pays WRIMCO a fee as described in the Prospectus.
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,
Class B and Class C shares the Fund pays the Agent a monthly fee of $1.3125 for
each shareholder account that was in existence at any time during the prior
month, plus $0.30 for each account on which a dividend or distribution, of cash
or shares, had a record date in that month. For Class Y shares, the Fund pays
the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average daily
net assets of that class for the preceding month. The Fund also pays certain
out-of-pocket expenses of the Agent, including long distance telephone
communications costs; microfilm and storage costs for certain documents; forms,
printing and mailing costs; and 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.
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<PAGE>
Accounting Services Fee
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
<S> <C>
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
</TABLE>
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 Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund.
No portion of the sales charge is reallowed to dealers. A major portion
of the sales charge for Class A shares and the contingent deferred sales charge
("CDSC") for Class B and Class C shares is paid to financial advisors and
managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its
financial advisors as to purchases for which there is no sales or deferred 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,
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<PAGE>
custodian fees, fees payable by the Fund under Federal or other securities laws
and to the Investment Company Institute and nonrecurring and extraordinary
expenses, including litigation and indemnification relating to litigation.
Under the Distribution and Service Plan (the "Plan") for Class A shares
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay
Waddell & Reed, Inc., the principal underwriter for the Fund, a fee not to
exceed 0.25% of the Fund's average annual net assets attributable to Class A
shares, paid monthly, to compensate Waddell & Reed, Inc. for its costs and
expenses in connection with the distribution of the Class A shares, the service
and/or maintenance of Class A shareholder accounts.
Waddell & Reed, Inc. offers the Fund's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
currently contemplated for Class A, Class B and Class C shares, to make
distribution of shares also through other broker-dealers. In distributing shares
through its sales force, Waddell & Reed, Inc. will pay commissions and
incentives to the sales force at or about the time of sale and will incur other
expenses including costs for prospectuses, sales literature, advertisements,
sales office maintenance, processing of orders and general overhead with respect
to its efforts to distribute the Fund's shares. The Class A Plan permits Waddell
& Reed, Inc. to receive compensation for these Class A-related distribution
activities through the distribution fee, subject to the limit contained in the
Plan. The Class A Plan also permits Waddell & Reed, Inc. to be compensated for
amounts it expends in compensating, training and supporting registered financial
advisors, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders of the Fund and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders of
the Fund by office personnel located at field sales offices; engaging in other
activities useful in providing personal service to Class A shareholders of the
Fund and/or maintenance of Class A shareholder accounts; and in compensating
broker-dealers who may regularly sell Class A shares of the Fund, and other
third parties, for providing shareholder services and/or maintaining shareholder
accounts with respect to Class A shares.
To the extent that Waddell & Reed, Inc. incurs expenses for which
compensation may be made under the Plan that relate to distribution and service
activities also involving another fund in the United Group of Funds or Waddell &
Reed Funds, Inc., Waddell & Reed, Inc. typically determines the amount
attributable to the Fund's expenses under the Plan on the basis of a combination
of
42
<PAGE>
the respective classes' relative net assets and number of shareholder accounts.
Under the Plans adopted by the Fund for Class B and Class C shares,
respectively, the Fund may pay Waddell & Reed, Inc., on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate Waddell & Reed, Inc. for providing services to shareholders of that
class and/or maintaining shareholder accounts for that class and a distribution
fee of up to 0.75% of the average daily net assets of the class to compensate
Waddell & Reed, Inc. for distributing the shares of that class. The Class B Plan
and the Class C Plan each permit Waddell & Reed, Inc. to receive compensation,
through the distribution and service fee, respectively, for its distribution
activities for that class, which are similar to the distribution activities
described with respect to the Class A Plan, and for its activities in providing
personal services to shareholders of that class and/or maintaining shareholder
accounts of that class, which are similar to the corresponding activities for
which it is entitled to compensation under the Class A Plan.
The only Directors or interested persons, as defined in the 1940 Act,
of the Fund who have a direct or indirect financial interest in the operation of
a Plan are the officers and Directors who are also officers of either Waddell &
Reed, Inc. or its affiliate(s) or who are shareholders of Waddell & Reed
Financial, Inc., the indirect parent company of Waddell & Reed, Inc. Each Plan
is anticipated to benefit the Fund and its shareholders of the affected class
through Waddell & Reed, Inc.'s activities not only to distribute the shares of
that class but also to provide personal services to shareholders of that class
and thereby promote the maintenance of their accounts with the Fund. The Fund
anticipates that shareholders of a particular class may benefit to the extent
that Waddell & Reed's activities are successful in increasing the assets of the
Fund, through increased sales or reduced redemptions, or a combination of these,
and reducing a shareholder's share of Fund and class expenses. Increased Fund
assets may also provide greater resources with which to pursue the goal of the
Fund. Further, continuing sales of a class's shares may also reduce the
likelihood that it will be necessary to liquidate portfolio securities, in
amounts or at times that may be disadvantageous to the Fund, to meet redemption
demands. In addition, the Fund anticipates that the revenues from the Plan will
provide Waddell & Reed, Inc. with greater resources to make the financial
commitments necessary to continue to improve the quality and level of services
to the Fund and the shareholders of the affected class.
Each Plan was approved by the Fund's Board of Directors, including the
Directors who are not interested persons of the Fund
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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").
Among other things, each Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the Directors
will review, a report of amounts expended under the Plan and the purposes for
which such expenditures were made, (ii) the Plan will continue in effect only so
long as it is approved at least annually, and any material amendments thereto
will be effective only if approved, by the Directors including the Plan
Directors acting in person at a meeting called for that purpose, (iii) amounts
to be paid by the Fund under the Plan may not be materially increased without
the vote of the holders of a majority of the outstanding shares of the affected
class of the Fund, and (iv) while the Plan remains in effect, the selection and
nomination of the Directors who are Plan Directors will be committed to the
discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, the custodian is responsible for holding the Fund's cash and
securities. Deloitte & Touche LLP, Kansas City, Missouri, the Fund's independent
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 sales charge is
paid to Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of ,
1999, which is the most recent balance sheet included in this SAI, was as
follows:
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<TABLE>
<S> <C>
Net asset value per Class A share (Class A net assets divided by Class
A shares
outstanding) ............................................................. $10.00
Add: selling commission (5.75% of offering
price) ................................................................... 0.61
------
Maximum offering price per Class A share
(Class A ..............................net asset value divided by 94.25%) $10.61
======
</TABLE>
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class B, Class C or a Class Y share is its net asset value
next determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after Waddell &
Reed, Inc. receives and accepts your order at its principal business office at
the address shown on the cover of this SAI. You will be sent a confirmation
after your purchase which will indicate how many shares you have purchased.
Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily
computed once on each day that the NYSE is open for trading as of the later of
the close of the regular session of the NYSE or the close of the regular session
of any domestic securities or commodities exchange on which an option or future
held by the Fund is traded. The NYSE annually announces the days on which it
will not be open for trading. The most recent announcement indicates that it
will not be open on the following days: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may
close on other days. The net asset value will change every business day, since
the value of the assets and the number of shares outstanding change every day.
The securities in the portfolio of the Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded
over-the-counter are priced using the Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks.
Bonds, other than convertible bonds, are valued using a third party pricing
system. Convertible bonds are valued
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using this pricing system only on days when there is no sale reported.
Short-term debt securities are valued at amortized cost, which approximates
market. When market quotations are not readily available, securities and other
assets are valued at fair value as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors.
Puts, calls and futures contracts purchased and held by the Fund are
valued at the last sales price thereof on the securities or commodities
exchanges on which they are traded, or, if there are no transactions, at the
mean between bid and asked prices. (Ordinarily, the close of the regular session
for options trading on national securities exchanges is 4:10 p.m. Eastern time
and the close of the regular session of commodities exchanges is 4:15 p.m.
Eastern time.) Futures contracts will be valued with reference to established
futures exchanges. The value of a futures contract purchased by the Fund will be
either the closing price of that contract or the bid price. Conversely, the
value of a futures contract sold by the Fund will be either the closing price or
the asked price.
When the Fund writes a put or call, an amount equal to the premium
received is included in the 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 the Fund receives
from the sale of the related investment is reduced by the amount of the premium
it paid. If a put or call written by the Fund expires, it has a gain in the
amount of the premium; if it enters into a closing purchase transaction, it will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction.
Optional delivery standby commitments are valued at fair value under
the general supervision and responsibility of the Fund's Board of Directors.
They are accounted for in the same manner as exchange-listed puts.
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<PAGE>
Minimum Initial and Subsequent Investments
For Class A, Class B and Class C shares, initial investments must be at
least $500 with the exceptions described in this paragraph. A $100 minimum
initial investment pertains to certain exchanges of shares from another fund in
the United Group. A $50 minimum initial investment pertains to purchases for
certain retirement plan accounts and to accounts for which an investor has
arranged, at the time of initial investment, to make subsequent purchases for
the account by having regular monthly withdrawals of $25 or more made from a
bank account. A minimum initial investment of $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;
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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"), salary reduction plan account under Section 457
of the Internal Revenue Code of 1986, as amended (the "Code"), 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 a UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.
All purchases of Class A shares made for a participant in a
multi-participant Keogh plan may be grouped only with other purchases made under
the same plan; a multi-participant Keogh plan is defined as a plan in which
there is more than one participant
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<PAGE>
where one or more of the participants is other than the spouse of the
owner/employer.
Example A: H has established a Keogh plan; he and his wife W are
the only participants in the plan; they may group their
purchases made under the plan with any purchases in
categories 1 through 7 above.
Example B: H has established a Keogh Plan; his wife, W, is a
participant and they have hired one or more employees who
also become participants in the plan; H and W may not
combine any purchases made under the plan with any
purchases in categories 1 through 7 above; however, all
purchases made under the plan for H, W or any other
employee will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code. All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer. All
qualified employee benefit plans of an employer who is a franchisor and those of
its franchisee(s) may also be grouped.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made
under both plans will be grouped.
All purchases of Class A shares made under a simplified employee
pension plan ("SEP"), payroll deduction plan or similar arrangement adopted by
an employer or affiliated employers (as defined above) may be grouped provided
that the employer elects to have all such purchases grouped at the time the plan
is set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping
may be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed,
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<PAGE>
Inc. at the time the purchase is made that it is eligible for grouping and
identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the
same time, H's parents open up three UGMA accounts for H and
W's three minor children and invest $10,000 in each child's
name; the combined purchase of $105,000 of Class A shares is
subject to a reduced sales load of 4.75% provided that Waddell
& Reed, Inc. is advised that the purchases are entitled to
grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund
three years ago. His account has a net asset value of $80,000.
His wife, W, now wishes to invest $20,000 in Class A shares of
the Fund. W's purchase will be combined with H's existing
account and will be entitled to a reduced sales charge of
4.75%. H's original purchase was subject to a full sales
charge and the reduced charge does not apply retroactively to
that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under such plan may be combined with the
additional purchase only if the contractual plan has been completed.
Letter of Intent
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Letter of Intent. By signing a Letter of Intent
form, which is available from Waddell & Reed, Inc., the purchaser indicates an
intention to invest, over a 13-month period, a dollar amount which is sufficient
to qualify for a reduced sales charge. The 13-month period begins on the date
the first purchase made under the Letter of Intent is
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<PAGE>
accepted by Waddell & Reed, Inc. Each purchase made from time to time under
the Letter of Intent is treated as if the purchaser were buying at one time the
total amount which he or she intends to invest. The sales charge applicable to
all purchases of Class A shares made under the terms of the Letter of Intent
will be the sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Letter of Intent, the investor's
Rights of Accumulation (see above) will be taken into account; that is, Class A
shares already held in the same account in which the purchase is being made or
in any account eligible for grouping with that account, as described above, will
be included.
Example: H signs a Letter of Intent indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to
purchase Class A shares at the sales charge applicable to a
purchase of $100,000. H has an IRA account and the Class A
shares held under the IRA in the Fund have a net asset value
as of the date the Letter of Intent is accepted by Waddell &
Reed, Inc. of $15,000; H's wife, W, has an account in her own
name invested in another fund in the United Group which
charges the same sales load as the Fund, with a net asset
value as of the date of acceptance of the Letter of Intent of
$10,000; H needs to invest $75,000 in Class A shares over the
13-month period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.
A copy of the Letter of Intent signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
The minimum initial investment under a Letter of Intent is 5% of the
dollar amount which must be invested under the Letter of Intent. An amount equal
to 5% of the purchase required under the Letter of Intent will be held "in
escrow." If a purchaser does not, during the period covered by the Letter of
Intent, invest the amount required to qualify for the reduced sales charge under
the
51
<PAGE>
terms of the Letter of Intent, 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 Letter of Intent
which is not completed will be collected by redeeming part of the shares
purchased under the Letter of Intent and held "in escrow" unless the purchaser
makes payment of this amount to Waddell & Reed, Inc. within 20 days of Waddell &
Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower than
that available under the Letter of Intent, the lower sales charge will apply.
A Letter of Intent does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Letter of Intent.
With respect to Letters of Intent for $2,000,000 or purchases otherwise
qualifying for no sales charge under the terms of the Letter of Intent, the
initial investment must be at least $200,000, and the value of any shares
redeemed during the 13-month period which were acquired under the Letter of
Intent will be deducted in computing the aggregate purchases under the Letter of
Intent.
Letters of Intent are not available for purchases made under a SEP plan
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the Class A shares of any of the funds in the United Group
subject to a sales charge. A purchase of Class A shares, or Class A shares held,
in any of the funds in the United Group subject to a sales charge will be
treated as an investment in the Fund in determining the applicable sales charge.
For these purposes, Class A shares of United Cash Management, Inc. that were
acquired by exchange of another United Group fund's Class A shares on which a
sales charge was paid, plus the shares paid as dividends on those acquired
shares, are also taken into account.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be
purchased at net asset value by the Directors and officers of the Fund,
employees of Waddell & Reed, Inc., employees of their affiliates, financial
advisors of Waddell & Reed, Inc. and the spouse, children, parents, children's
spouses and spouse's parents of each such Director, officer, employee and
financial advisor.
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<PAGE>
"Child" includes stepchild; "parent" includes stepparent. Purchases of Class A
shares in an IRA sponsored by Waddell & Reed, Inc. established for any of these
eligible purchasers may also be at net asset value. Purchases in any
tax-qualified retirement plan under which the eligible purchaser is the sole
participant may also be made at net asset value. Trusts under which the grantor
and the trustee or a co-trustee are each an eligible purchaser are also eligible
for net asset value purchases of Class A shares. "Employees" includes retired
employees. A retired employee is an individual separated from service from
Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Employees" also includes individuals who, on November 6, 1998, were
employees (including retired employees) of a company that on that date was an
affiliate of Waddell & Reed, Inc. "Financial advisors" includes retired
financial advisors. A "retired financial advisor" is any financial advisor who
was, at the time of separation from service from Waddell & Reed, Inc., a Senior
Financial Advisor. A custodian under UGMA or UTMA purchasing for the child or
grandchild of any employee or financial advisor may purchase Class A shares at
net asset value whether or not the custodian himself is an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100 or
more eligible employees may be made at net asset value.
Shares may also be issued at NAV in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund is a party.
Reasons for Difference in Public Offering Price of Class A Shares
As described herein and in the Prospectus for Class A shares, there are
a number of instances in which the Fund's Class A shares are sold or issued on a
basis other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated sales
charges for larger purchases of Class A shares, whether made at one time or over
a period of time as under a Letter of Intent or right of accumulation. See the
table of sales charges in the Prospectus. The reasons for these quantity
discounts are, in general, that (i) they are traditional and have long been
permitted in the industry and are therefore necessary to meet competition as to
sales of shares of other funds having such discounts, (ii) certain quantity
discounts are required by rules of the National Association of Securities
Dealers, Inc. (as are elimination of sales charges on the reinvestment of
dividends and distributions), and (iii) they are designed to avoid an unduly
53
<PAGE>
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 because such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments of
redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted in the 1940 Act from the otherwise applicable restrictions as to what
sales charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing Class A shareholders
adversely affected since, in each case, the Fund receives the net asset value
per share of all shares sold or issued.
Flexible Withdrawal Service for Class A, Class B and Class C Shareholders
If you qualify, you may arrange to receive through the Flexible
Withdrawal Service (the "Service") regular monthly, quarterly, semiannual or
annual payments by redeeming on an ongoing basis Class A, Class B or Class C
shares that you own of the Fund or of any of the funds in the United Group. It
would be a disadvantage to an investor to make additional purchases of Class A
shares while the service is in effect because it would result in duplication of
sales charges. Class C shares purchased within the past year remain subject to
CDSC; however, Class B shares redeemed under the service are not subject to a
CDSC. Applicable forms to start the Service are available through Waddell & Reed
Services Company.
The maximum amount of the withdrawal for monthly, quarterly, semiannual
and annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50. The Service, and
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this exclusion from the deferred sales charge, does not apply to a one-time
withdrawal.
To qualify for the Service, you must have invested at least $10,000 in
Class A, Class B or Class C shares which you still own of any of the funds in
the United Group; or, you must own Class A, Class B or Class C shares having a
value of at least $10,000. The value for this purpose is the value at the
offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the account (you
select the percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment
is to be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
The dividends and distributions on shares of a class you have made
available for the Service are paid in additional shares of that class. All
payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of shares you own will decrease. When all of the
shares in an 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. You can change to any one of the other choices originally
available to you. You may, at any time, redeem part or all of the shares in your
account; if you redeem all of the shares, the Service is terminated. The Fund
can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax return.
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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 corresponding shares of another fund
in the United Group. The shares you exchange must be worth at least $100 or you
must already own shares of the fund in the United Group into which you want to
exchange.
You may exchange Class A shares you own in another fund in the United
Group for Class A shares of the Fund without charge if (i) a sales charge was
paid on these shares, or (ii) the shares were received in exchange for shares
for which a sales charge was paid, or (iii) the shares were acquired from
reinvestment of dividends and distributions paid on such shares. There may have
been one or more such exchanges so long as a sales charge was paid on the shares
originally purchased. Also, shares acquired without a sales charge because the
purchase was $2 million or more will be treated the same as shares on which a
sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Class A shares of these funds may be exchanged for Class A
shares of the Fund only if (i) you received those shares as a result of one or
more exchanges of shares on which a sales charge was originally paid, or (ii)
the shares have been held from the date of the original purchase for at least
six months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of Class A shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any other
fund in the United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must own
Class A shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange 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 $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 the Fund if you meet the criteria for purchasing
Class Y shares.
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Class B Share Exchanges
You may exchange Class B shares of the Fund for Class B shares of other
funds in the United Group without charge.
The redemption of the Fund's Class B shares as part of an exchange is
not subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class B shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class B
shares of the Fund. The shares of United Cash Management, Inc. which you
designate must be worth at least $100, which may be allocated among different
Funds so long as each Fund receives a value of at least $25. Minimum initial
investment and minimum balance requirements apply to such service.
Class C Share Exchanges
You may exchange Class C shares of the Fund for Class C shares of other
funds in the United Group without charge.
The redemption of the Fund's Class C shares as part of an exchange is
not subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class C shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class C
shares of the Fund. The shares of United Cash Management, Inc. which you
designate must be worth at least $100, which may be allocated among different
Funds so long as each Fund receives a value of at least $25. Minimum initial
investment and minimum balance requirements apply to such service.
Class Y Share Exchanges
Class Y shares of the Fund may be exchanged for Class Y shares of any
other fund in the United Group or for Class A shares of United Cash Management,
Inc.
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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
Your account may be set up as a funding vehicle for a retirement plan.
For individual taxpayers meeting certain requirements, Waddell & Reed, Inc.
offers model or prototype documents for the following retirement plans. All of
these plans involve investment in shares of the Fund (or shares of certain other
funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income
may set up a plan that is commonly called an IRA. Under a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, the annual maximum is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year even if one
spouse had no earned income. Generally, the contributions are deductible unless
the investor (or, if married, either spouse) is an active participant in a
qualified retirement plan or if, notwithstanding that the investor or one or
both spouses so participate, their adjusted gross income does not exceed certain
levels. However, a married investor who is not an active participant, files
jointly with his or her spouse and whose combined adjusted gross income does not
exceed $150,000, is not affected by the spouse's active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution from an
employer's plan or (b) a rollover of an eligible distribution paid to the
investor from an employer's plan or another IRA. To the extent a rollover
contribution is made to a traditional IRA, the distribution will not be subject
to Federal income tax until distributed from the IRA. A direct rollover
generally applies to any distribution from an employer's plan (including a
custodial account under Section 403(b)(7) of the Code, but not an IRA) other
than certain periodic payments, required minimum distributions and other
specified distributions.
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In a direct rollover, the eligible rollover distribution is paid directly to the
IRA, not to the investor. If, instead, an investor receives payment of an
eligible rollover distribution, all or a portion of that distribution generally
may be rolled over to an IRA within 60 days after receipt of the distribution.
Because mandatory Federal income tax withholding applies to any eligible
rollover distribution which is not paid in a direct rollover, investors should
consult their tax advisers or pension consultants as to the applicable tax
rules. If you already have an IRA, you may have the assets in that IRA
transferred directly to an IRA offered by Waddell & Reed, Inc.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an investor
whose adjusted gross income does not exceed $100,000 (and who is not a married
person filing a separate return), certain distributions from traditional IRAs
may be rolled over to a Roth IRA and any of the investor's traditional IRAs may
be converted into a Roth IRA; these rollover distributions and conversions are,
however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years and
the account holder has reached age 59 1/2 (or certain other conditions apply).
Education IRAs. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute up to
$500 to an Education IRA (or to each of multiple Education IRAs), provided that
no more than $500 may be contributed for any year to Education IRAs for the same
beneficiary. Contributions are not deductible and may not be made after the
beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or a member of his or her family).
Simplified Employee Pension (SEP) plans. Employers can make
contributions to SEP-IRAs established for employees. An employer may contribute
up to 15% of compensation or $24,000, whichever is less, per year for each
employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute
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to its employees' retirement accounts. A SIMPLE plan can be funded by either an
IRA or a 401(k) plan. In general, an employer can choose to match employee
contributions dollar-for-dollar (up to 3% of an employee's compensation) or may
contribute to all eligible employees 2% of their compensation, whether or not
they defer salary to their retirement plans. SIMPLE plans involve fewer
administrative requirements than 401(k) or other qualified plans generally.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit-sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government
or of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code. Some
organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
Pension and Profit-Sharing Plans, including 401(k) Plans. With a 401(k)
plan, employees can make tax-deferred contributions into a plan to which the
employer may also contribute, usually on a matching basis. An employee may defer
each year up to 25% of compensation, subject to certain annual maximums, which
may be increased each year based on cost-of-living adjustments.
More detailed information about these arrangements and applicable forms
are available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
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
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portfolio securities. Payment for redemption of shares of the Fund may be made
in portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount of Class A shares you redeem
from the Fund by sending to the Fund the amount you with to reinvest. The amount
you return will be reinvested in Class A shares at the net asset value next
determined after the Fund receives the returned amount. Your written request to
reinvest and the amount to be reinvested must be received within 30 days after
your redemption request was received, and the Fund must be offering Class A
shares at the time your reinvestment request is received. You can do this only
once as to Class A shares of the Fund. You do not use up this privilege by
redeeming Class A shares to invest the proceeds at net asset value in a Keogh
Plan or an IRA.
There is also a reinvestment privilege for Class B and Class C shares
under which you may reinvest all or part of any amount of Class B or Class C
shares you redeemed and have the corresponding amount of the deferred sales
charge, if any, which you paid restored to your account by adding the amount of
that charge to the amount you are reinvesting. If Class B or Class C shares of
the Fund are then being offered, you can put all or part of your redemption
payment back into the Class B or Class C shares of the Fund at the net asset
value next determined after you have returned the amount. Your written request
to do this must be received within 30 days after your redemption. You can do
this only once as to Class B shares of the Fund and only once as to Class C
shares of the Fund. For purposes of determining future deferred sales charges,
the reinvestment will be treated as a new investment. You do not use up this
privilege by redeeming Class B or Class C shares to invest the proceeds at net
asset value in a Keogh plan or an IRA.
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Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under
any account or any plan if the aggregate net asset value of such shares (taken
at cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors. The majority of the
Directors are not affiliated with Waddell & Reed, Inc.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Vogel is a member of the Fund's Board of Directors. The other
persons are officers but not members of the Board of Directors. For purposes of
this section, the term "Fund Complex" includes each of the registered investment
companies in the United Group of Mutual Funds, Waddell & Reed Funds, Inc. and
Target/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.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Principal Financial Officer and Director of Waddell & Reed Financial,
Inc.; President, Chairman of the Board of Directors and Chief Executive Officer
of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors
of WRIMCO, Waddell & Reed, Inc. and Waddell & Reed Services Company; formerly,
President of each of the funds in the Fund Complex; formerly, Chairman of the
Board of Directors of Waddell & Reed Asset Management Company, a former
affiliate of Waddell & Reed Financial, Inc. Date of birth: February 11, 1945.
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JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President, JoDill Corp., an agricultural company; President and
Director of Dillingham Enterprises Inc.; formerly, Director and consultant,
McDougal Construction Company; formerly, Instructor at Central Missouri State
University; formerly, Member of the Board of Police Commissioners, Kansas City,
Missouri; formerly, Senior Vice President-Sales and Marketing, Garney Companies,
Inc., a specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores Dori
Eccles Foundation. Director of First Security Corp., a bank holding company, and
Director of Fluor Corp., a company with interests in coal. Date of birth: March
24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Partner, Levy and Craig, P.C., a law firm. Date of
birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents and Adjunct Professor of Law at
the University of Oklahoma College of Law; formerly, Vice President for
Executive Affairs of the University of Oklahoma; formerly, an Attorney with
Crowe & Dunlevy, a law firm. Date of birth: January 17, 1967.
JOHN F. HAYES
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
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ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Vice President, Chief
Operating Officer, Director and Treasurer of Waddell & Reed Financial Services,
Inc.; Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal Financial
Officer, Director and Treasurer of Waddell & Reed, Inc.; President, Director and
Treasurer of Waddell & Reed Services Company; formerly, Vice President of each
of the funds in the Fund Complex; formerly, Director and Treasurer of Waddell &
Reed Asset Management Company, a former affiliate of Waddell & Reed Financial,
Inc. Date of birth: November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, Treasurer and Director of Waddell
& Reed Financial, Inc.; Vice President, Chief Investment Officer and Director of
Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.;
President, Chief Executive Officer, Chief Investment Officer and Director of
WRIMCO; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: December 8, 1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
each of the funds in the Fund Complex then in existence. (Mr. Morgan retired as
Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company. Date of birth:
April 27, 1928.
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RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director of Network Rehabilitation Services; formerly, Employment
Counselor and Director of McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Professor of Business Administration, University of Missouri-Kansas City;
formerly, Chancellor, University of Missouri-Kansas City. Date of birth: January
1, 1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
Helge K. Lee
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Secretary and General Counsel of Waddell &
Reed Financial, Inc.; Vice President, Secretary, General Counsel and Director of
Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary, General Counsel and Director of Waddell & Reed Services Company;
formerly, Executive Vice President, Secretary and Chief Compliance Officer of
LGT Asset Management, Inc. and affiliates; formerly, Senior Vice President,
General Counsel and Secretary of Strong Capital Management, Inc. and affiliates.
Date of birth: March 30, 1946.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell &
Reed Services Company. Date of birth: July 18, 1942.
Grant P. Sarris
Vice President of the Fund and two other funds in the Fund Complex, and
Vice President of WRIMCO. Date of birth: September 14, 1966.
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Mark G. Seferovich
Vice President of the Fund and two other funds in the Fund Complex and
Senior Vice President of WRIMCO; formerly, Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company. Date of birth: April 6,
1947.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be "interested persons" as defined
in the 1940 Act of the Fund's underwriter, Waddell & Reed, Inc., or WRIMCO are
indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a Director may elect after resignation from the Board
provided the Director has attained the age of 70 and has served as a Director of
the Funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Fund.
The funds in the United Group, Target/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $48,000 per year, plus $2,500
for each meeting of the Board of Directors attended plus reimbursement of
expenses of attending such meeting and $500 for each committee meeting attended
which is not in conjunction with a Board of Directors meeting, other than
Directors who are affiliates of Waddell & Reed, Inc. The fees to the Directors
who receive them are divided among the funds in the United Group, Target/United
Funds, Inc. and Waddell & Reed Funds, Inc. based on their relative size. It is
anticipated that the Fund's Directors will receive the following fees for
service as a director:
Compensation Table
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund* Complex**
<S> <C> <C>
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 0 64,250
John A. Dillingham 0 64,250
David P. Gardner 0 64,250
Linda K. Graves 0 64,250
Joseph Harroz, Jr. 0 64,250
John F. Hayes 0 64,250
Glendon E. Johnson 0 64,250
William T. Morgan 0 64,250
Ronald C. Reimer 0 64,250
Frank J. Ross, Jr. 0 64,250
Eleanor B. Schwartz 0 64,250
Frederick Vogel III 0 64,250
</TABLE>
* For the current fiscal year, the Directors have agreed to not allocate any
portion of their total compensation to the Fund.
**No pension or retirement benefits have been accrued as a part of Fund
expenses. This information is based on prospective fees to be earned for the
fourth quarter of 1999 and the first three quarters of 2000.
The officers are paid by WRIMCO or its affiliates.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is net investment income, which is derived
from the dividends, interest and earned discount on the securities the Fund
holds, less expenses (which will vary by class). The second source is net
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realized capital gains, which are derived from the proceeds received from the
Fund's sale of securities at a price higher than the Fund's tax basis (usually
cost) in such securities, less losses from sales of securities at a price lower
than the Fund's basis therein these gains can be either long-term or short-term,
depending on how long the Fund has owned the securities before it sells them.
The third source is net realized gains from foreign currency transactions. The
payments made to shareholders from net investment income, net short-term capital
gains, and net realized gains from certain foreign currency transactions are
called dividends.
The Fund pays distributions from net realized capital gains (the excess
of net long-term capital gains over net short-term capital losses). It may or
may not have such gains, depending on whether securities are sold and at what
price. If the Fund has net realized capital gains, it will pay distributions
once each year, in the latter part of the fourth calendar quarter, except to the
extent it has net capital losses carried over from a prior year or years to
offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions (ii) you want your dividends and
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid. However, a total dividend and/or distribution amount
less than five dollars will be automatically paid in shares of the Fund of the
same class as that with respect to which they were paid. You can change your
instructions at any time. If you give no instructions, your dividends and
distributions will be paid in shares of the Fund of the same class as that with
respect to which they were paid. All payments in shares are at net asset value
without any sales charge. The net asset value used for this purpose is that
computed as of the record date for the dividend or distribution, although this
could be changed by the Board of Directors.
Even if you get dividends and distributions on Fund shares in cash, you
can thereafter reinvest them (or distributions only) in shares of the Fund at
net asset value (i.e., no sales charge) next determined after receipt by Waddell
& Reed, Inc. of the amount
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clearly identified as a reinvestment. The reinvestment must be within 45 days
after the payment.
TAXES
General
The Fund intends to qualify for treatment as a regulated investment
company ("RIC") under the Code, so that it is relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of
taxable net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) that is distributed to its shareholders.
To qualify as a RIC, the Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable income
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from options,
futures contracts or forward contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities ("50% Diversification Test"); and (3) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer.
If the Fund failed to qualify for treatment as a RIC for any taxable year,
(a) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year (even if it distributed that income to its
shareholders) and (b) the shareholders would treat all distributions out of its
earnings and profits, including distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), as dividends (that
is, ordinary income). In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial
distributions before requalifying for RIC treatment.
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Dividends and distributions declared by the Fund in December of any
year and payable to its shareholders of record on a date in that month are
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if they are paid by the Fund during the following
January. Accordingly, those dividends and distributions will be taxed to the
shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the investor will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the Fund's policy to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Code permits
the Fund to defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received, and gains realized, by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
returns on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which the Fund is a U.S. shareholder that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive;
or (2) an average of at least 50% of its assets produce, or are
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<PAGE>
held for the production of, passive income. Under certain circumstances, a Fund
will be subject to Federal income tax on a portion of any "excess distribution"
received on the stock of a PFIC or of any gain on disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund will be required to include in income each year
its pro rata share of the QEF's annual ordinary earnings and net capital gains
- - - -- which probably would have to be distributed by the Fund to satisfy the
Distribution Requirement and avoid imposition of the Excise Tax -- even if those
earnings and gains were not distributed to the Fund by the QEF. In most
instances it will be very difficult, if not impossible, to make this election
because of certain requirements thereof.
The Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
the Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the Fund also would be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included by the Fund for
prior taxable years. The Fund's adjusted basis in each PFIC's stock with respect
to which it makes this election will be adjusted to reflect the amounts of
income included and deductions taken under the election. Regulations proposed in
1992 provide a similar election with respect to the stock of certain PFICs.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of debt securities denominated in a foreign currency that
are attributable to fluctuations in the value of the foreign currency between
the date of acquisition of the security and the date of disposition, and (3)
that are attributable to fluctuations in exchange rates that occur between the
time the Fund accrues interest, dividends or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually
70
<PAGE>
collects the receivables or pays the liabilities, generally are treated as
ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of the Fund's
investment company taxable income to be distributed to its shareholders.
Income from Options, Futures and Forward Currency Contracts and Foreign
Currencies
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
the Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by the
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
Any income the Fund earns from writing options is treated as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it 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 thus the Fund sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale.
Certain options, futures contracts and forward currency contracts in
which the Fund may invest may be "section 1256 contracts." Section 1256
contracts held by the Fund at the end of its taxable year, other than contracts
subject to a "mixed straddle" election made by the Fund, are "marked-to-market"
(that is, treated as sold at that time for their fair market value) for Federal
income tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gains or losses
recognized on these deemed sales, and 60% of any net realized gains or losses
from any actual sales of section 1256 contracts, are treated as long-term
capital gains or losses, and the balance is treated as short-term capital gains
or losses. That 60% portion will qualify for the 20% (10% for taxpayers in the
15% marginal tax bracket) maximum tax rate on net capital gains enacted by the
Taxpayer Relief Act of 1997. Section 1256 contracts also may be marked-to-market
for purposes of the Excise Tax and for other purposes. The Fund may need to
71
<PAGE>
distribute any mark-to-market gains to its shareholders to satisfy the
Distribution Requirement and/or avoid imposition of the Excise Tax, even though
it may not have closed the transactions and received cash to pay the
distributions.
Code section 1092 (dealing with straddles) may also affect the taxation
of options and futures contracts in which the Fund may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. The regulations under section
1092 also provide certain "wash sale" rules that apply to transactions where a
position is sold at a loss and a new offsetting position is acquired within a
prescribed period, and "short sale" rules applicable to straddles. If the Fund
makes certain elections, the amount, character and timing of the recognition of
gains and losses from the affected straddle positions will be determined under
rules that vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely clear.
If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward currency contract entered into by the
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
Zero Coupon and Payment-in-Kind Securities
The Fund may acquire zero coupon or other securities issued with OID.
As the holder of those securities, the Fund must include in its income the OID
that accrues on the securities during the taxable year, even if the Fund
receives no corresponding payment on the securities during the year. Similarly,
the Fund must include in its gross income securities it
72
<PAGE>
receives as "interest" on payment-in-kind securities. Because the Fund annually
must distribute substantially all of its investment company taxable income,
including any accrued OID and other non-cash income, in order to satisfy the
Distribution Requirement 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 gains.
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 individuals
who manage the Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the managers will frequently place
concurrent orders for all or most accounts for which the managers have
responsibility or WRIMCO may otherwise combine orders for the Fund with those of
other funds in the United Group, Target/United Funds, Inc. and Waddell & Reed
Funds, Inc. or other accounts for which it has investment discretion, including
accounts of persons affiliated with WRIMCO. Under current written procedures,
transactions effected pursuant to such combined orders are averaged as to price
and allocated in accordance with the purchase or sale orders actually placed for
each fund or advisory account, except where the combined order is not filled
completely. In this case, WRIMCO will ordinarily allocate the transaction pro
rata based on the orders placed, subject to certain variances provided for in
the written procedures. Sharing in large transactions could affect the price the
Fund pays or receives or the amount it buys and sells. However, sometimes a
better negotiated commission is available through combined orders.
To effect the portfolio transactions of the Fund, WRIMCO is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to seek "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
73
<PAGE>
competitive commissions. WRIMCO need not seek competitive commission bidding but
is expected to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund. Subject to review by the Board of Directors,
such policies include the selection of brokers which provide execution and/or
research services and other services including pricing or quotation services
directly or through others ("research and brokerage services") considered by
WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO has investment discretion.
Research and brokerage services are, in general, defined by reference
to Section 28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities
and the availability of securities and purchasers or sellers, (ii) furnishing
analyses and reports, or (iii) effecting securities transactions and performing
functions incidental thereto (such as clearance, settlement and custody).
"Investment discretion" is, in general, defined as having authorization to
determine what securities shall be purchased or sold for an account, or making
those decisions even though someone else has responsibility.
The commissions paid to brokers that provide such research and/or
brokerage services may be higher than another qualified broker would charge for
effecting comparable transactions if a good faith determination is made by
WRIMCO that the commission is reasonable in relation to the research or
brokerage services provided. Subject to the foregoing considerations WRIMCO may
also consider sales of Fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO, and investment
research received for the commissions of those other accounts may be useful both
to the Fund and one or more of such other accounts. To the extent that
electronic or other products provided by such brokers to assist WRIMCO in making
investment management decisions are used for administration of 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
74
<PAGE>
institutional activity areas. It serves to broaden the scope and supplement the
research activities of WRIMCO; serves to make available additional views for
consideration and comparisons; and enables WRIMCO to obtain market information
on the price of securities held in the Fund's portfolio or being considered for
purchase.
The Fund may also use its brokerage to pay for pricing or quotation
services to value securities.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
OTHER INFORMATION
The Shares of the Fund
The Fund offers four classes of shares: Class A, Class B, Class C and
Class Y. Each class represents an interest in the same assets of the Fund and
differ as follows: each class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that class; Class A shares are
subject to an initial sales charge and to an ongoing distribution and/or service
fee; Class B and Class C are subject to a CDSC and to ongoing distribution and
service fees; Class B shares convert at the end of the seventh calendar year
following the first year of purchase to Class A shares; and Class Y shares,
which are designated for institutional investors, have no sales charge nor
ongoing distribution and/or service fee; each class may bear differing amounts
of certain class-specific expenses; and each class has a separate exchange
privilege. The Fund does not anticipate that there will be any conflicts between
the interests of holders of the different classes of shares of the Fund by
virtue of those classes. On an ongoing basis, the Board of Directors will
consider whether any such conflict exists and, if so, take appropriate action.
Each share of the Fund is entitled to equal voting, dividend, liquidation and
redemption rights, except that due to the differing expenses borne by the four
classes, dividends and liquidation proceeds of Class B shares and Class C shares
are expected to be lower than for Class A shares, which in turn are expected to
be lower than for Class Y shares of the Fund. Each fractional share of a class
has the same rights, in proportion, as a full share of that class. Shares are
fully paid and nonassessable when purchased.
The Fund does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in
75
<PAGE>
fundamental investment policy, which require shareholder approval will be
presented to shareholders at a meeting called by the Board of Directors for such
purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the bylaws are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at time which the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund
vote together as a single class, except as to any matter for which a separate
vote of any class is required by the 1940 Act, and except as to any matter which
affects the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class.
Initial Investment and Organizational Expenses
On September 3, 1999, Waddell & Reed, Inc. purchased for investment 10,000
shares of the Fund at a net asset value of $10.00 per share. As of the date of
this SAI, it was the sole shareholder of the Fund.
76
<PAGE>
UNITED SMALL CAP FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 15, 1999
<TABLE>
<S> <C>
Assets
Cash held by the Custodian .......................................................... $100,000
Prepaid registration fees and offering costs ........................................ 68,255
--------
Total assets ..................................................................... 168,255
--------
LIABILITIES
Liabilities and accrued expenses .................................................... (68,255)
--------
NET ASSETS ............................................................................. $100,000
========
Net Assets
$0.001 par value capital stock
Capital stock .................................................................... $ 10
Additional paid-in capital ....................................................... 99,990
--------
Net assets applicable to outstanding units
of capital .................................................................. $100,000
========
Net asset value per share (net assets divided
by shares outstanding)
Class A ............................................................................. $10.00
Capital shares outstanding
Class A .............................................................................. 10,000
Capital shares authorized .............................................................. 1,000,000,000
</TABLE>
77
<PAGE>
UNITED SMALL CAP FUND, INC.
NOTE TO FINANCIAL STATEMENT
SEPTEMBER 15, 1999
NOTE 1 -- Organization
United Small Cap Fund, Inc. (the "Fund"), a Maryland corporation, was
organized on June 3, 1999, and has been inactive since that date except for
matters relating to its organization and registration as an investment company
under the Investment Company Act of 1940 and the registration of its shares
under the Securities Act of 1940 and the registration of its shares under the
Securities Act of 1933.
Waddell & Reed Investment Management Company, investment manager to the
Fund, and Waddell & Reed Services Company, shareholder servicing agent and
accounting services agent for the Fund, are each wholly owned subsidiaries of
W&R. W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
On September 3, 1999, Waddell & Reed, Inc. ("W&R") purchased for
investment 10,000 Class A shares of the Fund at their net asset value of $10.00
per share.
Prepaid registration fees and offering costs will be amortized over a
twelve month period beginning with the commencement to operations of the Fund.
Prepaid offering costs consist of legal and printing fees related to the initial
registration statement. W&R, on behalf of the Fund, will incur organization
costs estimated at $14,806.
78
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
United Small Cap Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of United
Small Cap Fund, Inc. as of September 15, 1999. This financial statement is the
responsibility of the Fund's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of United Small Cap Fund, Inc. as of
September 15, 1999 in conformity with generally accepted accounting principles.
Kansas City, Missouri
September 16, 1999
79
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: United Small Cap Fund, Inc.
(a) Articles of Incorporation filed by EDGAR on July 8, 1999 as
EX-99.B(a)charter to the initial Registration Statement on Form
N-1A*
(b) Bylaws filed by EDGAR on July 8, 1999 as EX-99.B(b)scbylaw to the
initial Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement filed by EDGAR on July 8, 1999 as
EX-99.B(d)scima to the initial Registration Statement on Form N-1A*
(e) Underwriting Agreement filed by EDGAR on July 8, 1999 as
EX-99.B(e)scua to the initial Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement filed by EDGAR on July 8, 1999 as EX-99.B(g)scca
to the initial Registration Statement on Form N-1A*
(h) Shareholder Servicing Agreement filed by EDGAR on July 8, 1999 as
EX-99.B(h)scssa to the initial Registration Statement on Form N-1A*
Fidelity Bond Coverage (Exhibit C) to the Shareholder Servicing
Agreement attached hereto as EX-99.B(h)scssafid
Fund Class A, Class B and Class C application(Non-Retirement Plan)
attached hereto as EX-99.B(h)scappnon
Fund Class A, Class B and Class application (Retirement Plan)
attached hereto as EX-99.B(h)scappabc
Fund Class Y application attached hereto as EX-99.B(h)scapp-y
Fund NAV application attached hereto as EX-99.B(h)scappnav
Accounting Services Agreement filed by EDGAR on July 8, 1999 as
EX-99.B(h)scasa to the initial Registration Statement on Form N-1A*
80
<PAGE>
(i) Opinion and Consent of Counsel attached hereto as EX-99.B(i)sclegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants, attached
hereto as EX-99.B(j)scconsnt
(k) Not applicable
(l) Agreement with initial shareholder, Waddell & Reed, Inc., attached
hereto as EX-99.B(l)scinitcap
(m) Distribution and Service Plan for Class A shares filed by EDGAR on
July 8, 1999 as EX-99.B(m)scdspa to the initial Registration
Statement on Form N-1A*
Distribution and Service Plan for Class B shares filed by EDGAR on
July 8, 1999 as EX-99.B(m)scdspb to the initial Registration
Statement on Form N-1A*
Distribution and Service Plan for Class C shares filed by EDGAR on
July 8, 1999 as EX-99.B(m)scdspc to the initial Registration
Statement on Form N-1A*
(n) Not Applicable
(o) Multiple Class Plan filed by EDGAR on July 8, 1999 as
EX-99.B(o)scmcp to the initial Registration Statement on Form N-1A*
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. Indemnification
---------------
Reference is made to Article TENTH Section 10.2 of the Articles of
Incorporation of Registrant filed by EDGAR on July 8, 1999 as
EX-99.B(a)charter to the initial Registration Statement on Form N-1A*,
Article VIII of the Bylaws filed by EDGAR on July 8, 1999 as
EX-99.B(b)scbylaw to the initial Registration Statement on Form N-1A* and
to Article V of the Underwriting Agreement filed by EDGAR on July 8, 1999
as EX-99.B(e)scua to the initial Registration Statement on Form N-1A*,
each of which provide indemnification. Also refer to section 2-418 of the
Maryland Corporation Law regarding indemnification of directors, officers,
employees and agents.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
81
<PAGE>
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 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 Registration Statement and to other investment advisory clients.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation or
employment during the past two years only his duties as an executive
officer and/or employee of Waddell & Reed Investment Management Company or
its predecessors, except as to persons who are directors and/or officers
of the Registrant and have served in the capacities shown in the Statement
of Additional Information of the Registrant. The address of the officers
is 6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
27. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
United Funds, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United International Growth Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Waddell & Reed Funds, Inc.
82
<PAGE>
(b) The information contained in the underwriter's application on Form
BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Kristen A. Richards, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
29. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Registration Statement and as listed in response to Items 23.(h) and
23.(m) hereof.
30. Undertakings
-----------
Not applicable
- - - ---------------------------------
*Incorporated herein by reference
83
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED
FUNDS, INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND,
INC., UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC., UNITED
SMALL CAP FUND, INC., TARGET/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC.
(each hereinafter called the "Corporation"), and certain directors and officers
for the Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, HELGE K. LEE and KRISTEN A. RICHARDS, and each of them individually,
their true and lawful attorneys and agents to take any and all action and
execute any and all instruments which said attorneys and agents may deem
necessary or advisable to enable each Corporation to comply with the Securities
Act of 1933 and/or the Investment Company Act of 1940, as amended, and any
rules, regulations, orders or other requirements of the United States Securities
and Exchange Commission thereunder, in connection with the registration under
the Securities Act of 1933 and/or the Investment Company Act of 1940, as
amended, including specifically, but without limitation of the foregoing, power
and authority to sign the names of each of such directors and officers in
his/her behalf as such director or officer as indicated below opposite his/her
signature hereto, to any Registration Statement and to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement or amendment or
supplement thereto; and each of the undersigned hereby ratifies and confirms all
that said attorneys and agents shall do or cause to be done by virtue hereof.
Date: August 18, 1999 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
<TABLE>
<S> <C> <C>
/s/ Keith A. Tucker Chairman of the Board August 18, 1999
- - - ------------------- ---------------
Keith A. Tucker
/s/ Robert L. Hechler President, Principal August 18, 1999
- - - -------------------- Financial Officer and ---------------
Robert L. Hechler Director
/s/ Henry J. Herrmann Vice President and August 18, 1999
- - - -------------------- Director ---------------
Henry J. Herrmann
</TABLE>
84
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Theodore W. Howard Vice President, Treasurer August 18, 1999
- - - -------------------- and Principal Accounting ---------------
Theodore W. Howard Officer
/s/ James M. Concannon Director August 18, 1999
- - - -------------------- ---------------
James M. Concannon
/s/ John A. Dillingham Director August 18, 1999
- - - -------------------- ---------------
John A. Dillingham
/s/ David P. Gardner Director August 18, 1999
- - - ------------------- ---------------
David P. Gardner
/s/ Linda K. Graves Director August 18, 1999
- - - -------------------- ---------------
Linda K. Graves
/s/ Joseph Harroz, Jr. Director August 18, 1999
- - - -------------------- ---------------
Joseph Harroz, Jr.
/s/ John F. Hayes Director August 18, 1999
- - - -------------------- ---------------
John F. Hayes
/s/ Glendon E. Johnson Director August 18, 1999
- - - -------------------- ---------------
Glendon E. Johnson
/s/ William T. Morgan Director August 18, 1999
- - - -------------------- ---------------
William T. Morgan
/s/ Ronald C. Reimer Director August 18, 1999
- - - -------------------- ---------------
Ronald C. Reimer
</TABLE>
85
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Frank J. Ross, Jr. Director August 18, 1999
- - - -------------------- ---------------
Frank J. Ross, Jr.
/s/ Eleanor B. Schwartz Director August 18, 1999
- - - -------------------- ---------------
Eleanor B. Schwartz
/s/ Frederick Vogel III Director August 18, 1999
- - - -------------------- ---------------
Frederick Vogel III
Attest:
/s/ Kristen A. Richards
- - - ----------------------
Kristen A. Richards
Assistant Secretary
</TABLE>
86
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-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 22nd
day of September, 1999.
UNITED SMALL CAP FUND, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/s/ Keith A. Tucker* Chairman of the Board September 22, 1999
- - - ---------------------- ------------------
Keith A. Tucker
/s/ Robert L. Hechler* President September 22, 1999
- - - ---------------------- (Principal Financial Officer) ------------------
Robert L. Hechler and Director
/s/ Henry J. Herrmann* Vice President and Director September 22, 1999
- - - ---------------------- ------------------
Henry J. Herrmann
/s/ Theodore W. Howard* Vice President, Treasurer September 22, 1999
- - - ---------------------- and Principal Accounting ------------------
Theodore W. Howard Officer
/s/ James M. Concannon* Director September 22, 1999
- - - ------------------- ------------------
James M. Concannon
/s/ John A. Dillingham* Director September 22, 1999
- - - ------------------- ------------------
John A. Dillingham
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ David P. Gardner* Director September 22, 1999
- - - ------------------- ------------------
David P. Gardner
/s/ Linda K. Graves* Director September 22, 1999
- - - ------------------- ------------------
Linda Graves
/s/ Joseph Harroz, Jr.* Director September 22, 1999
- - - ------------------- ------------------
Joseph Harroz, Jr.
/s/ John F. Hayes* Director September 22, 1999
- - - ------------------- ------------------
John F. Hayes
/s/ Glendon E. Johnson* Director September 22, 1999
- - - ------------------- ------------------
Glendon E. Johnson
/s/ William T. Morgan* Director September 22, 1999
- - - ------------------- ------------------
William T. Morgan
/s/ Ronald C. Reimer* Director September 22, 1999
- - - ------------------- ------------------
Ronald C. Reimer
/s/ Frank J. Ross, Jr.* Director September 22, 1999
- - - ------------------- ------------------
Frank J. Ross, Jr.
/s/ Eleanor B. Schwartz* Director September 22, 1999
- - - ------------------- ------------------
Eleanor B. Schwartz
/s/ Frederick Vogel III* Director September 22, 1999
- - - ------------------- ------------------
Frederick Vogel III
</TABLE>
*By
Helge K. Lee
Attorney-in-Fact
ATTEST:
Kristen A. Richards
Assistant Secretary
88
<TABLE>
<CAPTION>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
<S> <C> <C>
Investment Company 87015199B ICI
Blanket Bond Form Mutual
Insurance
Company
Fidelity $20,400,000
Audit Expense 50,000
On Premises 20,400,000
In Transit 20,400,000
Forgery or Alteration 20,400,000
Securities 20,400,000
Counterfeit Currency 20,400,000
Uncollectible Items of
Deposit 25,000
Phone-Initiated Transactions 20,400,000
Total Limit 20,400,000
Directors and Officers/ 87015199D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $10,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
</TABLE>
<TABLE>
<S> <C> <C>
Waddell & Reed, Inc. United Group of Funds Division Office Stamp
P.O. Box 29217 APPLICATION
Shawnee Mission, KS
66201-9217 (NON-RETIREMENT PLAN) Trans Code:________________________
Date Transmitted:__________________
</TABLE>
1 ------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
REGISTRATION TYPE (check one only)
<TABLE>
<S> <C>
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable (Attach CUF 0022)
TOD (Transfer On Death) [ ] Yes [ ] No NOT AVAILABLE IN ILLINOIS
[ ] Uniform Gifts (Transfers) To Minors (UGMA/UTMA) [ ] Other:_______________________________________
[ ] Dated Trust Date of Trust_________________
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
__________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT | |
(must have same ownership): |__________________|
</TABLE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------
Individual Name (exactly as desired)/Trustee/Custodian (Tax-responsible party)
------------------------------------------------------- ------------------------------
[ ] Social Security # or [ ] Taxpayer Identification # Date of Birth (Month/Day/Year)
--------------------------------------------------------------------------------------
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA)
------------------------------------------------------- ------------------------------
[ ] Social Security # or [ ] Taxpayer Identification # Date of Birth (Month/Day/Year)
</TABLE>
-----------------------------------------------------------------------------
Name of Trust
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
City/State/Zip
-----------------------------------------------------------------------------
Telephone (home) Telephone (work) Citizenship (Required in VA)
------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
Monthly Div/C.G. Distr*
Fund Amount AIS (Assumes RR)
(enter code) Enclosed (If Any) RR CC CR
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES ____________
(ONLY ONE) | |
|____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
A [ ] B [ ] C [ ] |____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
IF NOT CHECKED, |____________| $_______ $_______ [ ] [ ] [ ]
ASSUME A ____________
| |
|____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
|____________| $_______ $_______ [ ] [ ] [ ]
Total $_______ Total $_______
</TABLE>
* RR = Reinvest Div/Cap Gain CC = Cash Div/Cap Gain CR = Cash Div/Reinvest
Cap Gain All Dividends/Capital Gains under $5.00 will be Reinvested. See
Section 12 if you wish your distribution to go to another Fund or Account.
<TABLE>
<CAPTION>
FUNDS CODES A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income 621 121 321 High Income 628 128 328 Asset Strategy 684 184 384
Science & Technology 622 122 322 Vanguard 629 129 329 Cash Management 750 150 350
Accumulative 623 123 323 New Concepts 630 130 330 Government Securities 753 153 353
Bond 624 124 324 High Income II 634 134 334 Municipal Bond 760 160 360
International Growth 625 125 325 Small Cap 677 177 377 Municipal High Income 762 162 362
Continental Income 627 127 327 Retirement Shares 680 180 380
</TABLE>
------------------------------------------------------------------------------
CLASS A ONLY
This purchase is entitled to a reduced sales load charge for the following
reason:
<TABLE>
<S> <C>
[ ] Letter of Intent To Invest $_____________ LOI Number____________
[ ] Cumulative discount number____________ or Rights of Accumulation With Existing Accounts____________
[ ] Identify Other New Accounts Established At This Time:________________________
</TABLE>
------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
LETTER OF INTENT (CLASS A SHARES ONLY) I agree to the terms of the Letter of
Intent conditions set forth in the Statement of Additional Information
(including the escrowing of shares). Although I am not obligated to do so, it
is my intention to invest over a 13-month period in shares of one or more
United funds in an aggregate amount at least equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
[ ] $100,000 [ ] $200,000 [ ] $300,00 [ ] $500,00 [ ] $1,000,000 [ ] $2,000,000 See Section 9
</TABLE>
------------------------------------------------------------------------------
CAP1 Page 1 of 6
<PAGE>
3 ------------------------------------------------------------------------------
BENEFICIARY: For TOD (Transfer On Death) Accounts Only
To designate contingent beneficiaries or per stirpes distribution,
use MRP-0972 or MRP-1588
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
</TABLE>
------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management A [ ] B [ ] C [ ]
<TABLE>
<S> <C>
-------------------------------------------------- -------------------------------------------------
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
-------------------------------------------------- -------------------------------------------------
Street Customer's Bank Account Number
-------------------------------------------------- -------------------------------------------------
City/State/Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc.
is authorized to honor any requests from anyone for redemption of fund shares
as long as the proceeds are transmitted to the identified account. All wires
must be transmitted exactly as registered on the UCM Account.
------------------------------------------------------------------------------
5 ------------------------------------------------------------------------------
CHECK SERVICE (CLASS "A" SHARES ONLY)
(Complete signature card)
[ ] United Government Securities [ ] United Cash Management (UCM)
SIGNATURE CARD FOR UNITED CASH MANAGEMENT/GOVERNMENT SECURITIES CLASS "A"
SHARES ONLY
The payment of funds on the conditions set forth below is authorized by the
persons signing below (the Shareholder).
UMB BANK, N.A. (the Bank) is authorized by the Shareholder to honor any
checks for not less than $250 presented against this account and is directed
to forward said checks to the redemption agent of United Cash Management,
Inc. and United Government Securities, Inc. (the "Mutual Funds") as authority
to pay the checks. Checks will be paid by redeeming a sufficient number of
shares for which share certificates have not been issued in the Shareholder's
account with the Mutual Funds.
Checks will be subject to the Bank's rules and regulations governing such
checks, including the right of the Bank not to honor checks in amounts
exceeding the value of the Shareholder's account with the Mutual Funds at the
time the check is presented for payment.
Shareholder hereby authorizes the Mutual Funds or their redemption agent to
honor redemption requests presented in the above manner by the Bank.
It is further agreed as follows:
1. Shareholder(s) below waive the right to receive the cancelled check(s)
after each check is processed and the underlying shares of the Mutual
Funds have been redeemed.
2. The account may not be used for any purpose other than the presentment,
forwarding and payment of checks relating to an account in the Mutual
Funds.
3. The Bank reserves the right to change, modify or terminate this agreement
at any time upon notification mailed to the address noted on the reverse
side of this card.
BY SIGNING BELOW, THE SIGNATOR(S) SIGNIFIES HIS (THEIR) AGREEMENT TO BE
SUBJECT TO THE RULES AND REGULATIONS OF UMB BANK, N.A. PERTAINING THERETO AND
AS AMENDED FROM TIME TO TIME, AND TO THE CONDITIONS PRINTED ABOVE.
Authorized Signature(s) "A" SHARES ONLY [ ] Check box if more than one
signature required on checks
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
6 ------------------------------------------------------------------------------
Establish NEW Automatic Investment Service
REGISTRATION INFORMATION
------------------------------------------------
Individual Name (exactly as registered)
------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
Fund Draft Is To Begin On
(Enter code) (Month/Day/Year) Draft Amount Special Instructions
<S> <C> <C> <C>
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
</TABLE>
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge
to my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to
pay the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry. I agree
that your rights in respect to any debit entry shall be the same as if it
were a check signed personally by me. I further agree, that if any such debit
entry be dishonored, whether intentionally or inadvertently, you shall be
under no liability whatsoever.
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
<TABLE>
<S> <C>
----------------------------------------------------- -------------------------
NAME OF DEPOSITOR (as shown on bank records(s)) Bank Account Number
----------------------------------------------------- See Section 10
BANK NAME
-----------------------------------------------------
BANK ADDRESS
-----------------------------------------------------
CITY/STATE/ZIP
</TABLE>
------------------------------------------------------------------------------
7 ------------------------------------------------------------------------------
Establish NEW Funds Plus Service
<TABLE>
<S> <C> <C> <C>
___________
REGISTRATION INFORMATION [ ] NEW ACCOUNT W/UCM or [ ] EXISTING ACCOUNT W/UCM |___________|
</TABLE>
-----------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
FUNDS PLUS Service
Account(s) to RECEIVE Fund If new, Is To Begin On FUNDS PLUS
FUNDS PLUS Investment (Enter code) mark box (Month/Day/Year) Investment Amount
<S> <C> <C> <C> <C>
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
</TABLE>
------------------------------------------------------------------------------
Page 3 of 6
<PAGE>
8 ------------------------------------------------------------------------------
Establish NEW Flexible Withdrawal Service (See Section 11)
<TABLE>
<CAPTION>
Fund Changes To Be
(See Reverse Effective Beginning Amount
for Codes) (Month) (Year) Indicate dollars, shares or percentage Frequency Make Payable
<S> <C> <C> <C> <C>
____________ _________________ ______________
| | | | 20 | | | |
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] monthly [ ] To registered owner(s)
____________ _________________ ______________
| | | | 20 | | | | [ ] quarterly [ ] To Alternate Payee
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] %
____________ _________________ ______________ [ ] semi-annually [ ] To registered owner(s)
| | | | 20 | | | | at alternate address
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] annually
____________ _________________ ______________
| | | | 20 | | | | (If left blank,
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % annual payments
will be assumed)
</TABLE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Designate Alternate Payee or Address (for Electronic Deposits of FWS, see
section 10)
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE
(other than as registered) or SENT TO AN ALTERNATE ADDRESS. If sending FWS to
another fund/account please indicate account/fund. Must be same class.
<TABLE>
<CAPTION>
Alternate Payee Alternate Address (check will be payable as registered and sent to the following)
<S> <C>
---------------------------------------------- ----------------------------------------------
Name or institution C/O Name
---------------------------------------------- ----------------------------------------------
Street Street
---------------------------------------------- ----------------------------------------------
City/State/Zip City/State/Zip
---------------------------------------------- ----------------------------------------------
Bank Account Number (if applicable) Bank Account Number (if applicable)
</TABLE>
------------------------------------------------------------------------------
9 ------------------------------------------------------------------------------
LOI TERMS AND CONDITIONS
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc.
to sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked
on the front of this Agreement as described in the prospectus of the fund
or funds being purchased.
4. If the amount invested during the 13-month period covered by this
Agreement exceeds the required amount and is large enough to qualify for a
sales charge lower than that available under this Agreement, the lower
sales charge will be applied to the amount invested. Upon termination of
this Agreement, a price adjustment will be made to give effect to the
lower sales charge and the amount of the price adjustment will be
reinvested in additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this
Agreement is less than the required amount, the sales charge for the
investments reverts back to that outlined in the Fund Prospectus, as if
the Agreement had not been executed. Waddell & Reed, Inc. will subtract
shares equal in value to the amount of the additional sales charge due
from escrowed shares. The investor hereby irrevocably appoints Waddell &
Reed, Inc. or its successors or assigns, as attorney to surrender for
redemption shares in an amount equal to the additional sales charge owed
on the purchases made. This appointment and the authority granted herein
shall be binding on the heirs, legal representatives, successors and
assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held
by the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for there purposes.
------------------------------------------------------------------------------
Page 4 of 6
<PAGE>
10------------------------------------------------------------------------------
BANK ACCOUNT OR CREDIT UNION INFORMATION (optional)
This information will be used for
[ ] Div / Cap gain distributions taken in cash (Sec. 1)
[ ] Systematic investments (Sec. 6)
[ ] Flexible withdrawals (Sec. 8)
<TABLE>
<S> <C> <C>
--------------------------------------- ---------------------------------------
Checking account Bank or credit union's ABA route number Bank or credit union account number
--------------------------------------- ---------------------------------------
Savings account Bank or credit union's ABA route number Bank or credit union account number
</TABLE>
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals to your checking account, please tape a voided
check so we may get bank or credit union account information.
For deposits or withdrawals to a savings account, please tape a preprinted
deposit slip. (Do not staple the slips.)
------------------------------------------------------------------------------
11------------------------------------------------------------------------------
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a
business day, on the preceding business day.
2. Allow five days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds/or W&R Funds combined accounts should
exceed $10,000. You may add to your account by additional investments of
at least $1,000, except in United Cash Management, Inc., which has no
minimum additional investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If withdrawals are to be made monthly, 1/12th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made quarterly, 1/4th of the indicated percentage of
the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Dividends and capital gains distributions are automatically reinvested.
Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
------------------------------------------------------------------------------
12------------------------------------------------------------------------------
ALTERNATE PAYEE/ADDRESS
To send systematic withdrawals (Section 8) or distributions (Section 1) to a
third party, or to another United Fund account, please fill in the
appropriate information below.
This address will be used for (check one):
[ ] Flexible Withdrawals
[ ] Div/Cap Gains
<TABLE>
<S> <C>
------------------------------------------------------------- To another United Fund
Name
------------------------------------------------------------- ---------------------------------
Address (including apartment or box number) Account # Fund #
Must be to same class of shares
-------------------------------------------------------------
City/State/Zip
</TABLE>
------------------------------------------------------------------------------
Page 5 of 6
<PAGE>
13------------------------------------------------------------------------------
CONFIDENTIAL DATA (Required)
1. Marital Status:__________
(Required in VA)
2. Gross Family Income: $__________
3. Taxable Income: $__________
4. Number of Dependents:__________
5. Occupation:______________________________________________________________
6. Employer Name:___________________________________________________________
7. Employer Address:________________________________________________________
8. Savings and Liquid Assets: $__________
9. Other Assets (excluding home, furnishings, cars): $__________
10. Net Worth (Assets minus liabilities): $__________
11. Are you associated with an NASD Member? [ ] Yes [ ] No
12. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Reserves [ ] College Funds [ ] Buy Major Asset
[ ] Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:__________________________________________
_____________________________________________________________________________
14. Residence Address:_______________________________________________________
(if different from Street City State Zip
Mailing Address
on reverse side)
<TABLE>
<S> <C> <C>
(Required in CT)
15. Was this investment solicited by a W&R Advisor/Representative? [ ] Yes [ ] No
(Required in CT)
16. Has any beneficial owner of this account conducted any prior investment activity? [ ] Yes [ ] No
If yes, which owner(s)?_________________________________________________________________________
17. Are proceeds from the sale of another security being used to open this account? [ ] Yes [ ] No
If yes, specify:________________________________________________________________________________
________________________________________________________________________________
</TABLE>
------------------------------------------------------------------------------
14------------------------------------------------------------------------------
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds
selected, and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 is correct (or I
am waiting for a number to be issued to me) and (strike the following if
not true) that I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report
all interest and dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
o I (we) understand that there maybe a deferred sales charge upon the
redemption of any Class B or C shares held in the account for less than
the time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- --------------------
(Advisor/Representative Signature) (Date)
</TABLE>
_____________________________
| |
Advisor/Representative Number |_____________________________|
------------------------------------------------------------------------------
-----------------------------------------------|
Check Any Items Enclosed With Application |
|
[ ] Declaration Trust Revocable (CUF0022) |
|---------------|
[ ] Additional Applications______ |OSJ: |
|(H.O. USE) |
[ ] Check enclosed #______ | |
| |
[ ] Other:______ | |
-----------------------------------------------|---------------|
Page 6 of 6
<TABLE>
<S> <C> <C>
Waddell & Reed, Inc. United Group of Funds Division Office Stamp
P.O. Box 29217 APPLICATION
Shawnee Mission, KS
66201-9217 RETIREMENT PLAN Trans Code:________________________
ACCOUNT Date Transmitted:__________________
</TABLE>
1 ------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
PLAN TYPE -- DOCUMENT SPONSORED BY: [ ] W&R [ ] NON-W&R
PLEASE SELECT ONE OF THE FOLLOWING:
<TABLE>
<S> <C> <C>
[ ] IRA (701/050) [ ] Simplified Employee Pension -- SEP (702/050) [ ] 401(k) (401-801) [ ] Simple 401(k) (340)
(CRP0005) (MRP1166KT-Employer and CRP0005-Employee) (MRP0720-Non Inventory)
[ ] Rollover (703/050) [ ] Simple IRA (765/050) [ ] Owner-Only Profit Sharing (132)
(CRP0005) (MRP1659KT-Employer and MRP1699-Employee) (MRP0651 and MRP0651 AP)
[ ] Roth IRA (791/050) [ ] Non Title-1 TSA (773-050) [ ] ORP (773) [ ] Owner-Only Money Purchase (122)
(CRP1695) (MRP1198) (MRP0651 and MRP0651AM)
[ ] Conversion Roth IRA (792/050) [ ] Title-I TSA (724) [ ] 457 Plan (730/731) [ ] Multi Part. Profit Sharing (832/097/098)
(CRP1695) (MRP1198TI-Non Inventory) (MRP1401) (MRP0651 and MRP0651AP)
[ ] Education IRA (793/050) [ ] Church Sponsored TSA (774) [ ] Multi Part. Money Purchase (822/099/100)
(CRP1696) (Non Inventory-Case by Case) (MRP0651 and MRP0651AM)
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
__________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT | |
(must have same ownership): |__________________|
</TABLE>
<TABLE>
<S> <C> <C> <C>
-----------------------------------------------------------------------------
Trustee/Custodian or Responsible Party (Education IRA Only)
-----------------------------------------------------------------------------
Employer or Business/Organization Name
------------------------------------------------------------ ----------------------------------------------
Participant, Planholder or Beneficiary (Education IRA Only) Plan Year End / Date of Birth (Month/Day/Year)
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
City/State/Zip
------------------------- ----------------------- ----------------------------------
Social Security Number Employer Tax ID Number Plan (Trust) Identification Number
------------------------- ----------------------- ----------------------------------
Telephone (home) Telephone (work) Citizenship (Required in VA)
</TABLE>
------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
FUNDS CODES
A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income 621 121 321 Continental Income 627 127 327 Small Cap 677 177 377
Science & Technology 622 122 322 High Income 628 128 328 Retirement Shares 680 180 380
Accumulative 623 123 323 Vanguard 629 129 329 Asset Strategy 684 184 384
Bond 624 124 324 New Concepts 630 130 330 Cash Management 750 150 350
International Growth 625 125 325 High Income II 634 134 334 Government Securities 753 153 353
</TABLE>
<TABLE>
<CAPTION>
IRA TOP From Monthly
Fund Amount Year of Deductible or Another AIS
(enter code) Enclosed Contribution Non-Deductible Carrier (If Any)
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES ____________
(ONLY ONE) | |
|____________| $_______ ____________ __________ [ ] $_______
____________
| |
A [ ] B [ ] C [ ] |____________| $_______ ____________ __________ [ ] $_______
____________
| |
IF NOT CHECKED, |____________| $_______ ____________ __________ [ ] $_______
ASSUME A ____________
| |
|____________| $_______ ____________ __________ [ ] $_______
____________
| |
|____________| $_______ ____________ __________ [ ] $_______
Total $_______ $_______
</TABLE>
To prevent possible tax penalties, Dividends and Capital gains are
automatically re-invested in Retirement Plan accounts.
------------------------------------------------------------------------------
CAP1771 Page 1 of 6
<PAGE>
------------------------------------------------------------------------------
BENEFICIARY
To designate contingent beneficiaries or per stirpes distribution,
use MRP-0972 or MRP-1588
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
</TABLE>
------------------------------------------------------------------------------
A SHARES ONLY
This purchase is entitled to a reduced sales load charge for the following
reason:
<TABLE>
<S> <C>
[ ] Existing Letter of Intent To Invest $_____________ LOI Number____________
[ ] Cumulative discount number____________ or Rights of Accumulation With Existing Accounts____________
[ ] Identify Other New Accounts Established At This Time:________________________
</TABLE>
------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
STATEMENT OF INTENT (A SHARES ONLY) I agree to the terms of the Statement of
Intent conditions set forth in the Statement of Additional Information
(including the escrowing of shares). Although I am not obligated to do so, it
is my intention to invest over a 13-month period in shares of one or more
United funds in an aggregate amount at least equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
[ ] $100,000 [ ] $200,000 [ ] $300,00 [ ] $500,00 [ ] $1,000,000 [ ] $2,000,000 See Section 8
</TABLE>
------------------------------------------------------------------------------
3 ------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management A [ ] B [ ] C [ ]
<TABLE>
<S> <C>
-------------------------------------------------- -------------------------------------------------
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
-------------------------------------------------- -------------------------------------------------
Street Customer's Bank Account Number
-------------------------------------------------- -------------------------------------------------
City/State/Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc.
is authorized to honor any requests from anyone for redemption of fund shares
as long as the proceeds are transmitted to the identified account. All wires
must be transmitted exactly as registered on the UCM Account.
------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
Establish NEW Automatic Investment Service ______________
REGISTRATION INFORMATION EXISTING ACCOUNT:| |
|______________|
-----------------------------------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
Fund Draft Is To Begin On
(Enter code) (Month/Day/Year) Draft Amount Special Instructions
<S> <C> <C> <C>
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
</TABLE>
------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
5 ------------------------------------------------------------------------------
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge
to my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to
pay the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry.
I agree that your rights in respect to any debit entry shall be the same as
if it were a check signed personally by me. I further agree, that if any such
debit entry be dishonored, whether intentionally or inadvertently, you shall
be under no liability whatsoever.
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
<TABLE>
<S> <C>
----------------------------------------------------- -------------------------
NAME OF DEPOSITOR (as shown on bank records(s)) Bank Account Number
----------------------------------------------------- See Section 9
BANK NAME
-----------------------------------------------------
BANK ADDRESS
-----------------------------------------------------
CITY/STATE/ZIP
</TABLE>
------------------------------------------------------------------------------
6 ------------------------------------------------------------------------------
Establish NEW Funds Plus Service
<TABLE>
<S> <C> <C> <C>
___________
REGISTRATION INFORMATION [ ] NEW ACCOUNT W/UCM or [ ] EXISTING ACCOUNT W/UCM |___________|
</TABLE>
-----------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
FUNDS PLUS Service
Account(s) to RECEIVE Fund If new, Is To Begin On FUNDS PLUS
FUNDS PLUS Investment (Enter code) mark box (Month/Day/Year) Investment Amount
<S> <C> <C> <C> <C>
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
</TABLE>
------------------------------------------------------------------------------
7 ------------------------------------------------------------------------------
Establish NEW Flexible Withdrawal Service (See Section 10)
<TABLE>
<CAPTION>
Fund Changes To Be
(See Reverse Effective Beginning Amount
for Codes) (Month) (Year) Indicate dollars, shares or percentage Frequency Make Payable
<S> <C> <C> <C> <C>
____________ _________________ ______________
| | | | 20 | | | |
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] monthly [ ] To registered owner(s)
____________ _________________ ______________
| | | | 20 | | | | [ ] quarterly [ ] To Alternate Payee
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] %
____________ _________________ ______________ [ ] semi-annually [ ] To registered owner(s)
| | | | 20 | | | | at alternate address
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] annually
____________ _________________ ______________
| | | | 20 | | | | (If left blank,
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % annual payments
will be assumed)
</TABLE>
------------------------------------------------------------------------------
Designate Alternate Payee or Address (for Electronic Deposits of FWS, see
section 9)
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE
(other than as registered) or SENT TO AN ALTERNATE ADDRESS. Please provide
voided check if FWS is to be electronically deposited. If sending FWS to
another fund/account please indicate account/fund. Must be same class.
<TABLE>
<CAPTION>
Alternate Payee Alternate Address (check will be payable as registered and sent to the following)
<S> <C>
---------------------------------------------- ----------------------------------------------
Name or institution C/O Name
---------------------------------------------- ----------------------------------------------
Street Street
---------------------------------------------- ----------------------------------------------
City/State/Zip City/State/Zip
---------------------------------------------- ----------------------------------------------
Bank Account Number (if applicable) Bank Account Number (if applicable)
</TABLE>
------------------------------------------------------------------------------
Page 3 of 6
<PAGE>
7 ------------------------------------------------------------------------------
Con't.
TO ESTABLISH Life Expectancy Payment Option For Retirement Plan Accounts
IMPORTANT INFORMATION (read carefully before proceeding)
If this option is selected, the information (joint/single life, age) provided
below will be used to determine the withdrawal amount applicable for the
CURRENT year only. The withdrawal amount will remain unchanged until a change
is authorized by the planholder.
Check applicable box: [ ] Age 70-1/2 or over Retirement planholders who
have reached age 70-1/2 must take a minimum
distribution from their plan in accordance
with IRS regulations. It is NOT necessary to
complete this section to meet IRS minimum
mandatory withdrawal requirement. The minimum
withdrawal will be automatically processed
unless otherwise instructed.
[ ] Prior to age 70-1/2 Enter annual $___________
(Do not enter amount in section below)
If dollar amount is blank, payments will be
calculated on a non-amortized basis, and will
remain unchanged. If amount provided is based
on an amortized life expectancy calculation,
attach UNET worksheet. PAYMENTS MUST CONTINUE
UNTIL THE LATER OF AGE 59-1/2 OR FIVE
SUCCESSIVE YEARS.
Complete applicable information:
<TABLE>
<S> <C>
[ ] SINGLE LIFE OR [ ] JOINT LIFE
Indicate Account Owner's Indicate Account Owner's Date of Birth |__|__|__|__|__|__|
Date of Birth |__|__|__|__|__|__| (Month/Day/Year)
(Month/Day/Year) and Beneficiary's Date of Birth |__|__|__|__|__|__|
(Month/Day/Year)
</TABLE>
<TABLE>
<CAPTION>
Amount Frequency
Fund If blank amount will Indicated monthly,
(See Reverse Effective Beginning be calculated as quarterly, semi-
For Codes) (Month) (Day) described above annually or annually Make Payable
------------ -------------------- -------------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] --------------------- [ ] To Registered owner(s)
(If left blank, annual pay-
ments will be assumed)
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] [ ] To Alternate Payee*
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] [ ] To Registered Owner(s) at
alternate address*
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] *Complete Section 11
</TABLE>
FEDERAL INCOME TAX WITHHOLDING FOR RETIREMENT PLAN ACCOUNTS
Check One:*
A [ ] The undersigned directs that no Federal Income Tax shall be withheld
from the above described Withdrawal.
(Applicable to Retirement Plans only)
B [ ] The undersigned directs that Federal Income Tax be withheld from the
above described Withdrawal.
(Applicable to Retirement Plans only)
*IF NEITHER BLOCK IS SELECTED, FEDERAL INCOME TAXES WILL NOT BE
WITHHELD.
------------------------------------------------------------------------------
8 ------------------------------------------------------------------------------
LOI TERMS AND CONDITIONS
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc.
to sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked
on the front of this Agreement as described in the prospectus of the fund
or funds being purchased.
4. If the amount invested during the 13-month period covered by this
Agreement exceeds the required amount and is large enough to qualify for a
sales charge lower than that available under this Agreement, the lower
sales charge will be applied to the amount invested. Upon termination of
this Agreement, a price adjustment will be made to give effect to the
lower sales charge and the amount of the price adjustment will be
reinvested in additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this
Agreement is less than the required amount, the sales charge for the
investments reverts back to that outlined in the Fund Prospectus, as if
the Agreement had not been executed. Waddell & Reed, Inc. will subtract
shares equal in value to the amount of the additional sales charge due
from escrowed shares. The investor hereby irrevocably appoints Waddell &
Reed, Inc. or its successors or assigns, as attorney to surrender for
redemption shares in an amount equal to the additional sales charge owed
on the purchases made. This appointment and the authority granted herein
shall be binding on the heirs, legal representatives, successors and
assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held
by the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for these purposes.
------------------------------------------------------------------------------
Page 4 of 6
<PAGE>
9 ------------------------------------------------------------------------------
BANK ACCOUNT OR CREDIT UNION INFORMATION (optional)
This information will be used for
[ ] Systematic investments (Sec. 4) [ ] Flexible withdrawals (Sec. 7)
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------
Checking account Bank or credit union's ABA route number Bank or credit union account number
-----------------------------------------------------------------------------------
Savings account Bank or credit union's ABA route number Bank or credit union account number
</TABLE>
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals to your checking account, please tape a voided
check so we may get bank or credit union account information.
For deposits or withdrawals to a savings account, please tape a preprinted
deposit slip.
(Do not staple the slips.)
------------------------------------------------------------------------------
10------------------------------------------------------------------------------
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a
business day, on the preceding business day.
2. Allow five days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds/or W&R Funds combined accounts should
exceed $10,000. You may add to your account by additional investments of
at least $1,000, except in United Cash Management, Inc., which has no
minimum additional investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If withdrawals are to be made monthly, 1/12th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made quarterly, 1/4th of the indicated percentage of
the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Dividends and capital gains distributions are automatically reinvested.
Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
------------------------------------------------------------------------------
11------------------------------------------------------------------------------
ALTERNATE PAYEE/ADDRESS
To send systematic withdrawals (Section 7) to a third party, or to another
United Fund account, please fill in the appropriate information below.
This address will be used for (check one):
[ ] Flexible Withdrawals
[ ] Div/Cap Gains
<TABLE>
<S> <C>
------------------------------------------------------------- To another United Fund
Name
------------------------------------------------------------- ---------------------------------
Address (including apartment or box number) Account # Fund #
Must be to same class of shares
-------------------------------------------------------------
City/State/Zip
</TABLE>
------------------------------------------------------------------------------
Page 5 of 6
<PAGE>
13------------------------------------------------------------------------------
CONFIDENTIAL DATA (Required)
1. Marital Status:__________
(Required in VA)
2. Gross Family Income: $__________
3. Taxable Income: $__________
4. Number of Dependents:__________
5. Occupation:______________________________________________________________
6. Employer Name:___________________________________________________________
7. Employer Address:________________________________________________________
8. Savings and Liquid Assets: $__________
9. Other Assets (excluding home, furnishings, cars): $__________
10. Net Worth (Assets minus liabilities): $__________
11. Are you associated with an NASD Member? [ ] Yes [ ] No
12. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Reserves [ ] College Funds [ ] Buy Major Asset
[ ] Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:__________________________________________
_____________________________________________________________________________
14. Residence Address:_______________________________________________________
(if different from Street City State Zip
Mailing Address
on reverse side)
<TABLE>
<S> <C> <C>
(Required in CT)
15. Was this investment solicited by a W&R Advisor/Representative? [ ] Yes [ ] No
(Required in CT)
16. Has any beneficial owner of this account conducted any prior investment activity? [ ] Yes [ ] No
If yes, which owner(s)?_________________________________________________________________________
17. Are proceeds from the sale of another security being used to open this account? [ ] Yes [ ] No
If yes, specify:________________________________________________________________________________
________________________________________________________________________________
</TABLE>
------------------------------------------------------------------------------
14------------------------------------------------------------------------------
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds
selected, and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 is correct (or I
am waiting for a number to be issued to me) and (strike the following if
not true) that I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report
all interest and dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
o I (we) understand that there maybe a deferred sales charge upon the
redemption of any class B or C shares held in the account for less than
the time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- --------------------
(Advisor/Representative Signature) (Date)
</TABLE>
_____________________________
| |
Advisor/Representative Number |_____________________________|
------------------------------------------------------------------------------
-----------------------------------------------|
Check Any Items Enclosed With Application |
|
[ ] Declaration Trust Revocable (CUF0022) |
|---------------|
[ ] Additional Applications______ |OSJ: |
|(H.O. USE) |
[ ] Check enclosed #______ | |
| |
[ ] Other:______ | |
-----------------------------------------------|---------------|
Page 6 of 6
<TABLE>
EX-99.B(h) scapp-y
<S> <C>
INSTITUTIONAL
UNITED GROUP OF FUNDS PURCHASE
WADDELL & REED FUNDS APPLICATION
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
INSTRUCTIONS You can open an account by calling 1-800-366-2520 or by mailing an application Date
Fill in where applicable and check to Waddell & Reed, Inc., 6300 Lamar, Shawnee Mission, Kansas 66202.
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Account Name ______________________________________________________________ Tax I.D. No. _____________________
Registration
______________________________________________________________
Number and Street _________________________________________________
FULL ADDRESS
Please fill in City _____________________________________ State ___________________________ Zip Code _________________
completely, including
telephone number Telephone _____________________________________ Citizen of: [ ] U.S. [ ] Other (specify) ______________
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
[ ] Please establish an account(s) as follows:
INITIAL Dividends and capital
gains to be paid:*
INVESTMENT(S): Account No. Assigned ____________________________________ Amount Reinvested in Shares Paid in Cash
FUND(S) TO BE PURCHASED (SEE REVERSE SIDE FOR FUND NAMES)
<S> <C> <C> <C> <C>
_________________________________________________________ $__________ [ ] [ ]
_________________________________________________________ $__________ [ ] [ ]
_________________________________________________________ $__________ [ ] [ ]
_________________________________________________________ $__________ [ ] [ ]
Total amount $__________ *If no election is checked,
all payments will be
reinvested.
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions received by telephone to
have amounts withdrawn from my organization's account(s) in the Portfolio(s) and wired or mailed to the
bank account designed below.
I (We) hereby ratify any such instructions and agree that the Fund(s), Waddell & Reed, Inc. or
Waddell & Reed Services, Co. will not be liable for any loss, liability, cost or expense for acting upon
such instructions in accordance with the procedures set forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank must be a member of the Federal Reserve System.
SERVICE
Name of Bank _______________________________________________________ Bank A.B.A. No. ___________________
Number and Street ______________________________________________________________________________________
City _______________________________________________ State _____________________ Zip Code ______________
Account Name _______________________________________________ Account No. _______________________________
- - - ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE This account will be established with a telephone exchange privilege which will authorize Waddell & Reed
EXCHANGE Services Co. to act upon instructions by telephone to exchange Fund shares held in my (our) account for
PRIVILEGE shares of other Funds eligible under the Exchange Privilege to be held in an identically registered
account(s) (see Prospectus for details), unless you check the box on the left to indicate your rejection
of this service.
Check box at the right I (We) hereby ratify any instructions given pursuant to this authorization and agree that the Funds,
if this service is Waddell & Reed, Inc. or Waddell & Reed Services Co. will not be liable for any loss, liability, cost or
NOT requested. [ ] expense for acting upon instructions believed to be genuine.
- - - ------------------------------------------------------------------------------------------------------------------------------------
Under penalties of perjury, I (we) certify that the number shown on this application is the correct Tax
Identification Number of my organization and that the organization is not subject to backup withholding
either because it has not been notified that it is subject to backup withholding as a result of a
failure to report all interest, dividends or capital gains, or the Internal Revenue Service has
notified it that it is no longer subject to backup withholding. The undersigned certifies that I (we)
have full authority and legal capacity to purchase shares of the Fund and affirm that I (we) have
received a current Prospectus and agree to be bound by its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate 1. ________________________________________________ 2. _________________________________________________
Resolution on Authorized Signature Authorized Signature
reverse side. ________________________________________________ _________________________________________________
Title Title
3. ________________________________________________ 4. _________________________________________________
Authorized Signature Authorized Signature
________________________________________________ _________________________________________________
Title Title
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CAP1635-Y(10/98)
<PAGE>
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. ITS AFFILIATES AND ITS
CUSTODIAN BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY
WRITTEN NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he/she is duly elected (title)
_____________________________ of (corporate name) ____________________________
a corporation organized under the laws of (the State of) ____________________
and that the following is a true and correct copy of a resolution adopted by the
corporation's Board of Directors at a meeting duly called and held on
(date) ___________________________.
RESOLVED, that any (enter number required to act) _________of the corporation's
following identified officers (enter titles only) ____________________________
__________________________________________are authorized to execute investment
applications with the United Group/W&R Funds and any Fund investment accounts in
the name of the corporation; to invest such funds of the corporation in shares
issued by one or more United Group/W&R Funds ("Fund Shares"), as they deem
appropriate; and to issue instructions (including the execution of money fund
drafts, if applicable) pertaining to the redemption, exchange or transfer of
Fund Shares.
FURTHER RESOLVED, that Waddell & Reed Inc, Waddell & Reed Services, Co., and the
United Group/Waddell & Reed Funds shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals hold the title
designated. (Attach additional list if necessary.)
<TABLE>
<S> <C>
____________________________________________________ x____________________________________________________
Name/Title (please print or type) (Signature)
____________________________________________________ x____________________________________________________
Name/Title (please print or type) (Signature)
____________________________________________________ x____________________________________________________
Name/Title (please print or type) (Signature)
____________________________________________________ x____________________________________________________
Name/Title (please print or type) (Signature)
____________________________________________________ _____________________________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes:___________________________
Name and Title
</TABLE>
- - - --------------------------------------------------------------------------------
CONFIDENTAL DATA (Must be completed on New Accounts/New Products)
<TABLE>
<S> <C>
1. Gross Income: $___________________________ 2. Total Investment Assets: $________________________
3. Other Assets: _______________________________________ 4. Net Worth: _________________________________
5. Investment Objectives (mark all that apply) [ ] Growth [ ] Income [ ] Reserves
[ ] Other needs/goals (specify in Special Remarks)
6. Special Remarks/Considerations: ________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________
</TABLE>
================================================================================
INITIAL INVESTMENT INSTRUCTIONS
<TABLE>
HOW TO INVEST
<S> <C>
By Federal Funds Wire By Mail
o Obtain account number from the Fund. o Complete Purchase Application
Telephone toll free: 1-800-366-2520 o Make check payable to Waddell & Reed, Inc.
o Instruct bank to transmit investment by Federal funds wire to: o Mail application and check to:
United Missouri Bank Waddell & Reed Services Co.
Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _________________________________________
Fund Acct # _________________________________
</TABLE>
<TABLE>
FUND NAMES
<S> <C>
737 - United Accumulative - Class Y 748 - United New Concepts - Class Y
785 - United Asset Strategy - Class Y 783 - United Retirement Shares - Class Y
738 - United Bond - Class Y 736 - United Science and Technology - Class Y
745 - United Continental Income - Class Y 747 - United Vanguard - Class Y
744 - United Gold & Government - Class Y 716 - W&R Asset Strategy - Class Y
754 - United Government Securities - Class Y 715 - W&R International Growth - Class Y
746 - United High Income - Class Y 712 - W&R Growth - Class Y
749 - United High Income II - Class Y 713 - W&R Limited-Term Bond - Class Y
735 - United Income - Class Y 714 - W&R Municipal Bond - Class Y
739 - United International Growth - Class Y 711 - W&R Total Return - Class Y
761 - United Municipal Bond - Class Y 719 - W&R United High Income - Class Y
763 - United Municipal High Income - Class Y 718 - W&R United Science and Technology - Class Y
</TABLE>
<TABLE>
<S> <C>
EX-99.B(h) scappnav
_____________________
Waddell & Reed,Inc. Mutual Funds Division Office Stamp
P.O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, KS 66201-9217 Application _____________________
- - - --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
I (We) make application for an account to be established as follows: Check applicable block:
[ ] A NAV account to be established. [ ] Home Office Personnel
[ ] A new Fund to be added to an existing NAV account. [ ] Field Personnel
[ ] An existing non-NAV account to be converted to a NAV account. [ ] 401(k) Plan with 100 or more eligible employees
</TABLE>
- - - --------------------------------------------------------------------------------
REGISTRATION TYPE (one only) o SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS o
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NON RETIREMENT PLAN [ ] Dated Trust Date of Trust ______________
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable (Attach CUF 022) NOT AVAILABLE IN ILLINOIS
TOD [ ] Yes [ ] NO [ ] Other: ____________________________________________________________
[ ] Uniform Gifts (Transfers) To Minors (UGMA/UTMA) Use this section for Retirement Plans With Custodians other
than Fiduciary Trust Co.
</TABLE>
- - - --------------------------------------------------------------------------------
RETIREMENT PLAN
<TABLE>
<S> <C> <C>
[ ] Individual IRA [ ] SIMPLE IRA (For a new Plan, attach MRP1659-AA) [ ] Roth IRA
[ ] Rollover (Qual. plan lump sum distr.) [ ] Owner-Only Profit Sharing Plan [ ] Conversion Roth IRA
(For a new Plan attach MRP0651-AP)
[ ] Simplified Employee Pension (SEP) [ ] Owner-Only Money Purchase Plan [ ] Education IRA
(For a new, Plan attach MRP1166-AA) (For a new Plan attach MRP0651-AM)
[ ] TSA [ ] ORP ________________________________________________________________________________
[ ] 457 Plan Employer's Name (Do Not Abbreviate)
(For a new Plan attach MRP1401) ________________________________________________________________________________
(If billing is required, attach form CSF 2417) Street City State Zip
</TABLE>
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT: |__|__|__|__|__|__|__|-|__|
(Must have same ownership)
</TABLE>
<TABLE>
<S> <C> <C>
Date of Birth
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|__|__|__|
Individual Name (exactly as desired)/Trustee/Custodian Month Day Year
|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__|__| |__|__|__|__|__|__| ____________
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA) Month Day Year Relationship
</TABLE>
________________________________________________________________________________
Mailing Address
<TABLE>
<S> <C> <C> <C>
________________________ ___________________ ___________________ __________/______-____________
City State Zip Telephone
</TABLE>
<TABLE>
<S> <C>
Social Security #: |__|__|__|-|__|__|-|__|__|__|__| or Taxpayer Identification #: |__|__|-|__|__|__|__|__|__|__|
</TABLE>
- - - --------------------------------------------------------------------------------
BENEFICIARY: For Retirement Plan and TOD (Transfer On Death) Accounts Only
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
_______________________________ _______________________________ ____________________ ________________ ___________%
_______________________________ _______________________________ ____________________ ________________ ___________%
</TABLE>
- - - --------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed
<TABLE>
<S> <C> <C>
101 - W&R Total Return 105 - W&R International Growth 621 - Income
102 - W&R Growth 106 - W&R Asset Strategy 622 - Science & Technology
103 - W&R Limited-Term Bond 108 - W&R Science & Technology 623 - Accumulative
104 - W&R Municipal Bond 109 - W&R High Income 624 - Bond
(not available for Retirement Plans) 625 - International Growth
626 - Gold and Government
</TABLE>
<TABLE>
<S> <C>
627 - Continental Income 684 - Asset Strategy
628 - High Income 750 - Cash Management
629 - Vanguard 753 - Government Securities
630 - New Concepts 760 - Municipal Bond
634 - High Income II 762 - Municipal High Income
680 - Retirement Shares (760 & 752 not available for Retirement Plans)
</TABLE>
- - - --------------------------------------------------------------------------------
Open Account
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
|-----------If Retirement Plan-----------|
IRA Monthly AIS* Div./C.G. Distr*** Existing Accounts
Fund Amount Yr. Deductible or TOP From or (Assumes RR) to be Converted
(enter code) Enclosed of Contr. Non-Deductible Another Carrier Payroll Ded.** RR CC CR to NAV
---------- --------- -------------- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|__|__|__| $_________ 19___ ______________ [ ] $_____________ [ ] [ ] [ ] |_|_|_|_|_|_|_|_|
|__|__|__| $_________ 19___ ______________ [ ] $_____________ [ ] [ ] [ ] |_|_|_|_|_|_|_|_|
|__|__|__| $_________ 19___ ______________ [ ] $_____________ [ ] [ ] [ ] |_|_|_|_|_|_|_|_|
|__|__|__| $_________ 19___ ______________ [ ] $_____________ [ ] [ ] [ ] |_|_|_|_|_|_|_|_|
|__|__|__| $_________ 19___ ______________ [ ] $_____________ [ ] [ ] [ ] |_|_|_|_|_|_|_|_|
Total $_________ $_____________
</TABLE>
- - - --------------------------------------------------------------------------------
*Attach A15 Authorization Form # (CUF714)
**Attach Payroll Deduction Authorization (PFM743)
***RR = Reinvest Div/Cap Gain
CC = Cash Div/Cap Gain
CR = Cash Div/Reinvest Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vice
President for field personnel and 401 (k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
<PAGE>
- - - --------------------------------------------------------------------------------
Check Service (Not available for retirement plans)
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Send information to establish redemption checking account for: [ ] United Government Securities [ ] United Cash Management
</TABLE>
- - - --------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management (UCM) Only.
- - - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
______________________________________________________ ______________________________________________________
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
______________________________________________________ ______________________________________________________
Street Customer's Account Number
______________________________________________________
City State Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc. is
authorized to honor any requests from anyone for redemption of fund shares so
long as the proceeds are transmitted to the identified account. All wires must
be transmitted exactly as registered on the UCM Account.
- - - --------------------------------------------------------------------------------
ELIGIBLE PURCHASERS
- - - --------------------------------------------------------------------------------
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated from
service from Waddell & Reed or affiliated companies with a vested interest in
any Employee Benefit Plan sponsored by Waddell & Reed or its affiliated
companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service with Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
- - - --------------------------------------------------------------------------------
TERMS AND CONDITIONS
- - - --------------------------------------------------------------------------------
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchased at net
asset value will be permitted provided the new registration maintains
ownership by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - The minimum initial purchase is generally $500 for the United
Group of Funds and $1000 for Waddell & Reed Funds. Lower minimums apply to
certain Retirement Plan purchases. See a prospectus for minimum purchase
amounts.
G. GENERAL -
1. Shares purchased at net asset value will not be added to existing sales
load accounts. New accounts will be established.
2. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
- - - --------------------------------------------------------------------------------
TERMINATION
- - - --------------------------------------------------------------------------------
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at any time without notice.
- - - --------------------------------------------------------------------------------
ACKNOWLEDGEMENT
- - - --------------------------------------------------------------------------------
o I (we) have received a copy of the current prospectus(es) of the Funds
selected.
o 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.
o In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
- - - --------------------------------------------------------------------------------
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct (or I
am waiting for a number to be issued to me) and (strike the following if not
true) that I am not subject to backup withholding because (a) I am exempt
from backup withholding, or (b) I have not been notified by the IRS that I am
subject to backup withholding as a result of a failure to report all interest
and dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
- - - --------------------------------------------------------------------------------
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT PURCHASES
IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE CUSTOMER SERVICE
DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value, I have read all the terms
and conditions stated above and understand and agree to all of them.
I agree to notify Waddell & Reed if my account(s) become ineligible of NAV
status.
<TABLE>
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C>
__________________________________________________ ________________________________________________________
Signature of Applicant Representative Number, if applicable
__________________________________________________ ________________________________________________________
Signature of Division Manager/RVP or Date
Supervisor for Home Office Personnel
____________________________________________________ ________________________________________________________
Name of Waddell & Reed Employee or Representative, Applicant's relationship to Employee or Representative
if applicable
- - - --------------------------------------------------------------------------------------------------------------------
</TABLE>
CUF0025(12/97)
- - - --------------------------------------------------------------------------------
HOME OFFICE USE ONLY
- - - --------------------------------------------------------------------------------
If a Retirement Plan, Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the Custody Agreement, as evidenced
by the authorized signature/initials in the OSJ box below.
- - - --------------------------------------------------------------------------------
OSJ:
- - - --------------------------------------------------------------------------------
EX-99.B(i)sclegopn
September 22, 1999
United Small Cap Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: United Small Cap Fund, Inc.
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of United
Small Cap Fund, Inc. (the "Fund"), I have examined such corporate records and
documents and have made such further investigation and examination as I deemed
necessary for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
Helge K. Lee
General Counsel
HKL/fr
EX-99.B(j)-scconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-82447 of United Small Cap Fund, Inc. on Form N-1A of our
report dated September 16, 1999 appearing in the Prospectus, which is part of
such Registration Statement.
Deloitte & Touche LLP
Kansas City, Missouri
September 16, 1999
EX-99.B(l)scinitcap
AGREEMENT
Waddell & Reed, Inc., in consideration of the issuance and sale to it by United
Small Cap Fund, Inc. (Fund) of 10,000 shares of the Fund's Class A common stock
for the total payment of $100,000.00, the receipt of which is acknowledged by
the Fund, hereby recognizes that said amount was paid to the Fund in order for
the Fund to comply with Section 14 of the Investment Company Act of 1940, and
agrees that it shall hold said shares for investment and not with a view toward
resale or requesting their redemption.
Dated this 3rd day of September, 1999.
WADDELL & REED, INC.
By __________________________
Robert L. Hechler, President
Accepted:
UNITED SMALL CAP FUND, INC.
By __________________________
Helge K. Lee, Vice President
