<PAGE>
485BPOS File No. 811-2552
File No. 2-21867
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 125
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 33
UNITED FUNDS, INC.
---------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
---------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
---------------------------------------------------------------------
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
---------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
-----
X on June 30, 2000 pursuant to paragraph (b)
-----
60 days after filing pursuant to paragraph (a)(1)
-----
on (date) pursuant to paragraph (a)(1)
-----
75 days after filing pursuant to paragraph (a)(2)
-----
on (date) pursuant to paragraph (a)(2) of Rule 485
-----
this post-effective amendment designates a new effective
----- date for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under
the Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ended December 31, 1999 was filed on March 28, 2000.
<PAGE>
[GRAPHIC]
PROSPECTUS
JUNE 30, 2000
Waddell & Reed Advisors Funds
EQUITY FUNDS [GRAPHIC]
Accumulative Fund
International Growth Fund
New Concepts Fund
Science and Technology Fund
Small Cap Fund
Vanguard Fund
THE SECURITIES AND EXCHANGE COMMISSION [LOGO] WADDELL & REED
HAS NOT APPROVED OR DISAPPROVED THE FINANCIAL SERVICES-Registered Trademark-
FUND'S SECURITIES, OR DETERMINED ----------------------------------------
WHETHER THIS PROSPECTUS IS ACCURATE INVESTING. WITH A PLAN.-SM-
OR ADEQUATE. IT IS A CRIMINAL OFFENSE
TO STATE OTHERWISE.
<PAGE>
CONTENTS
3 An Overview of the Funds
3 Accumulative Fund
9 International Growth Fund
15 New Concepts Fund
21 Science and Technology Fund
27 Small Cap Fund
31 Vanguard Fund
37 The Investment Principles of the Funds
43 Your Account
64 The Management of the Funds
68 Financial Highlights
2
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
ACCUMULATIVE FUND
(FORMERLY UNITED ACCUMULATIVE FUND)
SEEKS CAPITAL GROWTH, WITH CURRENT
INCOME AS A SECONDARY GOAL.
PRINCIPAL STRATEGIES
Accumulative Fund invests primarily in common stocks of largely capitalized U.S.
and foreign companies. The Fund may invest in companies of any size and of any
industry in order to achieve its primary goal of growth.
Waddell & Reed Investment Management Company ("WRIMCO"), the Fund's investment
manager, attempts to select securities with appreciation possibilities by
looking at many factors, including:
- stability and predictability of earnings growth;
- acceleration of earnings and/or revenue;
- improvement in profitability; and
- potential turnaround opportunities.
The Fund may periodically emphasize a blend of value and growth potential in
selecting stocks. Value stocks are those that WRIMCO believes are currently
selling below their true worth. A stock has growth potential if, in WRIMCO's
opinion, the earnings of the company are likely to grow faster than the economy.
In general, in determining whether to sell a stock, WRIMCO uses the same type of
analysis that it uses in buying stocks in order to determine whether the
security has ceased to offer significant growth potential. WRIMCO may also sell
a security to take advantage of more attractive investment opportunities or to
raise cash.
3
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Accumulative Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
- 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;
- the earnings performance, credit quality and other conditions of the companies
whose securities the Fund holds; and
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small to medium sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations.
An investment in foreign securities presents additional risks such as currency
fluctuations and political or economic conditions affecting the foreign country.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Accumulative Fund is designed for investors seeking long-term investment growth
not by seeking to maximize the upside potential of the market but rather by
seeking to reduce potential risk in a declining market. You should consider
whether the Fund fits your particular investment objectives.
4
<PAGE>
[GRAPHIC]
---------------------------------------
PERFORMANCE
ACCUMULATIVE FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past performance
does not necessarily indicate how it will perform in the future.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31 EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-11.05% 24.72% 14.04% 9.06% 0.04% 34.21% 12.18% 29.58% 22.62% 25.72%
========================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 24.90% (THE
FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -13.59% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
11.71%.
5
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
ACCUMULATIVE FUND 18.49% 23.17% 14.65%
--------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23%
--------------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52%
--------------------------------------------------------------------------------------
CLASS B SHARES OF
ACCUMULATIVE FUND 17.89%
--------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
--------------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52% 14.43%
--------------------------------------------------------------------------------------
CLASS C SHARES OF
ACCUMULATIVE FUND 20.45%
--------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
--------------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52% 14.43%
--------------------------------------------------------------------------------------
CLASS Y SHARES OF
ACCUMULATIVE FUND 25.95% 22.93%
--------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23% 26.56%
--------------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52% 22.49%
======================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOALS OF THE FUND.
(1)SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 6, 1999 FOR CLASS C SHARES
AND JULY 11, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX ARE NOT AVAILABLE, INDEX
PERFORMANCE IS CALCULATED FROM OCTOBER 31, 1999, OCTOBER 31, 1999 AND
JULY 31, 1995, RESPECTIVELY.
6
<PAGE>
[GRAPHIC]
---------------------------------------
FEES AND EXPENSES
ACCUMULATIVE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) NONE(2) 5% 1% NONE
================================================================================
ANNUAL FUND OPERATING EXPENSES(3)
<CAPTION>
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.68% 0.68% 0.68% 0.68%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.23% 1.00% 1.00% NONE
--------------------------------------------------------------------------------
OTHER EXPENSES 0.14% 0.63% 0.67% 0.19%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.05% 2.31% 2.35% 0.87%
================================================================================
</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 YEAR OF PURCHASE, TO 4% FOR
REDEMPTIONS MADE WITHIN THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE WITHIN
THE THIRD AND FOURTH YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE FIFTH
YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0% FOR
REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER PURCHASE. SOLELY FOR PURPOSES OF
DETERMINING THE NUMBER OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR
THE PURCHASE OF SHARES, ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED
TO HAVE BEEN MADE ON THE FIRST DAY OF THE MONTH.
(2)A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3)MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
7
<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 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 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $676 $ 890 $1,121 $1,784
-------------------------------------------------------------------------------
Class B Shares $634 $1,020 $1,333 $2,323(1)
-------------------------------------------------------------------------------
Class C Shares $338 $ 732 $1,254 $2,683
-------------------------------------------------------------------------------
Class Y Shares $ 89 $ 278 $ 482 $1,073
-------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $676 $ 890 $1,121 $1,784
-------------------------------------------------------------------------------
Class B Shares $234 $ 720 $1,233 $2,323(1)
-------------------------------------------------------------------------------
Class C Shares $238 $ 732 $1,254 $2,683
-------------------------------------------------------------------------------
Class Y Shares $ 89 $ 278 $ 482 $1,073
===============================================================================
</TABLE>
(1)REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
8
<PAGE>
[GRAPHIC]
---------------------------------------
AN OVERVIEW OF THE FUND
WADDELL & REED ADVISORS
INTERNATIONAL GROWTH FUND
(FORMERLY UNITED INTERNATIONAL GROWTH FUND) SEEKS, AS A
PRIMARY GOAL, LONG-TERM APPRECIATION OF CAPITAL. AS A
SECONDARY GOAL, THE FUND SEEKS CURRENT INCOME.
PRINCIPAL STRATEGIES
International Growth Fund seeks to achieve its goals by investing primarily in
common stocks of foreign companies that WRIMCO believes have the potential for
long-term growth represented by economic expansion within a country or region
and by the restructuring and/or privatization of particular industries. The Fund
emphasizes growth stocks, which are securities of companies whose earnings
WRIMCO believes are likely to grow faster than the economy. The Fund primarily
invests in issuers of developed countries. The Fund may invest in companies of
any size.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include the issuer's:
- growth potential;
- earnings potential;
- management;
- industry position; and
- applicable economic and market conditions.
In general, in determining whether to sell a security, WRIMCO uses the same type
of analysis that it uses in buying securities of that type. For example, WRIMCO
may sell a security if it believes the security no longer offers significant
growth potential. As well, WRIMCO may sell a security to take advantage of more
attractive investment opportunities or to raise cash.
9
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because International Growth Fund owns different types of securities, a variety
of factors can affect its investment performance, such as:
- changes in foreign exchange rates, which may affect the value of the
securities the Fund holds;
- 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;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Investing in foreign securities presents additional risks, such as currency
fluctuations and political or economic conditions affecting the foreign country.
Accounting and disclosure standards also differ from country to country, which
makes obtaining reliable research information more difficult. There is the
possibility that, under unusual international monetary or political conditions,
the Fund's assets might be more volatile than would be the case with other
investments.
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies may have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
International Growth Fund is designed for investors seeking long-term
appreciation of capital by investing primarily in securities issued by foreign
companies. You should consider whether the Fund fits your particular investment
objectives.
10
<PAGE>
[GRAPHIC]
---------------------------------------
PERFORMANCE
INTERNATIONAL GROWTH FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31 EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-13.20% 19.27% -0.67% 46.56% 1.81% 8.09% 18.23% 17.38% 21.41% 57.04%
===========================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 46.67% (THE
FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -17.43% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
1.16%.
11
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
INTERNATIONAL GROWTH FUND 48.01% 21.94% 15.12%
--------------------------------------------------------------------------------------------
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 7.01%
--------------------------------------------------------------------------------------------
Lipper International
Funds Universe Average 40.80% 15.05% 10.22%
--------------------------------------------------------------------------------------------
CLASS B SHARES OF
INTERNATIONAL GROWTH FUND 37.70%
--------------------------------------------------------------------------------------------
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 7.01% 12.76%
--------------------------------------------------------------------------------------------
Lipper International
Funds Universe Average 40.80% 15.05% 10.22% 20.88%
--------------------------------------------------------------------------------------------
CLASS C SHARES OF
INTERNATIONAL GROWTH FUND 41.94%
--------------------------------------------------------------------------------------------
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 7.01% 12.76%
--------------------------------------------------------------------------------------------
Lipper International
Funds Universe Average 40.80% 15.05% 10.22% 20.88%
--------------------------------------------------------------------------------------------
CLASS Y SHARES OF
INTERNATIONAL GROWTH FUND 57.50% 24.95%
--------------------------------------------------------------------------------------------
Morgan Stanley Capital
International E.A.FE. Index 26.96% 12.83% 7.01% 13.47%
--------------------------------------------------------------------------------------------
Lipper International
Funds Universe Average 40.80% 15.05% 10.22% 16.00%
============================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS
UNMANAGED. THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS
SIMILAR TO THE GOALS OF THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 5, 1999 FOR CLASS C
SHARES AND SEPTEMBER 27, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE INDEX ARE NOT
AVAILABLE, INDEX PERFORMANCE IS FROM OCTOBER 31, 1999, OCTOBER 31, 1999 AND
SEPTEMBER 30, 1995, RESPECTIVELY.
12
<PAGE>
[GRAPHIC]
---------------------------------------
FEES AND EXPENSES
INTERNATIONAL GROWTH FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
===============================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.85% 0.85% 0.85% 0.85%
-------------------------------------------------------------------------------
DISTRIBUTION AND
SERVICE (12b-1) FEES 0.25% 1.00% 1.00% None
-------------------------------------------------------------------------------
OTHER EXPENSES 0.36% 0.36% 0.36% 0.30%
-------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.46% 2.21% 2.21% 1.15%
================================================================================
</TABLE>
(1)THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF
THE MONTH.
(2)A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3)MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999;
OTHERWISE, EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE
FUND FOR THE FISCAL YEAR ENDED JUNE 30, 1999, AND FOR CLASS B AND CLASS C,
THE EXPENSES ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE
CURRENT YEAR. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
13
<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 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 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $715 $1,010 $1,327 $2,221
-----------------------------------------------------------------------------
Class B Shares $624 $ 991 $1,285 $2,353(1)
-----------------------------------------------------------------------------
Class C Shares $324 $ 691 $1,185 $2,544
-----------------------------------------------------------------------------
Class Y Shares $117 $ 365 $ 633 $1,398
-----------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Class A Shares $715 $1,010 $1,327 $2,221
-----------------------------------------------------------------------------
Class B Shares $224 $ 691 $1,185 $2,353(1)
-----------------------------------------------------------------------------
Class C Shares $224 $ 691 $1,185 $2,544
-----------------------------------------------------------------------------
Class Y Shares $117 $ 365 $ 633 $1,398
=============================================================================
</TABLE>
(1)REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
14
<PAGE>
[GRAPHIC]
---------------------------------------
AN OVERVIEW OF THE FUND
WADDELL & REED ADVISORS
NEW CONCEPTS FUND
(FORMERLY UNITED NEW CONCEPTS FUND) SEEKS THE GROWTH OF
YOUR INVESTMENT.
PRINCIPAL STRATEGIES
New Concepts Fund seeks to achieve its goal by investing primarily in common
stocks of U.S. and foreign companies whose market capitalizations are within
the range of capitalizations of companies comprising the Russell Mid-Cap Growth
Index ("Russell Mid-Cap") and that WRIMCO believes offer above-average growth
potential.
In selecting companies, WRIMCO may look at a number of factors, such as:
- new or innovative products or services;
- adaptive or creative management;
- strong financial and operational capabilities to sustain growth;
- market potential; and
- profit potential.
In general, in determining whether to sell a stock, WRIMCO uses the same type of
analysis that it uses when buying stocks. For example, WRIMCO may sell a holding
if the company no longer meets the desired capitalization range or if the
company position weakens in the industry or market. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
15
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because New Concepts Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- 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;
- the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries; and
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for medium sized companies may be greater than that for large
companies. Medium sized companies may have limited financial resources and less
experienced management compared to large companies. Stocks of medium sized
companies may experience volatile trading and price fluctuations.
An investment in foreign securities presents additional risks such as currency
fluctuations and political or economic conditions affecting the foreign country.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
New Concepts Fund is designed for investors who are willing to accept greater
risks than are present with many other mutual funds. The Fund is not intended
for investors who desire assured income and conservation of capital. You should
consider whether the Fund fits your particular investment objectives.
16
<PAGE>
[GRAPHIC]
---------------------------------------
PERFORMANCE
NEW CONCEPTS FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31 EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.39 89.72% 5.47% 10.75% 11.30% 33.94% 4.57% 16.74% 38.70% 63.42%(1)
======================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 46.17%
(THE FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -18.14%
(THE THIRD QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH
31, 2000 WAS 7.18%.
(1)A SUBSTANTIAL PORTION OF THE FUND'S RETURNS DURING RECENT PERIODS IS
ATTRIBUTABLE TO INVESTMENTS IN INITIAL PUBLIC OFFERINGS (IPOS). NO
ASSURANCE CAN BE GIVEN THAT THE FUND WILL CONTINUE TO BE ABLE TO INVEST IN
IPOS TO THE SAME EXTENT AS IT HAS IN THE PAST OR THAT FUTURE IPOS IN WHICH
THE FUND INVESTS WILL HAVE AS EQUALLY BENEFICAL IMPACT ON PERFORMANCE.
17
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
NEW CONCEPTS FUND 54.02% 28.42% 24.06%
----------------------------------------------------------------------------------------
Nasdaq Industrials Index 71.67% 24.33% 17.46%
----------------------------------------------------------------------------------------
Russell Mid-Cap
Growth Index 51.31% 28.04% 18.96%
----------------------------------------------------------------------------------------
CLASS B SHARES OF
NEW CONCEPTS FUND 39.70%
----------------------------------------------------------------------------------------
Nasdaq Industrials Index 71.67% 24.33% 17.46% 33.69%
----------------------------------------------------------------------------------------
Russell Mid-Cap
Growth Index 51.31% 28.04% 18.96% 29.50%
----------------------------------------------------------------------------------------
CLASS C SHARES OF
NEW CONCEPTS FUND 43.70%
----------------------------------------------------------------------------------------
Nasdaq Industrials Index 71.67% 24.33% 17.46% 33.69%
----------------------------------------------------------------------------------------
Russell Mid-Cap
Growth Index 51.31% 28.04% 18.96% 29.50%
----------------------------------------------------------------------------------------
CLASS Y SHARES OF
NEW CONCEPTS FUND 63.89% 27.36%
----------------------------------------------------------------------------------------
Nasdaq Industrials Index 71.67% 24.33% 17.46% 21.56%
----------------------------------------------------------------------------------------
Russell Mid-Cap
Growth Index 51.31% 28.04% 18.96% 25.49%
========================================================================================
</TABLE>
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE
UNMANAGED. THE RUSSELL MID-CAP GROWTH INDEX WILL REPLACE THE NASDAQ
INDUSTRIALS INDEX. WRIMCO BELIEVES THAT THE RUSSELL MID-CAP GROWTH INDEX
PROVIDES A MORE ACCURATE BASIS FOR COMPARING THE FUND'S PERFORMANCE TO THE
TYPES OF SECURITIES IN WHICH THE FUND INVESTS. BOTH INDEXES ARE PRESENTED
FOR COMPARISON PURPOSES. AS OF JANUARY 2000, THE COMPANIES IN WHICH THE
FUND INVESTS ARE PRIMARILY COMPANIES WHOSE MARKET CAPITALIZATIONS ARE
WITHIN THOSE OF COMPANIES COMPRISING THE RUSSELL MID-CAP GROWTH INDEX.
(1)SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS C SHARES
AND SEPTEMBER 6, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE INDEXES (INCLUDING INCOME) ARE NOT
AVAILABLE, PERFORMANCE OF THE INDEXES IS FROM OCTOBER 31, 1999, OCTOBER 31,
1999, AND AUGUST 31, 1995, RESPECTIVELY.
18
<PAGE>
[GRAPHIC]
---------------------------------------
FEES AND EXPENSES
NEW CONCEPTS FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
===============================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
-------------------------------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.84% 0.84% 0.84% 0.84%
-------------------------------------------------------------------------------
DISTRIBUTION AND
SERVICE (12B-1) FEES 0.24% 1.00% 1.00% None
-------------------------------------------------------------------------------
OTHER EXPENSES 0.26% 0.56% 0.47% 0.20%
-------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.34% 2.40% 2.31% 1.04%
===============================================================================
</TABLE>
(1)THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF
THE MONTH.
(2)A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3)MANAGEMENT FEES AND TOTAL FUND OPERATING EXPENSES HAVE BEEN RESTATED TO
REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED MARCH 31, 2000. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
19
<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 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 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $704 $ 976 $1,269 $2,099
-------------------------------------------------------------------------------
Class B Shares $644 $ 1,050 $1,383 $2,474(1)
-------------------------------------------------------------------------------
Class C Shares $335 $ 723 $1,237 $2,650
-------------------------------------------------------------------------------
Class Y Shares $106 $ 332 $ 576 $1,276
-------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $704 $ 976 $1,269 $2,099
-------------------------------------------------------------------------------
Class B Shares $244 $ 750 $1,283 $2,474(1)
-------------------------------------------------------------------------------
Class C Shares $235 $ 723 $1,237 $2,650
-------------------------------------------------------------------------------
Class Y Shares $106 $ 332 $ 576 $1,276
-------------------------------------------------------------------------------
</TABLE>
(1)REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
20
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
SCIENCE AND TECHNOLOGY FUND
(FORMERLY UNITED SCIENCE AND TECHNOLOGY FUND) SEEKS LONG-TERM CAPITAL GROWTH.
PRINCIPAL STRATEGIES
Science and Technology Fund seeks to achieve its goal of growth by concentrating
its investments primarily in the equity securities of U.S. and foreign science
and technology companies. Science and technology companies are companies whose
products, processes or services, in the opinion of WRIMCO are being or are
expected to be significantly benefited by the use or commercial application of
scientific or technological developments or discoveries. The Fund may invest in
companies of any size.
WRIMCO typically emphasizes growth potential in selecting stocks; that is,
WRIMCO seeks companies in which earnings are likely to grow faster than the
economy. WRIMCO may look at a number of factors in selecting securities for the
Fund's portfolio. These include the issuer's:
- growth potential;
- earnings potential;
- management;
- industry position; and
- applicable economic and market conditions.
Generally, in determining whether to sell a stock, WRIMCO uses the same type of
analysis that it uses in buying stocks in order to determine whether the
security has ceased to offer significant growth potential. WRIMCO may also sell
a security to take advantage of more attractive investment opportunities or to
raise cash.
21
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Science and Technology Fund owns different types of securities, a
variety of factors can affect its investment performance, such as:
- the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors of the science and technology
industries;
- rapid obsolescence of products or processes of companies in which the Fund
invests;
- government regulation in the science and technology industry;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- 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
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small to medium sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations.
An investment in foreign securities presents additional risks such as currency
fluctuations and political or economic conditions affecting the foreign country.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Science and Technology Fund is designed for investors who seek long-term capital
growth by investing in an actively managed Fund concentrating in securities of
science and technology companies. This Fund is not suitable for all investors.
You should consider whether the Fund fits your particular investment objectives.
22
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
SCIENCE AND TECHNOLOGY FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31 EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-4.57% 60.66% -4.03% 8.51% 9.78% 55.37% 8.35% 7.22% 59.31% 102.93%
===============================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 61.66% (THE
FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -15.89% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
18.56%.
23
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999(%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF SCIENCE
AND TECHNOLOGY FUND 91.27% 40.63% 25.46%
-----------------------------------------------------------------------------------
S&P 400 Industrials Index 26.05% 29.77% 19.06%
-----------------------------------------------------------------------------------
Lipper Science and Technology
Funds Universe Average 134.77% 40.91% 29.91%
-----------------------------------------------------------------------------------
CLASS B SHARES OF SCIENCE
AND TECHNOLOGY FUND 53.62%
-----------------------------------------------------------------------------------
S&P 400 Industrials Index 26.05% 29.77% 19.06% 11.50%
-----------------------------------------------------------------------------------
Lipper Science and Technology
Funds Universe Average 134.77% 40.91% 29.91% 48.17%
-----------------------------------------------------------------------------------
CLASS C SHARES OF SCIENCE
AND TECHNOLOGY FUND 57.70%
-----------------------------------------------------------------------------------
S&P 400 Industrials Index 26.05% 29.77% 19.06% 11.50%
-----------------------------------------------------------------------------------
Lipper Science and Technology
Funds Universe Average 134.77% 40.91% 29.91% 48.17%
-----------------------------------------------------------------------------------
CLASS Y SHARES OF SCIENCE
AND TECHNOLOGY FUND 103.72% 39.63%
-----------------------------------------------------------------------------------
S&P 400 Industrials Index 26.05% 29.77% 19.06% 28.40%
-----------------------------------------------------------------------------------
Lipper Science and Technology
Funds Universe Average 134.77% 40.91% 29.91% 42.64%
===================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS C SHARES
AND FEBRUARY 27, 1996 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX ARE NOT AVAILABLE, INDEX
PERFORMANCE IS CALCULATED FROM OCTOBER 31, 1999, OCTOBER 31, 1999 AND
FEBRUARY 29, 1996, RESPECTIVELY.
24
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
SCIENCE AND TECHNOLOGY FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(as a percentage of lesser
of amount invested or
redemption value) None(2) 5% 1% None
--------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.84% 0.84% 0.84% 0.84%
--------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees 0.23% 1.00% 1.00% None
--------------------------------------------------------------------------------
Other Expenses 0.19% 0.79% 0.61% 0.22%
--------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses 1.26% 2.63% 2.45% 1.06%
================================================================================
</TABLE>
(1)THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT INVESTED OR REDEMPTION
FIRST VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR REDEMPTIONS MADE WITHIN
THE YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR, TO
3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2)A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3)MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
25
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $696 $ 952 $1,227 $2,010
--------------------------------------------------------------------------------
Class B Shares $666 $1,118 $1,496 $2,627(1)
--------------------------------------------------------------------------------
Class C Shares $348 $ 762 $1,303 $2,781
--------------------------------------------------------------------------------
Class Y Shares $108 $ 337 $ 585 $1,294
--------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $696 $952 $1,227 $2,010
--------------------------------------------------------------------------------
Class B Shares $266 $818 $1,396 $2,627(1)
--------------------------------------------------------------------------------
Class C Shares $248 $762 $1,303 $2,781
--------------------------------------------------------------------------------
Class Y Shares $108 $337 $ 585 $1,294
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
26
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
SMALL CAP FUND
(FORMERLY UNITED SMALL CAP FUND) SEEKS GROWTH OF CAPITAL.
PRINCIPAL STRATEGIES
Small Cap Fund seeks to achieve its goal by investing primarily in common stocks
of domestic and foreign companies whose market capitalizations are within the
range of capitalizations of companies included in the Lipper, Inc. Small Cap
Category ("small cap stocks"). The Fund emphasizes relatively new or unseasoned
companies in their early stages of development or smaller companies positioned
in new or emerging industries where there is opportunity for rapid growth.
In selecting companies, WRIMCO seeks companies whose earnings, it believes, are
likely to grow faster than the economy. WRIMCO may look at a number of factors
relating to a company, such as:
- aggressive or creative management;
- technological or specialized expertise;
- new or unique products or services; and
- entry into new or emerging industries.
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.
27
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Small Cap Fund owns different types of securities, a variety of factors
can affect its investment performance, such as:
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries;
- 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
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small to medium sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations.
Due to the nature of the Fund's permitted investments, primarily the small cap
stocks of new and/or unseasoned companies, companies in their early stages of
development or smaller companies in new or emerging industries, the Fund may be
subject to the following additional risks:
- products offered may fail to sell as anticipated;
- a period of unprofitability may be experienced before a company develops
the expertise and clientele to succeed in an industry;
- the company may never achieve profitability; and
- economic, market and technological factors may cause the new industry
itself to lose favor with the public.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Small Cap 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.
28
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
SMALL CAP FUND
The Fund has not been in operation for a full calendar year, therefore no
performance information (the bar chart and performance table) is included in
this prospectus.
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
SMALL CAP FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(fees paid directly from Class A Class B Class C Class Y
your investment) Shares Shares Shares Shares
--------------------------------------------------------------------------------
<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)
(as a percentage of lesser
of amount invested or
redemption value) None(2) 5% 1% None
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY
OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
29
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.85% 0.85% 0.85% 0.85%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 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>
(3)UNTIL NOVEMBER 1, 1999, WRIMCO VOLUNTARILY WAIVED ITS INVESTMENT MANAGEMENT
FEE. THE EXPENSES SHOWN FOR MANAGEMENT FEES REFLECT THE MAXIMUM ANNUAL FEE
PAYABLE. 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.
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 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>
30
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
VANGUARD FUND
(FORMERLY UNITED VANGUARD FUND) SEEKS THE APPRECIATION OF YOUR INVESTMENT.
PRINCIPAL STRATEGY
Vanguard Fund seeks to achieve its goal by investing primarily in a diversified
portfolio of common stock issued by large to medium sized U.S. and foreign
companies that WRIMCO believes have appreciation possibilities. WRIMCO typically
emphasizes growth stocks, but also includes value stocks in the Fund's portfolio
to provide a blend of value and growth potential. Value stocks are those that
WRIMCO believes are currently selling below their true worth. Growth stocks are
those whose earnings WRIMCO believes are likely to grow faster than the economy.
The Fund may invest in companies of any size.
WRIMCO attempts to select securities with appreciation possibilities by looking
at many factors. These include:
- changes in economic and political conditions;
- the short-term and long-term outlook for the industry being analyzed;
- the management capability of the company being considered; and
- the company's market position, product line, technological position and
prospects for increased earnings.
WRIMCO may also analyze the demands of investors for the security relative to
its price. Securities may be chosen when WRIMCO anticipates a development that
might have an effect on the value of a security.
In general, WRIMCO will sell a security if it determines that the security no
longer presents sufficient appreciation potential. As well, WRIMCO may sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
31
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Vanguard Fund owns different types of securities, a variety of factors
can affect its investment performance, such as:
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries;
- 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
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for medium sized companies may be greater than the market risk for
large companies. Such companies are more likely to have limited financial
resources and inexperienced management. As well, stock of these companies may
experience volatile trading and price fluctuations.
As well, the Fund may invest a significant portion of its assets in foreign
securities. Foreign securities present additional risks such as currency
fluctuations and political or economic conditions affecting the foreign
countries.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Vanguard Fund is designed for investors seeking long-term investment growth. You
should consider whether the Fund fits your particular investment objectives.
32
<PAGE>
[GRAPHIC]
-------------------------------------------------------------------------------
PERFORMANCE
VANGUARD FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31 EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-4.88% 28.14% 2.61% 14.25% 6.16% 24.73% 7.54% 19.77% 31.21% 43.91%
===============================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 31.10% (THE
FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -16.18% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
18.20%.
33
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
VANGUARD FUND 35.63% 23.38% 15.99%
--------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23%
--------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52%
--------------------------------------------------------------------------------
CLASS B SHARES OF
VANGUARD FUND 21.68%
--------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
--------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52% 14.43%
--------------------------------------------------------------------------------
CLASS C SHARES OF
VANGUARD FUND 25.68%
--------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
--------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52% 14.43%
--------------------------------------------------------------------------------
CLASS Y SHARES OF
VANGUARD FUND 44.22% 22.26%
--------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23% 26.41%
--------------------------------------------------------------------------------
Lipper Growth Funds
Universe Average 29.27% 25.04% 16.52% 22.44%
================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS
UNMANAGED. THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH
GOALS SIMILAR TO THE GOAL OF THE FUND.
(1)SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS
C SHARES AND SEPTEMBER 8, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX
(INCLUDING INCOME) ARE NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED
FROM OCTOBER 31, 1999, OCTOBER 31, 1999 AND SEPTEMBER 30, 1995,
RESPECTIVELY.
34
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
VANGUARD FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
--------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.68% 0.68% 0.68% 0.68%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.18% 0.18% 0.18% 0.18%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.11% 1.86% 1.86% 0.86%
--------------------------------------------------------------------------------
</TABLE>
(1)THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY
OF THE MONTH.
(2)A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3)MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
35
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $682 $908 $1,151 $1,849
--------------------------------------------------------------------------------
Class B Shares $589 $885 $1,106 $1,982(1)
--------------------------------------------------------------------------------
Class C Shares $289 $585 $1,006 $2,180
--------------------------------------------------------------------------------
Class Y Shares $ 88 $274 $ 477 $1,061
--------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $682 $908 $1,151 $1,849
--------------------------------------------------------------------------------
Class B Shares $189 $585 $1,006 $1,982(1)
--------------------------------------------------------------------------------
Class C Shares $189 $585 $1,006 $2,180
--------------------------------------------------------------------------------
Class Y Shares $ 88 $274 $ 477 $1,061
--------------------------------------------------------------------------------
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
36
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
THE INVESTMENT PRINCIPLES OF THE FUNDS
INVESTMENT GOALS, PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
WADDELL & REED ADVISORS ACCUMULATIVE FUND
The primary goal of the Fund is capital growth. As a secondary goal, the Fund
seeks current income. The Fund seeks to achieve these goals by investing
primarily in a diversified portfolio of common stocks, or securities convertible
into common stocks, of U.S. and foreign companies, the risks of which are, in
WRIMCO's opinion, consistent with the Fund's goals. Generally, the Fund invests
in stocks with large market capitalization that, in WRIMCO's opinion, have
slightly higher market volatility and slightly higher growth rates than other
stocks. There is no guarantee that the Fund will achieve its goals.
As a temporary defensive measure, at times when WRIMCO believes that common
stocks do not offer a good investment opportunity, the Fund may hold up to all
of its assets in cash, debt securities, typically, of investment grade (rated
BBB or higher by Standard & Poor's (OS&PO) or Baa or higher by Moody's Investors
Service (OMISO) or, if unrated, deemed by WRIMCO to be of comparable quality),
preferred stock, or common stocks that WRIMCO chooses because the securities are
less volatile rather than for their growth potential. By taking a temporary
defensive position in any of these ways, the Fund may not achieve its investment
objectives.
WADDELL & REED ADVISORS INTERNATIONAL GROWTH FUND
The primary goal of the Fund is long-term capital appreciation, with current
income as a secondary goal. The Fund seeks to achieve these goals by investing
primarily in a diversified portfolio of common stocks of foreign issuers. There
is no guarantee that the Fund will achieve its goals.
The Fund may also invest, to a lesser extent, in preferred stocks and debt
securities. The debt securities may be of any maturity and will typically be
investment grade.
Under normal conditions, the Fund invests at least 80% of its total assets in
foreign securities and at least 65% of its total assets in issuers of at least
three foreign countries. The Fund generally limits its holdings so that no more
than 75% of its total assets are invested in issuers of a single foreign
country. As well, the Fund will invest at least 65% of its total assets in
growth securities (usually common stock) during normal market conditions. Growth
securities
37
<PAGE>
are those whose earnings, WRIMCO believes, are likely to have strong growth over
several years.
When WRIMCO believes that a temporary defensive position is desirable, WRIMCO
may take certain steps with respect to up to all of the Fund's assets by
investing in debt securities (including commercial paper or short-term U.S.
Government securities) or preferred stocks, or both. By taking a temporary
defensive position, the Fund may not achieve its investment objectives.
WADDELL & REED ADVISORS NEW CONCEPTS FUND
The goal of the Fund is the growth of your investment. The Fund seeks to achieve
its goal by investing primarily in a diversified portfolio of common stocks of
U.S. companies whose market capitalizations are within the range of
capitalizations of companies comprising the Russell Mid-Cap and that WRIMCO
believes offer above-average growth potential. For this purpose, the Fund
considers a company's capitalization at the time the Fund acquires the company's
securities, and the company need not be listed in the Russell Mid-Cap. Companies
whose capitalization falls outside the range of the Russell Mid-Cap after
purchase continue to be considered medium capitalization companies for purpose
of the Fund's investment policy. There is no guarantee that the Fund will
achieve its goal.
In addition to common stocks, the Fund may invest in convertible securities,
preferred stocks and debt securities of any maturity and mostly of investment
grade. The Fund may also invest up to 10% of its total assets in foreign
securities, but only those that are exchange-traded or quoted on an automatic
quotations system; represented by U.S.-traded American Depositary Receipts; or
issued or guaranteed by a foreign government (or any of its subdivisions,
agencies or instrumentalities).
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, short-term securities issued by the U.S. Government or its agencies or
instrumentalities and other money market instruments) and/or preferred stocks.
The Fund may also use options and futures contracts for defensive purposes. By
taking a defensive position the Fund may not achieve its investment objective.
38
<PAGE>
WADDELL & REED ADVISORS SCIENCE AND TECHNOLOGY FUND
The goal of the Fund is long-term capital growth. The Fund seeks to achieve this
goal by investing primarily in science and technology companies. Science and
technology companies are companies whose products, processes or services, in
WRIMCO's opinion, are being or are expected to be significantly benefited by the
use or commercial application of scientific or technological discoveries. There
is no guarantee that the Fund will achieve its goal.
The Fund invests in such areas as:
- aerospace and defense electronics;
- biotechnology;
- business machines;
- cable and broadband access;
- communications and electronic equipment;
- computer software and services;
- computer systems;
- electronics;
- electronic media;
- internet and internet-related services;
- medical devices and drugs;
- medical and hospital supplies and services; and
- office equipment and supplies.
The Fund primarily owns common stock; however, it may invest, to a lesser
extent, in preferred stock, debt securities and convertible securities. The Fund
may invest a limited amount of its assets in foreign securities.
Under normal economic and market conditions, the Fund will not invest more than
20% of its total assets in securities other than those of science or technology
companies. When WRIMCO believes that a temporary defensive position is
desirable, the Fund may invest up to all of its assets in U.S. Government
securities or other debt securities, mostly of investment grade. By taking a
temporary defensive position the Fund may not achieve its investment objective.
39
<PAGE>
WADDELL & REED ADVISORS SMALL CAP FUND
The goal of the Fund is growth of capital. The Fund seeks to achieve its goal by
investing primarily in small cap 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. The Fund considers a company's capitalization at the time the
Fund acquires the company's common stock. Common stock of a company whose
capitalization exceeds the range of the Lipper, Inc. Small Cap Category after
purchase will not be sold solely because of its increased capitalization. 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 that are mostly of investment grade. The Fund may also buy foreign
securities, however, it may not invest more than 10% of its total assets in
foreign securities.
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 temporary defensive position, the Fund may not achieve its investment
objective.
WADDELL &REED ADVISORS VANGUARD FUND
The goal of the Fund is the appreciation of your investment. The Fund seeks to
achieve this goal through a diversified holding of securities, primarily those
issued by large to medium sized U.S. and foreign companies that WRIMCO believes
have appreciation possibilities. There is no guarantee that the Fund will
achieve its goal.
The Fund invests primarily in common stock but may also own, to a limited
extent, preferred stock and debt securities, typically of investment grade and
of any maturity. The Fund may also own convertible securities. As well, the Fund
may invest, to a lesser extent, in foreign securities.
At times, as a temporary defensive measure, the Fund may invest up to all of its
assets in either debt securities (which may include money market instruments
held as cash reserves) or preferred stocks or both. By taking a temporary
defensive position in either or both of these ways the Fund may not achieve its
investment objective.
40
<PAGE>
ALL FUNDS
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goal(s). For example, each Fund is permitted to 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.
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in its Statement of
Additional Information ("SAI").
RISK CONSIDERATIONS OF PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
Risks exist in any investment. Each Fund is subject to equity risk and other
market risk, financial risk and, in some cases, prepayment risk.
- Market risk is the possibility of a change in the price of the security. The
prices of common stocks and other equity securities generally fluctuate more
than those of other investments. A Fund may lose a substantial part, or even
all, of its investment in a company's stock. Growth stocks may experience
greater price volatility than value stocks. To the extent a Fund invests in
fixed income securities, the price of a fixed income security may be affected
by 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 a Fund will likely change as well.
- Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities in
which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing the
stock.
- Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid before
its expected maturity date.
Certain types of each Fund's authorized investments and strategies (such as
foreign securities, junk bonds and derivative instruments) involve special
risks. Depending on how much a Fund invests or uses these strategies, these
special risks may become significant. For example, foreign investments may
subject a Fund to restrictions on receiving the investment proceeds from a
foreign country, foreign taxes, and potential difficulties in enforcing
41
<PAGE>
contractual obligations, as well as fluctuations in foreign currency values and
other developments that may adversely affect a foreign country. Junk bonds pose
a greater risk of nonpayment of interest or principal than higher-rated bonds.
Derivative instruments may expose a Fund to greater volatility than an
investment in a more traditional stock, bond or other security.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
Accumulative Fund, International Growth Fund and New Concepts Fund may actively
trade securities in seeking to achieve their goal. Doing so may increase
transaction costs (which may reduce performance) and increase distributions paid
by the Fund, which may increase your taxable income.
42
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
YOUR ACCOUNT
CHOOSING A SHARE CLASS
Each Fund offers four classes of shares: 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.
Class B and Class C shares are not available for investments of $2 million or
more. If you are investing a lesser amount, you may want to consider Class B
shares (if investing for at least seven years) or Class C shares (if investing
for less than seven 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 a
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.
43
<PAGE>
<TABLE>
<CAPTION>
GENERAL COMPARISON OF CLASS A, CLASS B AND CLASS C SHARES
CLASS A CLASS B CLASS C
------------------------------------------------------------------------------------------------
<S> <C> <C>
Initial sales charge No initial sales charge No initial sales charge
------------------------------------------------------------------------------------------------
No deferred sales charge(1) Deferred sales charge on A 1% deferred sales
shares you sell within six charge on shares you
years after purchase sell within twelve
months after purchase
------------------------------------------------------------------------------------------------
Maximum distribution Maximum distribution Maximum distribution
and service (12b-1) fees and service (12b-1) fees and service (12b-1) fees
of 0.25% of 1.00% of 1.00%
------------------------------------------------------------------------------------------------
For an investment of Converts to Class A Does not convert to
$2 million or more, shares 8 years after the Class A shares, so
only Class A shares month in which the annual expenses do
are available shares were purchased, not decrease
thus reducing future
annual expenses
------------------------------------------------------------------------------------------------
For an investment of $300,000
or more, your financial advisor
typically will recommend
purchase of Class A shares due
to a reduced sales charge and
lower annual expenses
================================================================================================
</TABLE>
(1) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
EACH 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, each 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, each 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 ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
44
<PAGE>
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.
<TABLE>
<CAPTION>
SIZE OF PURCHASE
SALES CHARGE REALLOWANCE
AS APPROX. TO DEALERS
SALES CHARGE PERCENT OF AS PERCENT
AS PERCENT OF AMOUNT OF OFFERING
OFFERING PRICE INVESTED PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 5.75% 6.10% 5.00%
--------------------------------------------------------------------------------
$100,000 to less than $200,000 4.75 4.99 4.00
--------------------------------------------------------------------------------
$200,000 to less than $300,000 3.50 3.63 2.80
--------------------------------------------------------------------------------
$300,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.20
--------------------------------------------------------------------------------
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
--------------------------------------------------------------------------------
$2,000,000 and over 0.00(1) 0.00(1) 0.50
================================================================================
</TABLE>
(1) NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $2
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS A FUND MAY IMPOSE A CDSC OF
1.00% ON REDEMPTIONS MADE WITHIN TWELVE MONTHS OF THE PURCHASE. THE CDSC IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET VALUE
OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES CHARGE IS
IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL PURCHASE PRICE.
Waddell & Reed, Inc. or its affiliate(s) may pay additional compensation from
its own resources to securities dealers based upon the value of shares of a Fund
owned by the dealer for its own account or for its customers. Waddell & Reed,
Inc. may also provide compensation from its own resources to securities dealers
with respect to shares of the Funds purchased by customers of such dealers
without payment of a sales charge.
45
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
LOWER SALES CHARGES ARE AVAILABLE BY:
- Combining additional purchases of Class A shares of any of the funds in the
Waddell & Reed Advisors Funds, and/or the W&R Funds except Class A shares of
Waddell & Reed Advisors Cash Management (formerly known as United Cash
Management) or Class A shares of W&R Funds Money Market Fund 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
("NAV") of Class A shares already held ("Rights of Accumulation");
- Grouping all purchases of Class A shares, except shares of Waddell & Reed
Advisors Cash Management or W&R Funds Money Market Fund, made during a
thirteen-month period ("Letter of Intent"); and
- Grouping purchases by certain related persons.
Additional information and applicable forms are available from your financial
advisor.
WAIVERS FOR CERTAIN INVESTORS
CLASS A SHARES MAY BE PURCHASED AT NAV BY:
- The Directors and officers of the Fund or of any affiliated entity of Waddell
& Reed, Inc., employees of Waddell & Reed, Inc., employees of its affiliates,
financial advisors of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each;
- Certain retirement plans and certain trusts for these persons; and
- Until March 31, 2001, clients of Legend Equities Corporation ("Legend") if the
purchase is made with the proceeds of the redemption of shares of a mutual
fund which is not within the Waddell & Reed Advisors Funds or W&R Funds and
the purchase is made within 60 days of such redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
CONTINGENT DEFERRED SALES CHARGE. A CDSC may be assessed against your redemption
amount of Class B or Class C shares or certain Class A shares and paid to
Waddell & Reed, Inc. (the "Distributor"), as further described below. The
purpose of the CDSC is to compensate the Distributor for the costs incurred by
it in connection with the sale of the Fund's Class B or Class C shares or with
Class A investments of $2 million or more at NAV. The CDSC
46
<PAGE>
will not be imposed on shares representing payment of dividends or other
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 the shares purchased during the CDSC period. For Class B, the date of
redemption is measured in calendar months from the month of purchase. Solely for
purposes of determining the number of months or years from the time of any
payment for the purchase of shares, all payments during a month are totaled and
deemed to have been made on the first day of the month. 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, a Fund, when requested to redeem a specific dollar
amount, will redeem additional shares of the applicable class that are 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 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 purchased Class A shares.
Class B shares and any dividends and distributions paid on such shares
automatically convert to Class A shares eight years after the end of the month
in which the shares were purchased. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The Class A shares have lower ongoing expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
47
<PAGE>
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
ON SHARES SOLD WITHIN YEAR AS A % OF AMOUNT SUBJECT TO CHARGE
<S> <C>
1 5.0%
--------------------------------------------------------------------------------
2 4.0%
--------------------------------------------------------------------------------
3 3.0%
--------------------------------------------------------------------------------
4 3.0%
--------------------------------------------------------------------------------
5 2.0%
--------------------------------------------------------------------------------
6 1.0%
--------------------------------------------------------------------------------
7+ 0.0%
================================================================================
</TABLE>
In the table, a "year" is a 12-month period. In applying the CDSC, all purchases
are considered to have been made on the first day of the month in which the
purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%, the
rate applicable to redemptions made within the second year of purchase. All
Class B purchases made prior to July 1, 2000 will be automatically accelerated
to the revised method of calculating the CDSC. Any purchase made in 1999 will be
deemed to have been made on December 1, 1998. Any purchase made from January 1,
2000 to June 30, 2000 will be deemed to have been made on December 1, 1999.
CLASS C SHARES are not subject to an initial sales charge when you buy them, but
if you sell your Class C shares within twelve months after purchase, you will
pay a 1% CDSC. For purposes of the 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 purchased Class A shares. Class C shares do not convert to any other class.
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.
48
<PAGE>
THE CDSC WILL NOT APPLY IN THE FOLLOWING CIRCUMSTANCES:
- redemptions of 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.
- redemptions of 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.
- redemptions of shares purchased by current or retired Directors of the Fund,
and Directors of affiliated companies, current or retired officers or
employees of the Fund, WRIMCO, the Distributor or their affiliated companies,
financial advisors of Waddell & Reed, Inc., and by the members of immediate
families of such persons.
- redemptions of 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.)
- redemptions the proceeds of which are reinvested within forty-five days in
shares of the same class of the Fund as that redeemed.
- the exercise of certain exchange privileges.
- redemptions effected pursuant to each Fund's right ("other than Vanguard Fund)
to liquidate a shareholder's shares if the aggregate NAV of those shares is
less than $500.
- redemptions effected by another registered investment company by virtue of a
merger or other reorganization with a Fund or by a former shareholder of such
investment company of shares of a Fund acquired pursuant to such
reorganization.
These exceptions may be modified or eliminated by a 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 notice.
49
<PAGE>
CLASS Y SHARES are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
- 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;
- banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
- government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
- certain retirement plans and trusts for employees and financial advisors of
Waddell & Reed, Inc. and its affiliates.
WAYS TO SET UP YOUR ACCOUNT
The different ways to set up (register) your account are listed below.
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 PLANS
TO SHELTER YOUR RETIREMENT SAVINGS FROM INCOME TAXES
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
("other than Roth IRAs and Education IRAs) may be tax-deductible.
- INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow a certain individual under age
70 1/2, with earned income, to invest up to $2,000 per tax year. The maximum
for an investor and his or her spouse is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year.
- IRA ROLLOVERS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- ROTH IRAS allow certain individuals to make nondeductible contributions up to
$2,000 per 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
50
<PAGE>
couple's combined earned income for the taxable year. Withdrawals of earnings
may be tax free if the account is at least five years old and certain other
requirements are met.
- EDUCATION IRAS are established for the benefit of a minor, with nondeductible
contributions, up to $500 per year, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
- SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide business owners or those
with self-employed income (and their eligible employees) with many of the same
advantages as a Profit Sharing Plan, but with fewer administrative
requirements.
- SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS) can be established
by small employers to contribute to and allow their employees to contribute a
portion of their wages pre-tax to retirement accounts. This plan-type
generally involves fewer administrative requirements than 401(k) or other
qualified plans.
- 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.
- 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.
- 403(b) CUSTODIAL ACCOUNTS are available to employees of public school systems,
churches and certain types of charitable organizations.
- 457 ACCOUNTS allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
GIFTS OR TRANSFERS TO A MINOR
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Transfers to Minors Act ("UTMA") or the Uniform Gifts
to Minors Act ("UGMA").
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.
51
<PAGE>
BUYING SHARES
YOU MAY BUY SHARES OF EACH OF THE FUNDS through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend. To open your account you must
complete and sign an application. Your 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 800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
at the above address, 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, for the account of Waddell & Reed Number
9800007978, Special Account for Exclusive Benefit of Customers FBO Customer Name
and Account Number.
You may also buy Class Y shares of a 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 FUND SHARE is its offering price, which 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 per share of that class plus, for Class A shares, the
sales charge shown in the table.
In the calculation of a Fund's NAV:
- The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
- Bonds are generally valued according to prices quoted by an independent
pricing service.
52
<PAGE>
- Short-term debt securities are valued at amortized cost, which approximates
market value.
- 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.
EACH FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (the "NYSE")
is open. The Funds normally calculate their NAVs as of the close of business of
the NYSE, normally 4 p.m. Eastern time, except that an option or futures
contract held by a Fund may be priced at the close of the regular session of any
other securities exchange on which that instrument is traded.
The Funds 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
a Fund does not price its shares and when you are not able to purchase or redeem
a 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 each Fund's 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:
- All of your purchases must be made in U.S. dollars.
- If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the Waddell & Reed Advisors Funds and/or
W&R Funds, the payment may be delayed for up to ten days to ensure that your
previous investment has cleared.
- The Funds do not issue certificates representing Class B, Class C or Class Y
shares. Small Cap Fund does not issue certificates representing any class of
shares.
- If you purchase shares of a 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 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
53
<PAGE>
which it must receive your order for you to purchase shares of a 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 Funds reserve the right to discontinue
offering Fund shares for purchase.
MINIMUM INVESTMENTS
<TABLE>
FOR CLASS A, CLASS B AND CLASS C:
<S> <C>
TO OPEN AN ACCOUNT $500 (per Fund)
------------------------------------------------------------------------------------
For certain exchanges $100 (per Fund)
------------------------------------------------------------------------------------
For certain retirement accounts and accounts
opened with Automatic Investment Service $50 (per Fund)
------------------------------------------------------------------------------------
For certain retirement accounts and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25 (per Fund)
------------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
------------------------------------------------------------------------------------
For certain exchanges $100 (per Fund)
------------------------------------------------------------------------------------
For Automatic Investment Service $25 (per Fund)
FOR CLASS Y:
TO OPEN AN ACCOUNT
------------------------------------------------------------------------------------
For a government entity or authority $10 million
or for a corporation (within first twelve months)
------------------------------------------------------------------------------------
For other investors Any amount
------------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
====================================================================================
</TABLE>
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:
54
<PAGE>
- the detachable form that accompanies the confirmation of a prior purchase or
your year-to-date statement; or
- a letter stating your account number, the account registration, the Fund 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, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
SELLING SHARES
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The REDEMPTION PRICE (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
A, Class B or Class C shares.
TO SELL SHARES BY WRITTEN REQUEST: Complete an Account Service Request form,
available from your financial advisor, or write a letter of instruction with:
- the name on the account registration;
- the Fund's name;
- the Fund account number;
- the dollar amount or number, and the class, of shares to be redeemed; and
- any other applicable requirements listed in the table below.
55
<PAGE>
Deliver the form or your letter to your 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 888-WADDELL, or fax your
request to 913-236-1599, 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
listed above. Note the following:
- If more than one person owns the shares, each owner must sign the written
request.
- If you hold a certificate, it must be properly endorsed and sent to the Fund.
- If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance 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.
- Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission.
- Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when a Fund's Board of
Directors determines that conditions exist making cash payments undesirable. A
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000
or 1% of its NAV during any 90-day period for any one shareholder.
56
<PAGE>
- If you purchased 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 shares when that
firm (or its designee) has received your order. Your order will receive the
NAV of the applicable class subject to any applicable CDSC 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 shares at that day's price.
<TABLE>
<CAPTION>
SPECIAL REQUIREMENTS FOR SELLING SHARES
ACCOUNT TYPE SPECIAL REQUIREMENTS
-----------------------------------------------------------------------------------
<S> <C>
Individual or The written instructions must be signed by all persons
Joint Tenant required to sign for transactions, exactly as their
names appear on the account.
-----------------------------------------------------------------------------------
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
-----------------------------------------------------------------------------------
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
-----------------------------------------------------------------------------------
Retirement Account The written instructions must be signed by a properly
authorized person.
-----------------------------------------------------------------------------------
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's name
is not in the account registration, provide a
currently certified copy of the trust document.
-----------------------------------------------------------------------------------
Business or Organization At least one person authorized by corporate resolution
to act on the account must sign the written
instructions.
-----------------------------------------------------------------------------------
Conservator, Guardian The written instructions must be signed by the person
or Other Fiduciary properly authorized by court order to act in the
particular fiduciary capacity.
===================================================================================
</TABLE>
A Fund may require a signature guarantee in certain situations such as:
- a redemption request made by a corporation, partnership or fiduciary;
- a redemption request made by someone other than the owner of record; or
- the check is made payable to someone other than the owner of record.
57
<PAGE>
This requirement is 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.
EACH FUND (OTHER THAN VANGUARD FUND) RESERVES THE RIGHT TO REDEEM at NAV all of
your Fund shares in your account 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 of
a Fund you redeemed by sending to the Fund the amount you want to reinvest. The
reinvested amounts must be received by the Fund within forty-five days after the
date of your redemption. You may do this only once with Class A shares of a
Fund.
The CDSC will not apply to the proceeds of Class A (as applicable), Class B or
Class C shares of a Fund which are redeemed and then reinvested in Class A,
Class B or Class C shares of the Fund within forty-five 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 A shares of a Fund, once
as to Class B shares of a Fund and once as to Class C shares of a Fund.
Payments of principal and interest on loans made pursuant to a 401(a) qualified
plan (if such loans are permitted by the plan) may be reinvested, without
payment of a sales charge, in Class A shares of any Waddell & Reed Advisors Fund
in which the plan may invest.
TELEPHONE TRANSACTIONS
The Funds and their agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. Each Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If a 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.
58
<PAGE>
SHAREHOLDER SERVICES
Waddell & Reed provides a variety of services to help you manage your account.
PERSONAL SERVICE
Your local financial advisor is available to provide personal service.
Additionally, a toll-free call, 800-366-5465, connects you to a Client Services
Representative or our automated customer telephone service. During normal
business hours, our Client Services staff is available to answer your questions
or update your account records. At almost any time of the day or night, you may
access your account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
- Obtain information about your accounts;
- Obtain price information about other funds in the Waddell & Reed Advisors
Funds and/or W&R Funds; or
- Request duplicate statements.
REPORTS
Statements and reports sent to you include the following:
- confirmation statements (after every purchase, other than those purchases made
through Automatic Investment Service, and after every exchange, transfer or
redemption)
- year-to-date statements (quarterly)
- annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports of the Funds may be mailed to your household, even if you have more than
one account with a Fund. Call the telephone number listed for Client Services if
you need additional copies of annual or semiannual reports or account
information.
59
<PAGE>
EXCHANGES
You may sell your shares and buy shares of the same Class of another Fund in the
Waddell & Reed Advisors Funds or in W&R Funds 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 or Class A
shares to which the CDSC would otherwise apply, the time period for the deferred
sales charge will continue to run. In addition, exchanging Class Y shareholders
in the Waddell & Reed Advisors Funds may buy Class A shares of Waddell & Reed
Advisors Cash Management.
You may exchange only into funds that are legally permitted for sale in your
state of residence. Note that exchanges out of a Fund may have tax consequences
for you. Before exchanging into a fund, read its prospectus.
THE FUNDS RESERVE 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, or
between fund accounts, 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 financial advisor for more information.
REGULAR INVESTMENT PLANS
<TABLE>
<CAPTION>
<S> <C>
AUTOMATIC INVESTMENT SERVICE
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO AN EXISTING FUND ACCOUNT
MINIMUM AMOUNT MINIMUM FREQUENCY
$25 (per Fund) Monthly
--------------------------------------------------------------------------------
FUNDS PLUS SERVICE
TO MOVE MONEY FROM WADDELL & REED ADVISORS CASH MANAGEMENT TO A FUND WHETHER
IN THE SAME OR A DIFFERENT ACCOUNT IN THE SAME CLASS
MINIMUM AMOUNT MINIMUM FREQUENCY
$100 (per Fund) Monthly
================================================================================
</TABLE>
60
<PAGE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, a Fund distributes net investment income at the following times:
Accumulative Fund, International Growth Fund, Science and Technology Fund and
Vanguard Fund, semiannually in June and December; and New Concepts Fund and
Small Cap Fund, 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. Each Fund offers two 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. 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 a 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:
61
<PAGE>
TAXES ON DISTRIBUTIONS. Dividends from a Fund's investment company taxable
income (which includes net short-term gains), if any, generally are taxable to
you as ordinary income whether received in cash or paid in additional Fund
shares. Distributions of a 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%.
Each 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 a 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 a 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. Each 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 Waddell & Reed Advisors Funds or W&R Funds generally will have similar tax
consequences. However, special rules apply when you dispose of a Fund's Class A
shares through a redemption or exchange within ninety days after your purchase
and then reacquire Class A shares of that Fund or acquire Class A shares of
another fund in the Waddell & Reed Advisors Funds without paying a sales charge
due to the forty-five day reinvestment privilege or exchange privilege. See
"Your Account." In these cases, any gain on the disposition of the original Fund
shares will be increased, or loss decreased, by the amount of the sales charge
you paid when those shares were acquired, and
62
<PAGE>
that amount will increase the adjusted basis of the shares subsequently
acquired. In addition, if you purchase shares of a Fund within thirty days
before or after redeeming other shares of the Fund (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
STATE AND LOCAL INCOME TAXES. The portion of the dividends paid by each Fund
attributable to interest earned on U.S. Government securities generally is not
subject to state and local income taxes, although distributions by any 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 Funds in your state and
locality.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; you will find
more information in the Fund's 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.
63
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
THE MANAGEMENT OF THE FUNDS
PORTFOLIO MANAGEMENT
Each Fund is managed by WRIMCO, subject to the authority of each Fund's Board of
Directors. WRIMCO provides investment advice to each of the Funds and supervises
each Fund's investments. WRIMCO and/or its predecessors have served as
investment manager to each of the registered investment companies in the Waddell
& Reed Advisors Funds, W&R Funds and Target/United Funds since the inception of
each company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Antonio Intagliata is primarily responsible for the management of the
Accumulative Fund. Mr. Intagliata has held his Fund responsibilities since
November 1979. He is Senior Vice President of WRIMCO and Vice President of the
Fund. Mr. Intagliata has served as the portfolio manager for investment
companies managed by WRIMCO and its predecessors since February 1979 and has
been an employee of such since June 1973.
Thomas A. Mengel is primarily responsible for the management of the
International Growth Fund. Mr. Mengel has held his Fund responsibilities since
May 1996. He is Vice President of WRIMCO, Vice President of the Fund and Vice
President of other investment companies for which WRIMCO serves as investment
manager. From 1993 to 1996, Mr. Mengel was the President of Sal. Oppenheim jr. &
Cie. Securities, Inc.
Zachary H. Shafran is primarily responsible for the management of the New
Concepts Fund. Mr. Shafran has held his responsibilities since February 1999. He
is Vice President of WRIMCO and Vice President of the Fund. Mr. Shafran served
as the portfolio manager for another investment company managed by WRIMCO from
January 1996 to February 1999. Mr. Shafran served as an investment analyst with
WRIMCO from June 1990 to January 1996.
Henry J. Herrmann is primarily responsible for the management of the Science and
Technology Fund. Mr. Herrmann has held his Fund responsibilities since April 17,
2000. He is Vice President and Director of each of the Funds in the Waddell &
Reed Advisors Funds, W&R Funds and Target/United Funds; President, Chief
Investment Officer, and Director of Waddell & Reed Financial, Inc.; Vice
President, Chief Investment Officer and
64
<PAGE>
Director of Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed,
Inc.; President, Chief Executive Officer, Chief Investment Officer and Director
of WRIMCO; and Vice President of each of the other investment companies for
which WRIMCO serves as investment manager. Mr. Herrmann has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since March 15, 1971.
Mark G. Seferovich and Grant P. Sarris are primarily responsible for the
management of the Small Cap 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 other 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. 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
other 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 for WRIMCO, and since May 1998, he has
served as a portfolio manager. Mr. Sarris has been an employee of WRIMCO since
October 1, 1991.
Daniel P. Becker is primarily responsible for the management of the Vanguard
Fund. Mr. Becker has held his Fund responsibilities since July 1, 1997. He is
Vice President of WRIMCO and Vice President of the Fund. From January 1995 to
March 1998, Mr. Becker was Vice President of, and a portfolio manager for,
Waddell & Reed Asset Management Company. Mr. Becker has been an employee of
WRIMCO and its predecessor since October 1989, initially serving as an
investment analyst, and has served as a portfolio manager for WRIMCO since
January 1997.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
65
<PAGE>
MANAGEMENT FEE
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable at the annual rates of:
for Accumulative Fund, 0.70% of net assets up to $1 billion, 0.65% of net assets
over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up
to $3 billion, and 0.55% of net assets over $3 billion. Management fees for the
Fund as a percent of the Fund's net assets for the fiscal year ended December
31, 1999 were 0.61%;
for International Growth Fund, 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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended June 30, 1999 were 0.69%;
for New Concepts Fund, 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. Management fees for the
Fund as a percent of the Fund's net assets for the fiscal year ended March 31,
2000 were 0.82%;
for Science and Technology Fund, 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.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended December 31, 1999 were 0.73%;
for Small Cap Fund, 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. Until November 1, 1999,
WRIMCO voluntarily waived its investment management fee;
66
<PAGE>
for Vanguard Fund, 0.70% of net assets up to $1 billion, 0.65% of net assets
over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up
to $3 billion, and 0.55% of net assets over $3 billion. Management fees for the
Fund as a percent of the Fund's net assets for the fiscal year ended September
30, 1999 were 0.69%.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to change
or modify this waiver.
67
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance of
each Fund's Class A, Class B, Class C and Class Y shares for the fiscal periods
shown. Certain information reflects financial results for a single Fund share.
"Total return" shows how much your investment would have increased (or
decreased) during each period, assuming reinvestment of all dividends and
distributions.
68
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
ACCUMULATIVE FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1999, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $8.28 $7.77 $7.75 $7.78 $6.58
---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.10 0.10 0.11 0.11
Net realized and
unrealized gain
on investments 2.01 1.60 2.14 0.82 2.12
---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 2.04 1.70 2.24 0.93 2.23
---------------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.03) (0.11) (0.09) (0.11) (0.11)
From capital gains (1.15) (1.08) (2.13) (0.85) (0.92)
---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.18) (1.19) (2.22) (0.96) (1.03)
---------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.14 $8.28 $7.77 $7.75 $7.78
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 25.72% 22.62% 29.58% 12.18% 34.21%
Net assets, end of
period (in millions) $2,247 $1,864 $1,595 $1,285 $1,206
Ratio of expenses to
average net assets 0.98% 0.88% 0.82% 0.83% 0.80%
Ratio of net investment
income to average
net assets 0.30% 1.12% 1.16% 1.34% 1.42%
Portfolio turnover rate 372.35% 373.78% 313.99% 240.37% 229.03%
===========================================================================================================================
</TABLE>
(1) ON JUNE 17, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
69
<PAGE>
--------------------------------------------------------------------------------
ACCUMULATIVE FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $8.43
----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 1.85
----------------------------------------------------------------------------------------------
Total from investment operations 1.84
----------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.15)
----------------------------------------------------------------------------------------------
Total distributions (1.15)
----------------------------------------------------------------------------------------------
Net asset value, end of period $9.12
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 22.89%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 2.24%(2)
Ratio of net investment loss to average net assets -1.40%(2)
Portfolio turnover rate 372.35%(2)
==============================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
70
<PAGE>
--------------------------------------------------------------------------------
ACCUMULATIVE FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/6/99(1) TO
12/31/99
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $8.53
----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 1.75
----------------------------------------------------------------------------------------------
Total from investment operations 1.74
----------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.15)
----------------------------------------------------------------------------------------------
Total distributions (1.15)
----------------------------------------------------------------------------------------------
Net asset value, end of period $9.12
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 21.45%
Net assets, end of period (in thousands) $347
Ratio of expenses to average net assets 2.28%(2)
Ratio of net investment loss to average net assets -1.35%(2)
Portfolio turnover rate 372.35%(2)
==============================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
71
<PAGE>
--------------------------------------------------------------------------------
ACCUMULATIVE FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------------------------ 7/11/95(1) TO
1999 1998 1997 1996 12/31/95
<S> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $8.28 $7.77 $7.75 $7.78 $7.84
------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.04 0.12 0.11 0.12 0.05
Net realized and
unrealized gain
on investments 2.01 1.59 2.14 0.82 0.87
------------------------------------------------------------------------------------------------------
Total from investment
operations 2.05 1.71 2.25 0.94 0.92
------------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.04) (0.12) (0.10) (0.12) (0.06)
From capital gains (1.15) (1.08) (2.13) (0.85) (0.92)
------------------------------------------------------------------------------------------------------
Total distributions (1.19) (1.20) (2.23) (0.97) (0.98)
------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.14 $8.28 $7.77 $7.75 $7.78
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 25.95% 22.79% 29.67% 12.27% 11.92%
Net assets, end of
period (in millions) $5 $4 $4 $3 $1
Ratio of expenses to
average net assets 0.80% 0.75% 0.75% 0.74% 0.76%(2)
Ratio of net investment
income to average
net assets 0.49% 1.21% 1.22% 1.45% 1.24%(2)
Portfolio turnover rate 372.35% 373.78% 313.99% 240.37% 229.03%(2)
========================================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
72
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended June 30, 1999 and the six months ended December 31, 1999, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE SIX FOR THE FISCAL YEAR ENDED JUNE 30,
MONTHS ENDED ---------------------------------------------------------
12/31/99 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $9.97 $11.85 $10.61 $8.95 $8.68 $8.98
----------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.04) 0.05 0.07 0.07 0.08 0.07
Net realized and
unrealized gain
(loss) on investments 5.34 (0.74) 3.01 1.94 0.86 0.60
----------------------------------------------------------------------------------------------------------------------
Total from investment
operations 5.30 (0.69) 3.08 2.01 0.94 0.67
----------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.02) (0.04) (0.06) (0.09) (0.07) (0.04)
From capital gains (1.44) (1.15) (1.78) (0.26) (0.60) (0.93)
----------------------------------------------------------------------------------------------------------------------
Total distributions (1.46) (1.19) (1.84) (0.35) (0.67) (0.97)
----------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.81 $9.97 $11.85 $10.61 $8.95 $8.68
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 54.91% -5.40% 34.49% 23.03% 11.70% 7.98%
Net assets, end of
period (in millions) $1,863 $1,252 $1,331 $978 $771 $679
Ratio of expenses to
average net assets 1.42%(3) 1.30% 1.23% 1.28% 1.25% 1.25%
Ratio of net investment
income (loss) to average
net assets -0.80%(3) 0.52% 0.67% 0.78% 0.89% 0.86%
Portfolio turnover rate 50.93% 149.45% 114.34% 109.71% 58.64% 57.45%
======================================================================================================================
</TABLE>
(1)ON JULY 4, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2)TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(3)ANNUALIZED.
73
<PAGE>
--------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $10.79
----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)
Net realized and unrealized gain on investments 4.47
----------------------------------------------------------------------------------------------
Total from investment operations 4.44
----------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.44)
----------------------------------------------------------------------------------------------
Total distributions (1.44)
----------------------------------------------------------------------------------------------
Net asset value, end of period $13.79
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 42.70%
Net assets, end of period (in millions) $4
Ratio of expenses to average net assets 3.15%(2)
Ratio of net investment loss to average net assets -2.76%(2)
Portfolio turnover rate 50.93%(3)
==============================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
(3)FOR THE SIX MONTHS ENDED DECEMBER 31, 1999.
74
<PAGE>
--------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/5/99(1) TO
12/31/99
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $10.78
----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.03)
Net realized and unrealized gain on investments 4.49
----------------------------------------------------------------------------------------------
Total from investment operations 4.46
----------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.44)
----------------------------------------------------------------------------------------------
Total distributions (1.44)
----------------------------------------------------------------------------------------------
Net asset value, end of period $13.80
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 42.94%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.71%(2)
Ratio of net investment loss to average net assets -2.32%(2)
Portfolio turnover rate 50.93%(3)
==============================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
(3)FOR THE SIX MONTHS ENDED DECEMBER 31, 1999.
75
<PAGE>
--------------------------------------------------------------------------------
INTERNATIONAL GROWTH FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR FOR THE
SIX MONTHS ENDED JUNE 30, PERIOD FROM
ENDED ------------------------------------------ 9/27/95(1) TO
12/31/99 1999 1998 1997 6/30/96
<S> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $9.97 $11.85 $10.62 $8.95 $9.21
---------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.03) 0.09 0.10 0.09 0.12
Net realized and
unrealized gain (loss)
on investments 5.36 (0.74) 3.00 1.95 0.30
---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 5.33 (0.65) 3.10 2.04 0.42
---------------------------------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.04) (0.08) (0.09) (0.11) (0.08)
From capital gains (1.44) (1.15) (1.78) (0.26) (0.60)
---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.48) (1.23) (1.87) (0.37) (0.68)
---------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.82 $9.97 $11.85 $10.62 $8.95
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 55.24% -5.06% 34.71% 23.45% 5.44%
Net assets, end of
period (in millions) $18 $9 $9 $7 $5
Ratio of expenses
to average net
assets 1.11%(2) 0.99% 0.97% 1.04% 0.98%(2)
Ratio of net
investment income (loss)
to average net assets -0.52%(2) 0.85% 0.93% 1.02% 2.60%(2)
Portfolio turnover rate 50.93% 149.45% 114.34% 109.71% 58.64%(2)
===========================================================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
76
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
NEW CONCEPTS FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended March 31, 2000, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $9.52 $9.24 $6.80 $7.73 $6.13
----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.09) (0.00) 0.01 0.03 0.02
Net realized and
unrealized gain
(loss) on investments 6.96 1.54 3.29 (0.64) 1.81
----------------------------------------------------------------------------------------------------
Total from investment
operations 6.87 1.54 3.30 (0.61) 1.83
----------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.00) (0.01) (0.01) (0.03) (0.02)
From capital gains (1.32) (1.25) (0.85) (0.29) (0.21)
----------------------------------------------------------------------------------------------------
Total distributions (1.32) (1.26) (0.86) (0.32) (0.23)
----------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.07 $9.52 $9.24 $6.80 $7.73
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 74.61% 17.83% 51.44% -8.38% 30.18%
Net assets, end
of period (in millions) $1,984 $972 $779 $501 $492
Ratio of expenses to
average net assets 1.32% 1.29% 1.25% 1.27% 1.19%
Ratio of net investment
income (loss) to average
net assets -0.66% -0.04% 0.06% 0.39% 0.29%
Portfolio turnover rate 127.31% 48.95% 38.51% 38.82% 27.75%
====================================================================================================
</TABLE>
(1)ON JULY 18, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 100% STOCK
DIVIDEND EFFECTED JUNE 26, 1998.
(2)TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
77
<PAGE>
--------------------------------------------------------------------------------
NEW CONCEPTS FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $10.69
--------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain on investments 5.60
--------------------------------------------------------------------------------------------------
Total from investment operations 5.61
Less distributions:
From net investment income (0.00)
From capital gains (1.32)
--------------------------------------------------------------------------------------------------
Total distributions (1.32)
--------------------------------------------------------------------------------------------------
Net asset value, end of period $14.98
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 54.60%
Net assets, end of period (in millions) $28
Ratio of expenses to average net assets 2.40%(2)
Ratio of net investment loss to average net assets -1.73%(2)
Portfolio turnover rate 127.31%(2)
==================================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
78
<PAGE>
--------------------------------------------------------------------------------
NEW CONCEPTS FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $10.69
--------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.02
Net realized and unrealized gain on investments 5.60
--------------------------------------------------------------------------------------------------
Total from investment operations 5.62
--------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.32)
--------------------------------------------------------------------------------------------------
Total distributions (1.32)
--------------------------------------------------------------------------------------------------
Net asset value, end of period $14.99
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 54.71%
Net assets, end of period (in millions) $5
Ratio of expenses to average net assets 2.30%(2)
Ratio of net investment loss to average net assets -1.62%(2)
Portfolio turnover rate 127.31%(2)
==================================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
79
<PAGE>
--------------------------------------------------------------------------------
NEW CONCEPTS FUND
For a Class Y share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR ENDED MARCH 31, PERIOD FROM
------------------------------------------ 9/6/95(2) TO
2000 1999 1998 1997 3/31/96
<S> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $9.53 $9.25 $6.80 $7.74 $7.57
--------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.05) 0.03 0.03 0.05 0.02
Net realized and
unrealized gain
(loss) on investments 6.98 1.54 3.30 (0.65) 0.38
--------------------------------------------------------------------------------------------------------
Total from investment
operations 6.93 1.57 3.33 (0.60) 0.40
--------------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.00) (0.04) (0.03) (0.05) (0.02)
From capital gains (1.32) (1.25) (0.85) (0.29) (0.21)
--------------------------------------------------------------------------------------------------------
Total distributions (1.32) (1.29) (0.88) (0.34) (0.23)
--------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.14 $9.53 $9.25 $6.80 $7.74
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 75.17% 18.29% 51.83% -8.12% 5.44%
Net assets, end of
period (in millions) $22 $12 $11 $8 $7
Ratio of expenses
to average net
assets 1.02% 0.95% 0.96% 0.97% 0.96%(3)
Ratio of net
investment income (loss)
to average net
assets -0.36% 0.29% 0.35% 0.69% 0.54%(3)
Portfolio turnover rate 127.31% 48.95% 38.51% 38.82% 27.75%(3)
========================================================================================================
</TABLE>
(1)PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 100%
STOCK DIVIDEND EFFECTED JUNE 26, 1998.
(2)COMMENCEMENT OF OPERATIONS.
(3)ANNUALIZED.
80
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1999, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $9.91 $6.71 $7.78 $7.63 $5.07
-------------------------------------------------------------------------------------
Income from investment
operations:
Net investment loss (0.09) (0.03) (0.01) (0.02) (0.00)
Net realized and
unrealized gain
on investments 10.12 3.93 0.46 0.66 2.80
-------------------------------------------------------------------------------------
Total from investment
operations 10.03 3.90 0.45 0.64 2.80
-------------------------------------------------------------------------------------
Less distributions from
capital gains (1.51) (0.70) (1.52) (0.49) (0.24)
-------------------------------------------------------------------------------------
Net asset value,
end of period $18.43 $9.91 $6.71 $7.78 $7.63
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 102.93% 59.31% 7.22% 8.35% 55.37%
Net assets, end of
period (in millions) $3,744 $1,668 $1,063 $981 $821
Ratio of expenses to
average net assets 1.16% 1.05% 1.02% 0.98% 0.93%
Ratio of net investment
loss to average
net assets -0.79% -0.37% -0.18% -0.33% -0.07%
Portfolio turnover rate 40.35% 55.70% 87.68% 33.90% 32.89%
======================================================================================
</TABLE>
(1) ON JUNE 17, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 200% STOCK
DIVIDEND EFFECTED JUNE 26, 1998.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
81
<PAGE>
--------------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $12.64
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)
Net realized and unrealized gain on investments 7.28
--------------------------------------------------------------------------------
Total from investment operations 7.24
--------------------------------------------------------------------------------
Less distributions from capital gains (1.51)
--------------------------------------------------------------------------------
Net asset value, end of period $18.37
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 58.62%
Net assets, end of period (in millions) $17
Ratio of expenses to average net assets 2.64%(2)
Ratio of net investment loss to average net assets -2.35%(2)
Portfolio turnover rate 40.35%(2)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
82
<PAGE>
-------------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $12.64
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.04)
Net realized and unrealized gain on investments 7.29
--------------------------------------------------------------------------------
Total from investment operations 7.25
--------------------------------------------------------------------------------
Less distributions from capital gains (1.51)
--------------------------------------------------------------------------------
Net asset value, end of period $18.38
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 58.70%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 2.42%(2)
Ratio of net investment loss to average net assets -2.19%(2)
Portfolio turnover rate 40.35%(2)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
83
<PAGE>
--------------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
For a Class Y share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
ENDED DECEMBER 31, PERIOD FROM
----------------------- 2/27/96(2) TO
1999 1998 1997 12/31/96
<S> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value, beginning of period $9.98 $6.74 $7.79 $8.02
----------------------------------------------------------------------------------
Income from investment
operations:
Net investment
loss (0.04) (0.01) (0.00) (0.01)
Net realized and
unrealized gain
on investments 10.22 3.95 0.47 0.27
----------------------------------------------------------------------------------
Total from investment
operations 10.18 3.94 0.47 0.26
----------------------------------------------------------------------------------
Less distributions from
capital gains (1.51) (0.70) (1.52) (0.49)
----------------------------------------------------------------------------------
Net asset value,
end of period $18.65 $9.98 $6.74 $7.79
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 103.72% 59.71% 7.43% 3.25%
Net assets, end of
period (in millions) $31 $6 $4 $3
Ratio of expenses to
average net assets 0.95% 0.79% 0.85% 0.80%(3)
Ratio of net investment
loss to average
net assets -0.59% -0.12% -0.01% -0.12%(3)
Portfolio turnover rate 40.35% 55.70% 87.68% 33.90%(3)
==================================================================================
</TABLE>
(1) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 200% STOCK
DIVIDEND EFFECTED JUNE 26, 1998.
(2) COMMENCEMENT OF OPERATIONS.
(3) ANNUALIZED.
84
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
SMALL CAP FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the period
ended December 31, 1999, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS A PER-SHARE DATA
Net asset value, beginning of period $10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03
Net realized and unrealized gain on investments 2.32
--------------------------------------------------------------------------------
Total from investment operations 2.35
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.03)
From capital gains (0.00)(2)
--------------------------------------------------------------------------------
Total distributions (0.03)
--------------------------------------------------------------------------------
Net asset value, end of period $12.32
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(3) 23.53%
Net assets, end of period (in millions) $86
Ratio of expenses to average net assets 1.84%(4)
Ratio of net investment income to average net assets 1.76%(4)
Portfolio turnover rate 21.65%
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) A CAPITAL GAIN OF $0.0033 WAS PAID TO SHAREHOLDERS DURING THIS PERIOD.
(3) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(4) ANNUALIZED.
85
<PAGE>
--------------------------------------------------------------------------------
SMALL CAP FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain on investments 2.31
--------------------------------------------------------------------------------
Total from investment operations 2.32
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.02)
From capital gains (0.00)(2)
--------------------------------------------------------------------------------
Total distributions (0.02)
--------------------------------------------------------------------------------
Net asset value, end of period $12.30
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 23.23%
Net assets, end of period (in millions) $7
Ratio of expenses to average net assets 3.36%(3)
Ratio of net investment income to average net assets 0.22%(3)
Portfolio turnover rate 21.65%
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) A CAPITAL GAIN OF $0.0033 WAS PAID TO SHAREHOLDERS DURING THIS PERIOD.
(3) ANNUALIZED.
86
<PAGE>
--------------------------------------------------------------------------------
SMALL CAP FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain on investments 2.32
--------------------------------------------------------------------------------
Total from investment operations 2.33
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.02)
From capital gains (0.00)(2)
--------------------------------------------------------------------------------
Total distributions (0.02)
--------------------------------------------------------------------------------
Net asset value, end of period $12.31
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 23.32%
Net assets, end of period (in millions) $2
Ratio of expenses to average net assets 2.89%(3)
Ratio of net investment income to average net assets 0.69%(3)
Portfolio turnover rate 21.65%
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) A CAPITAL GAIN OF $0.0033 WAS PAID TO SHAREHOLDERS DURING THIS PERIOD.
(3) ANNUALIZED.
87
<PAGE>
-------------------------------------------------------------------------------
SMALL CAP FUND
For a Class Y share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS Y PER-SHARE DATA
Net asset value, beginning of period $10.00
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05
Net realized and unrealized gain on investments 2.32
--------------------------------------------------------------------------------
Total from investment operations 2.37
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.05)
From capital gains (0.00)(2)
--------------------------------------------------------------------------------
Total distributions (0.05)
--------------------------------------------------------------------------------
Net asset value, end of period $12.32
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 23.74%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 1.37%(3)
Ratio of net investment income to average net assets 2.23%(3)
Portfolio turnover rate 21.65%
================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)A CAPITAL GAIN OF $0.0033 WAS PAID TO SHAREHOLDERS DURING THIS PERIOD.
(3)ANNUALIZED.
88
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
VANGUARD FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999, and the six months ended March 31, 2000 are
included in the Fund's SAI, which is available upon request.
<TABLE>
<CAPTION>
For a Class A share outstanding throughout each period(1):
FOR THE SIX FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
MONTHS ENDED --------------------------------------------------
3/31/00 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $10.11 $7.50 $9.11 $8.77 $8.97 $7.73
-------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.04) (0.02) 0.01 0.07 0.03 0.07
Net realized and
unrealized gain
on investments 5.35 2.75 0.19 1.69 0.26 1.82
-------------------------------------------------------------------------------------------------
Total from investment
operations 5.31 2.73 0.20 1.76 0.29 1.89
-------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.00) (0.01) (0.04) (0.06) (0.04) (0.03)
From capital gains (0.87) (0.11) (1.77) (1.36) (0.45) (0.62)
-------------------------------------------------------------------------------------------------
Total distributions (0.87) (0.12) (1.81) (1.42) (0.49) (0.65)
-------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.55 $10.11 $7.50 $9.11 $8.77 $8.97
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 54.95% 36.74% 3.76% 23.60% 3.59% 26.82%
Net assets, end of
period (in millions) $3,013 $1,924 $1,426 $1,478 $1,291 $1,285
Ratio of expenses
to average net assets 1.06%(3) 1.13% 1.10% 1.09% 1.09% 1.05%
Ratio of net
investment income
(loss) to average
net assets -0.66%(3) -0.22% 0.13% 0.86% 0.36% 0.87%
Portfolio turnover rate 29.04% 83.67% 90.51% 139.14% 57.10% 30.01%
=================================================================================================
</TABLE>
(1)ON AUGUST 15, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2)TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(3)ANNUALIZED.
89
<PAGE>
--------------------------------------------------------------------------------
VANGUARD FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $10.43
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05)
Net realized and unrealized gain on investments 4.96
--------------------------------------------------------------------------------
Total from investment operations 4.91
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (0.87)
--------------------------------------------------------------------------------
Total distributions (0.87)
--------------------------------------------------------------------------------
Net asset value, end of period $14.47
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 49.39%
Net assets, end of period (in millions) $19
Ratio of expenses to average net assets 2.18%(2)
Ratio of net investment loss to average net assets -1.78%(2)
Portfolio turnover rate 29.04%(3)
================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
(3)FOR THE SIX MONTHS ENDED MARCH 31, 2000.
90
<PAGE>
--------------------------------------------------------------------------------
VANGUARD FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $10.43
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.05)
Net realized and unrealized gain on investments 4.96
--------------------------------------------------------------------------------
Total from investment operations 4.91
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (0.87)
--------------------------------------------------------------------------------
Total distributions (0.87)
--------------------------------------------------------------------------------
Net asset value, end of period $14.47
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 49.39%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 2.17%(2)
Ratio of net investment loss to average net assets -1.76%(2)
Portfolio turnover rate 29.04%(3)
================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
(3)FOR THE SIX MONTHS ENDED MARCH 31, 2000.
91
<PAGE>
-------------------------------------------------------------------------------
VANGUARD FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX FOR THE FISCAL YEAR ENDED SEPTEMBER 30, PERIOD FROM
MONTHS ENDED --------------------------------------- 9/8/95(1) TO
3/31/00 1999 1998 1997 1996 9/30/95
<S> <C> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $10.13 $7.52 $9.12 $8.78 $8.97 $9.05
--------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income (loss) (0.03) (0.00) 0.03 0.09 0.07 0.00
Net realized and
unrealized gain
(loss) on investments 5.37 2.75 0.19 1.69 0.24 (0.08)
--------------------------------------------------------------------------------------------------------
Total from investment
operations 5.34 2.75 0.22 1.78 0.31 (0.08)
--------------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.00) (0.03) (0.05) (0.08) (0.05) (0.00)
From capital gains (0.87) (0.11) (1.77) (1.36) (0.45) (0.00)
--------------------------------------------------------------------------------------------------------
Total distributions (0.87) (0.14) (1.82) (1.44) (0.50) (0.00)
--------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.60 $10.13 $7.52 $9.12 $8.78 $8.97
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 55.14% 36.94% 4.02% 23.87% 3.80% -0.88%
Net assets, end of
period (in millions) $20 $12 $5 $5 $4 $2
Ratio of expenses
to average
net assets 0.82%(2) 0.90% 0.91% 0.90% 0.91% 0.00%
Ratio of net investment
income (loss) to average
net assets -0.42%(2) -0.02% 0.33% 1.05% 0.69% 0.00%
Portfolio turnover rate 29.04% 83.67% 90.51% 139.14% 57.10% 30.01%(2)
===========================================================================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
92
<PAGE>
This space is intended for your notes and calculations.
93
<PAGE>
This space is intended for your notes and calculations.
94
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
WADDELL & REED ADVISORS FUNDS
CUSTODIAN
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64141
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N. W.
Washington, D.C. 20036
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1010 Grand Boulevard
Kansas City, Missouri
64106-2232
INVESTMENT MANAGER
Waddell & Reed Investment
Management Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
UNDERWRITER
Waddell & Reed, Inc.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
SHAREHOLDER SERVICING AGENT
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
ACCOUNTING SERVICES AGENT
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
95
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
WADDELL & REED ADVISORS FUNDS
You can get more information about each Fund in its --
- STATEMENT OF ADDITIONAL INFORMATION (SAI), which contains detailed
information about the Fund, particularly the 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).
- 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 a Fund's current SAI or copies of its most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below. Copies of the
SAI, Annual and/or Semiannual reports may also be requested via e-mail at
[email protected].
Information about each Fund (including the current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and may also be obtained, after paying a duplicating fee, by
electronic request at [email protected] or 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 202-942-8090.
The Funds' SEC file numbers are as follows:
Waddell & Reed Advisors Funds, Inc. Accumulative Fund: 811-2552
Waddell & Reed Advisors International Growth Fund, Inc.: 811-2004
Waddell & Reed Advisors New Concepts Fund, Inc.: 811-3695
Waddell & Reed Advisors Funds, Inc. Science and Technology Fund: 811-2552
Waddell & Reed Advisors Small Cap Fund, Inc.: 811-09435
Waddell & Reed Advisors Vanguard Fund, Inc.: 811-1806
<TABLE>
<S><C>
[LOGO] WADDELL & REED Waddell & Reed, Inc.
FINANCIAL SERVICES-Registered Trademark- 6300 Lamar Avenue, P. O. Box 29217
------------------------- Shawnee Mission, Kansas 66201-9217
INVESTING. WITH A PLAN-SM- 913-236-2000
888-WADDELL
</TABLE>
<PAGE>
PROSPECTUS
JUNE 30, 2000
[GRAPHIC]
WADDELL & REED ADVISORS FUNDS
EQUITY, GROWTH AND INCOME
& ASSET ALLOCATION FUNDS
Asset Strategy Fund [GRAPHIC]
Continental Income Fund
Income Fund
Retirement Shares [GRAPHIC]
Tax-Managed Equity Fund
[LOGO] WADDELL
& REED
Financial Services-Registered Trademark-
----------------------------------------
Investing with a plan.-SM-
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.
<PAGE>
[GRAPHIC]
CONTENTS
3 An Overview of the Funds
3 Asset Strategy Fund
10 Continental Income Fund
16 Income Fund
22 Retirement Shares
28 Tax-Managed Equity Fund
32 The Investment Principles of the Funds
39 Your Account
62 The Management of the Funds
65 Financial Highlights
2
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[ICON] GOAL
WADDELL & REED ADVISORS
ASSET STRATEGY FUND
(FORMERLY UNITED ASSET STRATEGY FUND) SEEKS HIGH TOTAL
RETURN OVER THE LONG TERM.
PRINCIPAL STRATEGY
Asset Strategy Fund seeks to achieve its investment goal by allocating its
assets among stocks, bonds and short-term instruments. The Fund allocates its
assets among the following classes, or types, of investments.
- The STOCK CLASS includes equity securities of all types, although Waddell &
Reed Investment Management Company ("WRIMCO"), the Fund's investment manager,
typically emphasizes a blend of value and growth potential in selecting
stocks. Value stocks are those that WRIMCO believes are currently selling
below their true worth. Growth stocks are those whose earnings WRIMCO
believes are likely to grow faster than the economy. The Fund can invest in
securities of companies of any size.
- The BOND CLASS includes all varieties of fixed-income instruments, such as
corporate or U.S. Government debt securities, with remaining maturities of
more than three years. This class may include a significant amount of junk
bonds, up to 35% of the Fund's total assets; junk bonds are rated BB and
below by Standard and Poor's ("S&P") and Ba and below by Moody's Investors
Service, Inc. ("MIS"), or unrated bonds deemed by WRIMCO to be of equivalent
quality.
- The SHORT-TERM CLASS includes all types of short-term instruments with
remaining maturities of three years or less, including high-quality money
market instruments.
- Within each of these classes, the Fund may invest in both domestic and foreign
securities.
3
<PAGE>
The Fund selects a mix which represents the way the Fund's investments will
generally be allocated over the long term as indicated in the box below. This
mix will vary over shorter time periods as WRIMCO changes the Fund's holdings
based on the current outlook for the different markets. These changes may be
based on such factors as interest rate changes, security valuation levels and a
rise in the potential for growth stocks.
PORTFOLIO MIX
[PIE CHART] - Stocks 70% (can range from 0-100%)
- Bonds 25% (can range from 0-100%)
- Short-term 5% (can range from 0-100%)
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Asset Strategy Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- WRIMCO's skill in allocating the Fund's assets among different types of
investments;
- the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the economy;
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- prepayment of higher-yielding bonds held by the Fund;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
- 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.
Market risk for small to medium sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations.
4
<PAGE>
Junk bonds in which the Fund invests are more susceptible to the risk of
non-payment or default, and their prices may be more volatile than higher-rated
bonds.
As well, the Fund may invest a significant portion of its assets in foreign
securities. Foreign securities present additional risks such as currency
fluctuations and political or economic conditions affecting the foreign
countries.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Asset allocation funds are designed for investors who want to diversify among
stocks, bonds, and short-term instruments, in one fund. If you are looking for
an investment that uses this technique in pursuit of high total return, this
Fund may be appropriate for you. You should consider whether the Fund fits your
particular investment objectives.
5
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
ASSET STRATEGY FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'96 '97 '98 '99
<S> <C> <C> <C> <C>
5.39% 12.18% 9.26% 21.85%
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 15.07% (THE
FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -4.82% (THE FIRST
QUARTER OF 1997). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
15.10%.
6
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR LIFE OF CLASS(1)
--------------------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES OF
ASSET STRATEGY FUND 14.84% 10.25%
--------------------------------------------------------------------------------
S&P 500 Index 21.09% 27.78%
--------------------------------------------------------------------------------
Salomon Brothers Broad Investment Grade Index -0.83% 7.05%
--------------------------------------------------------------------------------
Salomon Brothers Short-Term Index
for 1-Month Certificates of Deposit 5.32% 5.63%
--------------------------------------------------------------------------------
Lipper Flexible Portfolio Funds Universe Average 12.50% 16.44%
--------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES OF
ASSET STRATEGY FUND 8.55%
--------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 21.09% 8.04%
--------------------------------------------------------------------------------
Salomon Brothers Broad Investment Grade Index -0.83% -0.46%
--------------------------------------------------------------------------------
Salomon Brothers Short-Term Index
for 1-Month Certificates of Deposit 5.32% 0.99%
--------------------------------------------------------------------------------
Lipper Flexible Portfolio Funds Universe Average 12.50% 6.65%
--------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES OF
ASSET STRATEGY FUND 13.13%
--------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 21.09% 8.04%
--------------------------------------------------------------------------------
Salomon Brothers Broad Investment Grade Index -0.83% -0.46%
--------------------------------------------------------------------------------
Salomon Brothers Short-Term Index
for 1-Month Certificates of Deposit 5.32% 0.99%
--------------------------------------------------------------------------------
Lipper Flexible Portfolio Funds Universe Average 12.50% 6.65%
--------------------------------------------------------------------------------
<CAPTION>
CLASS Y SHARES OF
ASSET STRATEGY FUND 22.27% 11.37%
--------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 Index 21.09% 26.41%
--------------------------------------------------------------------------------
Salomon Brothers Broad Investment Grade Index -0.83% 5.94%
--------------------------------------------------------------------------------
Salomon Brothers Short-Term Index
for 1-Month Certificates of Deposit 5.32% 5.57%
--------------------------------------------------------------------------------
Lipper Flexible Portfolio Funds Universe
Average 12.50% 14.92%
================================================================================
</TABLE>
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE
UNMANAGED. THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS
SIMILAR TO THE GOAL OF THE FUND.
(1) SINCE MARCH 9, 1995 FOR CLASS A SHARES, OCTOBER 6, 1999 FOR CLASS B SHARES,
OCTOBER 5, 1999 FOR CLASS C SHARES AND SEPTEMBER 27, 1995 FOR CLASS Y
SHARES. BECAUSE EACH CLASS COMMENCED OPERATIONS ON A DATE OTHER THAN AT
THE END OF A MONTH, AND PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF
THE ABOVE INDEXES (INCLUDING INCOME) ARE NOT AVAILABLE, INDEX PERFORMANCE
IS CALCULATED FROM MARCH 31, 1995, OCTOBER 31, 1999, OCTOBER 31, 1999 AND
SEPTEMBER 30, 1995, RESPECTIVELY.
7
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
ASSET STRATEGY FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
================================================================================
<CAPTION>
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
--------------------------------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.70% 0.70% 0.70% 0.70%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.89% 0.89% 0.89% 0.74%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.84% 2.59% 2.59% 1.44%
================================================================================
</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 YEAR OF PURCHASE, TO 4% FOR
REDEMPTIONS MADE WITHIN THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE
WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE
FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0%
FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER PURCHASE. SOLELY FOR PURPOSES
OF DETERMINING THE NUMBER OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT
FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING A MONTH ARE TOTALED AND
DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN
RESTATED TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30,
1999; OTHERWISE, EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS
C, THE EXPENSES ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE
CURRENT YEAR. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
8
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $751 $1,115 $1,501 $2,580
--------------------------------------------------------------------------------
Class B Shares $662 $1,105 $1,475 $2,731(1)
--------------------------------------------------------------------------------
Class C Shares $362 $ 805 $1,375 $2,925
--------------------------------------------------------------------------------
Class Y Shares $147 $ 450 $ 774 $1,691
--------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $751 $1,115 $1,501 $2,580
--------------------------------------------------------------------------------
Class B Shares $262 $ 805 $1,375 $2,731(1)
--------------------------------------------------------------------------------
Class C Shares $262 $ 805 $1,375 $2,925
--------------------------------------------------------------------------------
Class Y Shares $147 $ 450 $ 774 $1,691
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
9
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC] GOALS
WADDELL & REED ADVISORS
CONTINENTAL INCOME FUND
(FORMERLY UNITED CONTINENTAL INCOME FUND) SEEKS TO PROVIDE
CURRENT INCOME TO THE EXTENT THAT, IN THE OPINION OF WRIMCO, MARKET
AND ECONOMIC CONDITIONS PERMIT. AS A SECONDARY GOAL, THE FUND SEEKS
LONG-TERM APPRECIATION OF CAPITAL.
PRINCIPAL STRATEGIES
Continental Income Fund seeks to achieve its goals by investing primarily in
income-producing securities that include common stock, preferred stock and debt
securities. The Fund generally owns equity securities of medium to large,
well-established companies, that are usually dividend-producing securities. For
the most part, the Fund's debt securities are either U.S. Government securities
or investment-grade corporate bonds (rated BBB and higher by S&P or Baa and
higher by MIS or, if unrated, deemed by WRIMCO to be of equivalent quality). The
Fund has no limitations on the range of maturities of the debt securities in
which it may invest.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. For equity investments, WRIMCO typically looks for undervalued
companies whose asset value or earnings power is not reflected in the price of
their stock. In selecting debt securities for the Fund, WRIMCO seeks
high-quality securities with minimal credit risk.
In general, in determining whether to sell an equity security or a debt
security, WRIMCO uses the same analysis that it uses in order to determine if
the equity security is still undervalued or if the debt security continues to
maintain its minimal credit risk. WRIMCO may also sell a security if it ceases
to produce income or otherwise to take advantage of more attractive investment
opportunities or to raise cash.
10
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Continental Income Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- adverse bond and stock 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;
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
- WRIMCO's skill in evaluating and selecting securities for the Fund and in
allocating the Fund's assets among different types of investments.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Continental Income Fund is designed for investors seeking current income with a
secondary emphasis on growth. It is suited for investors seeking a combination
of income and appreciation. You should consider whether the Fund fits your
particular investment objectives.
11
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
CONTINENTAL INCOME FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-6.51% 26.43% 10.09% 13.10% -0.39% 24.76% 9.63% 17.39% 10.36% 11.05%
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 10.89% (THE
FIRST QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -10.77% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
4.98%.
12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
CONTINENTAL INCOME FUND 4.66% 13.15% 10.57%
-------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23%
-------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71%
-------------------------------------------------------------------------------------
Lipper Balanced Funds
Universe Average 8.72% 16.24% 11.82%
-------------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES OF
CONTINENTAL INCOME FUND 2.79%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
-------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71% -0.57%
-------------------------------------------------------------------------------------
Lipper Balanced Funds
Universe Average 8.72% 16.24% 11.82% 4.63%
-------------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES OF
CONTINENTAL INCOME FUND 6.93%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
-------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71% -0.57%
-------------------------------------------------------------------------------------
Lipper Balanced Funds
Universe Average 8.72% 16.24% 11.82% 4.63%
-------------------------------------------------------------------------------------
<CAPTION>
CLASS Y SHARES OF
CONTINENTAL INCOME FUND 11.46% 12.27%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 26.45%
-------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71% 4.92%
-------------------------------------------------------------------------------------
Lipper Balanced Funds
Universe Average 8.72% 16.24% 11.82% 14.00%
=====================================================================================
</TABLE>
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE
UNMANAGED. THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS
SIMILAR TO THE GOALS OF THE FUND.
(1) SINCE OCTOBER 4,1999 FOR CLASS B SHARES, OCTOBER 5,1999 FOR CLASS C SHARES
AND JANUARY 4, 1996 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE INDEXES (INCLUDING INCOME) ARE NOT
AVAILABLE, INDEX PERFORMANCE IS FROM OCTOBER 31,1999, OCTOBER 31,1999 AND
DECEMBER 31, 1995, RESPECTIVELY.
13
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
CONTINENTAL INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
--------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.70% 0.70% 0.70% 0.70%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.23% 0.40% 0.50% 0.20%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.18% 2.10% 2.20% 0.90%
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL FUND OPERATING EXPENSES HAVE BEEN RESTATED TO
REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED MARCH 31, 2000. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
14
<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 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 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $688 $928 $1,187 $1,924
-----------------------------------------------------------------------------
Class B Shares $613 $957 $1,228 $2,192(1)
-----------------------------------------------------------------------------
Class C Shares $323 $689 $1,181 $2,536
-----------------------------------------------------------------------------
Class Y Shares $ 92 $287 $ 498 $1,108
-----------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $688 $928 $1,187 $1,924
-----------------------------------------------------------------------------
Class B Shares $213 $657 $1,128 $2,192(1)
-----------------------------------------------------------------------------
Class C Shares $223 $689 $1,181 $2,536
-----------------------------------------------------------------------------
Class Y Shares $ 92 $287 $ 498 $1,108
-----------------------------------------------------------------------------
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
15
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC] GOALS
WADDELL & REED ADVISORS
INCOME FUND
(FORMERLY UNITED INCOME FUND) SEEKS CAPITAL GROWTH AND INCOME.
PRINCIPAL STRATEGIES
Income Fund seeks to achieve its goal by investing in the common stocks of
large U.S. and foreign companies. In order to achieve its goal; the Fund
invests in securities that have the potential for capital appreciation or
that WRIMCO expects to resist market decline. Although the Fund typically
invests in large companies, it may invest in securities of any size company.
WRIMCO attempts to select securities with growth and income possibilities by
looking at many factors including the company's:
- profitability record;
- history of improving sales and profits;
- management;
- leadership position in its industry;
- stock price value; and
- dividend payment history.
In general, in determining whether to sell a stock, WRIMCO uses the same type of
analysis that it uses in buying stocks in order to determine whether the
security has ceased to offer the prospect of continued dividend payment and/or
significant growth potential. WRIMCO may also sell a security to take advantage
of more attractive investment opportunities or to raise cash.
16
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Income Fund owns different types of securities, a variety of factors can
affect its investment performance, such as:
- 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;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds; and
- WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small to medium sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations.
An investment in foreign securities presents additional risks such as currency
fluctuations and political or economic conditions affecting the foreign
country.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Income Fund is designed for investors who seek capital growth and income.
You should consider whether the Fund fits your particular investment
objectives.
17
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
INCOME FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-6.85% 30.66% 11.90% 16.05% -1.82% 29.60% 20.36% 27.34% 24.02% 16.41%
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 18.72% (THE
SECOND QUARTER OF 1997) AND THE LOWEST QUARTERLY RETURN WAS -17.35% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
11.87%.
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
INCOME FUND 9.72% 22.01% 15.51%
-------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23%
-------------------------------------------------------------------------------------
Lipper Equity Income Funds
Universe Average 4.55% 17.83% 12.55%
-------------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES OF
INCOME FUND 6.53%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
-------------------------------------------------------------------------------------
Lipper Equity Income Funds
Universe Average 4.55% 17.83% 12.55% 1.17%
-------------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES OF
INCOME FUND 10.53%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
-------------------------------------------------------------------------------------
Lipper Equity Income Funds
Universe Average 4.55% 17.83% 12.55% 1.17%
-------------------------------------------------------------------------------------
<CAPTION>
CLASS Y SHARES OF
INCOME FUND 16.67% 21.45%
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 26.92%
-------------------------------------------------------------------------------------
Lipper Equity Income Funds
Universe Average 4.55% 17.83% 12.55% 16.41%
=====================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOALS OF THE FUND.
(1) SINCE OCTOBER 4,1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS C SHARES
AND JUNE 19, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX ARE NOT AVAILABLE, INDEX
PERFORMANCE IS CALCULATED FROM OCTOBER 31, 1999, OCTOBER 31, 1999 AND
JUNE 30, 1995, RESPECTIVELY.
19
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
====================================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.58% 0.58% 0.58% 0.58%
------------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.24% 1.00% 1.00% None
------------------------------------------------------------------------------------
OTHER EXPENSES 0.15% 0.60% 0.66% 0.18%
------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.97% 2.18% 2.24% 0.76%
====================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHRES THAT
ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
20
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $668 $866 $1,080 $1,696
--------------------------------------------------------------------------------
Class B Shares $621 $983 $1,271 $2,205(1)
--------------------------------------------------------------------------------
Class C Shares $327 $699 $1,197 $2,570
--------------------------------------------------------------------------------
Class Y Shares $ 78 $243 $ 422 $ 942
================================================================================
<CAPTION>
IF SHARES ARE NOT REDEEMED AT
END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $668 $866 $1,080 $1,696
--------------------------------------------------------------------------------
Class B Shares $221 $683 $1,171 $2,205(1)
--------------------------------------------------------------------------------
Class C Shares $227 $699 $1,197 $2,570
--------------------------------------------------------------------------------
Class Y Shares $ 78 $243 $ 422 $ 942
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES
WERE PURCHASED.
21
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC] GOAL
WADDELL & REED ADVISORS
RETIREMENT SHARES
(FORMERLY UNITED RETIREMENT SHARES) SEEKS TO PROVIDE THE
HIGHEST LONG-TERM TOTAL INVESTMENT RETURN THAT IS, IN THE
OPINION OF WRIMCO, CONSISTENT WITH REASONABLE SAFETY OF
CAPITAL.
PRINCIPAL STRATEGIES
Retirement Shares seeks to achieve its goal through a fully managed investment
policy. The Fund invests primarily in common stock and debt securities (of any
maturity and mostly of investment grade) of U.S. issuers. The Fund generally
owns common stock of medium to large, well-established companies while typically
emphasizing a blend of value and growth potential. Value stocks are those that
WRIMCO believes are currently selling below their true worth, and growth stocks
are those whose earnings WRIMCO believes are likely to grow faster than the
economy. Typically, the Fund's debt securities are either U.S. Government
securities or investment-grade corporate bonds.
In selecting securities for investment the Fund considers a security's potential
for:
- capital growth (equities);
- capital stability (equities and debt securities); and
- income (debt securities).
In general, in determining whether to sell a security, WRIMCO uses the same type
of analysis it uses to buy securities. If a debt security no longer provides the
desired income or an equity security ceases to offer the expected growth
potential or becomes overvalued, the Fund may sell the security. As well, WRIMCO
may sell a security to take advantage of more attractive investment
opportunities or to raise cash.
22
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Retirement Shares owns different types of securities, a variety of
factors can affect its investment performance, such as:
- 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;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
and
- WRIMCO's skill in evaluating and selecting securities for the Fund and in
allocating the Fund's assets among different types of investments.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Retirement Shares is designed for investors seeking high total return consistent
with reasonable safety of principal through a diversified portfolio that may
include stocks, bonds and other securities. You should consider whether the Fund
fits your particular investment objectives.
23
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
RETIREMENT SHARES
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1.10% 22.33% 13.25% 12.74% -0.42% 24.28% 9.80% 18.15% 9.73% 43.65%
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 28.93% (THE
FOURTH QUARTER OF 1999) AND THE LOWEST QUARTERLY RETURN WAS -8.29% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
9.14%.
24
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
RETIREMENT SHARES 35.39% 19.09% 14.17%
------------------------------------------------------------------------------------------
S&P 500 Index 21.09% 28.59% 18.23%
------------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71%
------------------------------------------------------------------------------------------
Lipper Flexible Portfolio
Funds Universe Average 12.50% 16.82% 12.29%
------------------------------------------------------------------------------------------
<CAPTION>
CLASS B SHARES OF
RETIREMENT SHARES 20.95%
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
------------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71% -0.57%
------------------------------------------------------------------------------------------
Lipper Flexible Portfolio
Funds Universe Average 12.50% 16.82% 12.29% 6.65%
------------------------------------------------------------------------------------------
<CAPTION>
CLASS C SHARES OF
RETIREMENT SHARES 24.95%
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 8.04%
------------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71% -0.57%
------------------------------------------------------------------------------------------
Lipper Flexible Portfolio
Funds Universe Average 12.50% 16.82% 12.29% 6.65%
------------------------------------------------------------------------------------------
<CAPTION>
CLASS Y SHARES OF
RETIREMENT SHARES 43.87% 19.91%
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index 21.09% 28.59% 18.23% 26.27%
------------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Corporate Index -2.03% 7.64% 7.71% 5.53%
------------------------------------------------------------------------------------------
Lipper Flexible Portfolio
Funds Universe Average 12.50% 16.82% 12.29% 14.36%
==========================================================================================
</TABLE>
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE
UNMANAGED. THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR
TO THE GOAL OF THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS C SHARES
AND FEBRUARY 27, 1996 FOR CLASS Y SHARES. SINCE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEXES (INCLUDING INCOME) ARE
NOT AVAILABLE, INDEX PERFORMANCE IS FROM OCTOBER 31, 1999, OCTOBER 31, 1999
AND FEBRUARY 29, 1996, RESPECTIVELY.
25
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
RETIREMENT SHARES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
============================================================================================
<CAPTION>
--------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(3)
--------------------------------------------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.70% 0.70% 0.70% 0.70%
--------------------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
--------------------------------------------------------------------------------------------
OTHER EXPENSES 0.20% 0.20% 0.20% 0.21%
--------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.15% 1.90% 1.90% 0.91%
============================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR
YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL
PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE
FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED JUNE 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
26
<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 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 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $685 $919 $1,172 $1,892
------------------------------------------------------------------------------
Class B Shares $593 $897 $1,126 $2,025(1)
------------------------------------------------------------------------------
Class C Shares $293 $597 $1,026 $2,222
------------------------------------------------------------------------------
Class Y Shares $ 93 $290 $ 504 $1,120
------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $685 $919 $1,172 $1,892
------------------------------------------------------------------------------
Class B Shares $193 $597 $1,026 $2,025(1)
------------------------------------------------------------------------------
Class C Shares $193 $597 $1,026 $2,222
------------------------------------------------------------------------------
Class Y Shares $ 93 $290 $ 504 $1,120
==============================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
27
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC] GOAL
WADDELL & REED ADVISORS
TAX-MANAGED EQUITY FUND
(FORMERLY UNITED TAX-MANAGED EQUITY FUND) SEEKS LONG-TERM
GROWTH OF CAPITAL WHILE MINIMIZING TAXABLE GAINS AND
INCOME TO SHAREHOLDERS.
PRINCIPAL STRATEGIES
Tax-Managed Equity Fund seeks to achieve its goal by investing primarily in a
diversified portfolio of common stocks of U.S. companies that WRIMCO considers
to be high in quality and attractive in their long-term investment potential.
The Fund seeks stocks that are favorably priced in relation to their fundamental
value and will likely grow over time. While the Fund typically invests in the
common stock of large to medium sized U.S. companies, it may invest in companies
of any size, any industry or any country in order to achieve its goal.
WRIMCO manages the Fund using an investment strategy that is sensitive to the
potential impact of Federal income tax on shareholders' investment returns. The
Fund's tax-sensitive investment strategy is intended to lead to lower
distributions of income and realized capital gains than funds managed without
regard to Federal income tax consequences.
In selecting companies, WRIMCO typically invests for the long term and chooses
securities that it believes offer strong opportunities for long-term growth of
capital and that are attractively valued. While WRIMCO primarily invests in
growth stocks, it may also purchase value stocks. Value stocks are those that
WRIMCO believes are currently selling below their true worth.
When deciding to sell a security, WRIMCO considers the negative tax impact of
realized capital gains and, if applicable, the positive tax impact of realizing
capital losses. However, WRIMCO may sell a security at a realized gain if it
determines that the potential tax cost is outweighed by the risk of owning the
security, or if more attractive investment opportunities are available. In
addition, redemptions by shareholders may force the Fund to sell securities at
an inappropriate time, potentially resulting in realized gains.
28
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Tax-Managed Equity Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- WRIMCO's skill in evaluating and selecting securities for the Fund;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries that may result in
performance less favorable than another investment mix might have produced;
- 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
- the Fund's tax-sensitive investment strategy not limiting taxable income and
realized capital gains as contemplated.
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, and growth stock in
general, may also experience volatile trading and price fluctuations.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Tax-Managed Equity Fund is designed for long-term taxable investors. If you are
investing for the short-term (less than one year), you may suffer negative tax
consequences. Market conditions may limit the Fund's ability to generate tax
losses or to avoid dividend income. While the Fund tries to reduce the extent to
which shareholders incur taxes on Fund distributions of income and net realized
gains, the Fund does expect to distribute taxable income and/or capital gains
from time to time. Investors may also realize capital gains when they sell their
shares. You should consider whether the Fund fits your particular investment
objectives.
29
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
TAX-MANAGED EQUITY FUND
The Fund has not been in operation for a full calendar year; therefore, it does
not have performance information of at least one calendar year to include a bar
chart or performance table reflecting average annual total returns.
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
TAX-MANAGED EQUITY FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF
THE MONTH.
(2) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
30
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.65% 0.65% 0.65% 0.65%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.40% 0.40% 0.40% 0.20%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.30% 2.05% 2.05% 0.85%
================================================================================
</TABLE>
(3) THE EXPENSES SHOWN FOR MANAGEMENT FEES REFLECT THE MAXIMUM ANNUAL FEE
PAYABLE; HOWEVER, WRIMCO HAS VOLUNTARILY AGREED TO WAIVE ITS INVESTMENT
MANAGEMENT FEE ON ANY DAY IF THE FUND'S NET ASSETS ARE LESS THAN $25
MILLION, SUBJECT TO WRIMCO'S RIGHT TO CHANGE OR TERMINATE 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.
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 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 $700 $963
--------------------------------------------------------------------------------
Class B Shares $608 $943
--------------------------------------------------------------------------------
Class C Shares $308 $643
--------------------------------------------------------------------------------
Class Y Shares $ 87 $271
--------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS
--------------------------------------------------------------------------------
<S> <C> <C>
Class A Shares $700 $963
--------------------------------------------------------------------------------
Class B Shares $208 $643
--------------------------------------------------------------------------------
Class C Shares $208 $643
--------------------------------------------------------------------------------
Class Y Shares $ 87 $271
================================================================================
</TABLE>
31
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
THE INVESTMENT PRINCIPLES OF THE FUNDS
INVESTMENT GOALS, PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
WADDELL & REED ADVISORS ASSET STRATEGY FUND
The Fund seeks high total return over the long term. The Fund seeks to achieve
its goal by allocating its assets among a diversified portfolio of stocks, bonds
and short-term instruments. There is no guarantee that the Fund will achieve its
goal.
Allocating assets among different types of investments allows the Fund to take
advantage of opportunities wherever they may occur, but also subjects the Fund
to the risks of a given investment type. Stock values generally fluctuate in
response to the activities of individual companies and general market and
economic conditions. The values of bonds and short-term instruments generally
fluctuate based on changes in interest rates and in the credit quality of the
issuer.
WRIMCO regularly reviews the Fund's allocation of assets and makes changes to
favor investments that it believes provide the best opportunity to achieve the
Fund's goal. Although WRIMCO uses its expertise and resources in choosing
investments and in allocating assets, WRIMCO's decisions may not always be
beneficial to the Fund.
Generally, the mix of assets in the Fund will change from time to time depending
on WRIMCO's assessment of the market for each asset class. The allowable range
and approximate percentage of the mix for each asset class are listed below.
Some types of investments, such as indexed securities, can fall into more than
one asset class.
PORTFOLIO MIX
[PIE CHART] - Stock class 70% (can range from 0-100%)
- Bond class 25% (can range from 0-100%)
- Short-term class 5% (can range from 0-100%)
32
<PAGE>
WRIMCO tries to balance the Fund's investment risks against potentially higher
total returns by reducing the stock class allocation during stock market down
cycles and increasing the stock class allocation during periods of strongly
positive market performance. Typically, WRIMCO makes asset shifts among classes
gradually over time. WRIMCO considers various aspects when it decides to sell a
security, such as an individual security's performance and/or if it is an
appropriate time to vary the Fund's mix.
As a defensive measure, the Fund may increase its holdings in the bond or
short-term classes when WRIMCO believes that there is a potential bear market,
prolonged downturn in stock prices or significant loss in stock value. WRIMCO
may also, as a temporary defensive measure, invest up to all of the Fund's
assets in:
- money market instruments rated A-1 by S&P, or Prime 1 by MIS, or unrated
securities judged by WRIMCO to be of equivalent quality; or
- precious metals.
Although WRIMCO may seek to preserve appreciation in the Fund by taking a
temporary defensive position, doing so may prevent the Fund from achieving its
investment objective.
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND
The primary goal of the Fund is to provide current income to the extent that, in
WRIMCO's opinion, market and economic conditions permit. As a secondary goal,
the Fund seeks long-term appreciation of capital. The Fund seeks to achieve its
goals by investing primarily in a diversified portfolio of income-producing
securities of U.S. issuers. There is no guarantee that the Fund will achieve its
goals.
The Fund usually purchases securities because of the dividends or interest on
them and may also purchase securities because they may increase in value. In
general, the Fund invests a portion of its total assets in either debt
securities or preferred stocks, or both, in order to provide income and relative
stability of capital. The Fund owns common stocks in order to provide possible
appreciation of capital and some dividend income. The Fund may also invest in
convertible securities.
Normally, the Fund invests at least 25% of its total assets in either debt
securities or preferred stocks, or both, and at least 65% of its total assets in
income-producing securities. The Fund will not ordinarily invest more than
33
<PAGE>
75% of its total assets in common stocks, although it may invest up to all of
its assets in common stocks if, in WRIMCO's judgment, this is advisable due to
unusual market or economic conditions.
At times, when WRIMCO believes that a temporary defensive position is desirable
or to achieve income, the Fund may invest up to all of its assets in debt
securities that may be considered equivalent to owning cash because of their
safety and liquidity. By taking a temporary defensive position, the Fund may not
achieve its investment objectives.
WADDELL & REED ADVISORS INCOME FUND
The Fund's goal is to seek capital growth and income. The Fund seeks to
achieve its goals by investing, during normal market conditions, primarily in
a diversified portfolio of securities, typically the stocks of large,
high-quality U.S. and foreign companies that are well known and have been
consistently profitable. There is no guarantee that the Fund will achieve its
goals.
When WRIMCO views stocks with high yields as less attractive than other common
stocks, the Fund may hold lower-yielding common stocks because of their
prospects for appreciation. When WRIMCO believes that the return on debt
securities and preferred stocks is more attractive than the return on common
stocks, or that a temporary defensive position is desirable, the Fund may seek
to achieve its goals by investing up to all of its assets in debt securities
(typically, investment grade) and preferred stocks. However, by taking a
temporary defensive position, the Fund may not achieve its investment
objectives.
WADDELL & REED ADVISORS RETIREMENT SHARES
The goal of this Fund is to provide the highest long-term total investment
return as is, in WRIMCO's opinion, consistent with reasonable safety of capital.
The Fund seeks to achieve its goal through a diversified portfolio under a fully
managed investment policy. Under this approach, the Fund will invest
substantially all of its assets in common stock and debt securities of U.S. and
foreign issuers. The Fund may also invest in preferred stock and convertible
securities. The Fund may invest varying proportions of its assets in all of
these securities, depending on WRIMCO's analysis of what types of securities, or
what proportions, are likely to achieve the Fund's goal. There is no guarantee
that the Fund will achieve its goal.
34
<PAGE>
Since the Fund's goal is long-term total investment return, WRIMCO does not
attempt to make quick shifts between the types of securities to take advantage
of what it considers to be short-term market or economic trends, but rather
attempts to find investment opportunities based on its analysis of long-term
prospects for capital growth, capital stability and income.
The Fund may invest a limited portion of its assets (no more than 10% of its
total assets) in non-investment grade debt securities. Also, the Fund can
invest, to a limited extent, in foreign securities.
When WRIMCO believes that a temporary defensive position is desirable, the Fund
may invest up to all of its assets in cash or money market instruments. By
taking a temporary defensive position, the Fund may not achieve its investment
objective.
WADDELL & REED ADVISORS TAX-MANAGED EQUITY FUND
The goal of the Fund is long-term growth of capital while minimizing taxable
gains and income to shareholders. The Fund seeks to achieve its goal by
investing primarily in a diversified portfolio of common stocks of U.S.
companies that WRIMCO considers to be high in quality and attractive in their
long-term investment potential. The Fund seeks stocks that are favorably priced
in relation to their fundamental value and will, likely, grow over time.
The Fund attempts to achieve high after-tax returns for its shareholders by
weighing investment considerations and tax considerations. The Fund seeks to
minimize income distributions and distributions of realized short-term gains
(taxed as ordinary income), as well as distributions of realized long-term
gains. The Fund seeks to achieve returns primarily in the form of price
appreciation (not subject to current tax until shares are redeemed). There is no
guarantee that the Fund will achieve its goal.
35
<PAGE>
WRIMCO ordinarily uses one or more of the following strategies in its management
of the Fund:
- a long-term, low turnover approach to investing;
- an emphasis on lower-yielding securities to require distribution of little,
if any, taxable income;
- an attempt to avoid net realized short-term gains;
- in the sale of portfolio securities, selection of the most tax-favored lots;
and
- selective tax-advantaged hedging techniques as an alternative to taxable
sales.
The Fund will, under normal market conditions, invest at least 65% of its total
assets in equity securities, primarily common stocks and securities convertible
into common stocks. The Fund emphasizes growth stocks; however, it may also
invest in value stocks. In addition to common stocks, and securities convertible
into common stocks, the Fund may invest in preferred stocks and debt securities
that are mostly of investment grade. The Fund may also buy foreign securities;
however, it may not invest more than 25% of its total assets in foreign
securities.
When WRIMCO believes that a temporary defensive position is desirable or
necessary, 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 temporary defensive position, the Fund
may not achieve its investment objective.
ALL FUNDS
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goal(s). For example, each Fund is permitted to 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.
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in its Statement of
Additional Information ("SAI").
36
<PAGE>
RISK CONSIDERATIONS OF PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
Risks exist in any investment. Each Fund is subject to equity risk and other
market risk, financial risk and, in some cases, prepayment risk.
- Market risk is the possibility of a change in the price of the security. The
prices of common stocks and other equity securities generally fluctuate more
than those of other investments. A Fund may lose a substantial part, or even
all, of its investment in a company's stock. Growth stocks may experience
greater price volatility than value stocks. To the extent a Fund invests in
fixed income securities the price of a fixed income security may be affected
by 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 a Fund will likely change as well.
- Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities in
which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing the
stock.
- 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.
- Notwithstanding Tax-Managed Equity Fund's use of tax management investment
strategies, this Fund may have taxable income and may realize taxable capital
gains from time to time. In addition, investors purchasing Fund shares when
the Fund has large accumulated capital gains could receive a significant part
of the purchase price of their shares back as a taxable capital gain
distribution. Over time, securities with unrealized gains may comprise a
substantial portion of the Fund's assets. As well, state or Federal tax laws
or regulations may be amended at any time which could include adverse changes
to applicable tax rates or capital gains holding periods.
Certain types of each Fund's authorized investments and strategies (such as
foreign securities, junk bonds and derivative instruments) involve special
risks. Depending on how much a Fund invests or uses these strategies, these
special risks may become significant. For example, foreign investments may
subject a Fund to restrictions on receiving the investment proceeds from a
foreign country, foreign taxes, and potential difficulties in enforcing
contractual obligations, as well as fluctuations in foreign currency values and
37
<PAGE>
other developments that may adversely affect a foreign country. Junk bonds pose
a greater risk of nonpayment of interest or principal than higher-rated bonds.
Derivative instruments may expose a Fund to greater volatility than an
investment in a more traditional stock, bond or other security.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
38
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
YOUR ACCOUNT
CHOOSING A SHARE CLASS
Each Fund offers four classes of shares: 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.
Class B and Class C shares are not available for investments of $2 million or
more. If you are investing a lesser amount, you may want to consider Class B
shares (if investing for at least seven years) or Class C shares (if investing
for less than seven 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 a
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.
39
<PAGE>
<TABLE>
<CAPTION>
GENERAL COMPARISON OF CLASS A, CLASS B AND CLASS C SHARES
CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------------
<S> <C> <C>
Initial sales charge No initial sales charge No initial sales charge
--------------------------------------------------------------------------------------
No deferred sales charge(1) Deferred sales charge on A 1% deferred sales
shares you sell within six charge on shares you
years after purchase sell within twelve
months after purchase
--------------------------------------------------------------------------------------
Maximum distribution Maximum distribution Maximum distribution
and service (12b-1) fees and service (12b-1) fees and service (12b-1)
of 0.25% of 1.00% fees of 1.00%
--------------------------------------------------------------------------------------
For an investment of Converts to Class A Does not convert to
$2 million or more, shares 8 years after the month Class A shares, so
only Class A shares in which the shares were annual expenses do
are available purchased, thus reducing not decrease
future annual expenses
--------------------------------------------------------------------------------------
For an investment of $300,000
or more, your financial advisor
typically will recommend purchase
of Class A shares due to a reduced
sales charge and lower annual
expenses
======================================================================================
</TABLE>
(1) A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
EACH 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, each 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, each 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 ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
40
<PAGE>
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.
<TABLE>
<CAPTION>
SIZE OF PURCHASE
SALES CHARGE REALLOWANCE
AS APPROX. TO DEALERS
SALES CHARGE PERCENT OF AS PERCENT
AS PERCENT OF AMOUNT OF OFFERING
OFFERING PRICE INVESTED PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 5.75% 6.10% 5.00%
--------------------------------------------------------------------------------
$100,000 to less than $200,000 4.75 4.99 4.00
--------------------------------------------------------------------------------
$200,000 to less than $300,000 3.50 3.63 2.80
--------------------------------------------------------------------------------
$300,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.20
--------------------------------------------------------------------------------
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
--------------------------------------------------------------------------------
$2,000,000 and over 0.00(1) 0.00(1) 0.50
================================================================================
</TABLE>
(1) NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $2
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A CDSC OF
1.00% ON CERTAIN REDEMPTIONS MADE WITHIN TWELVE MONTHS OF THE PURCHASE. THE
CDSC IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET
VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES CHARGE
IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL PURCHASE PRICE.
Waddell & Reed, Inc. or its affiliate(s) may pay additional compensation from
its own resources to securities dealers based upon the value of shares of the
Fund owned by the dealer for its own account or for its customers. Waddell &
Reed, Inc. may also provide compensation from its own resources to securities
dealers with respect to shares of the Funds purchased by customers of such
dealers without payment of a sales charge.
41
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
LOWER SALES CHARGES ARE AVAILABLE BY:
- Combining additional purchases of Class A shares of any of the funds in the
Waddell & Reed Advisors Funds and/or the W&R Funds, except Class A shares of
Waddell & Reed Advisors Cash Management (formerly United Cash Management) or
Class A shares of W&R Funds Money Market Fund 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 ("NAV") of
Class A shares already held ("Rights of Accumulation");
- Grouping all purchases of Class A shares, except shares of Waddell & Reed
Advisors Cash Management or W&R Funds Money Market Fund, made during a
thirteen-month period ("Letter of Intent"); and
- Grouping purchases by certain related persons.
Additional information and applicable forms are available from your financial
advisor.
WAIVERS FOR CERTAIN INVESTORS
CLASS A SHARES MAY BE PURCHASED AT NAV BY:
- The Directors and officers of the Fund or of any affiliated entity of Waddell
& Reed, Inc., employees of Waddell & Reed, Inc., employees of its affiliates,
financial advisors of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each;
- Certain retirement plans and certain trusts for these persons; and
- Until March 31, 2001, clients of Legend Equities Corporation ("Legend") if
the purchase is made with the proceeds of the redemption of shares of a
mutual fund which is not within the Waddell & Reed Advisors Funds or W&R
Funds and the purchase is made within 60 days of such redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
42
<PAGE>
CONTINGENT DEFERRED SALES CHARGE. A CDSC may be assessed against your redemption
amount of Class B or Class C shares or certain Class A shares and paid to
Waddell & Reed, Inc. (the "Distributor"), as further described below. The
purpose of the CDSC is to compensate the Distributor for the costs incurred by
it in connection with the sale of the Fund's Class B or Class C shares or with
Class A investments of $2 million or more at NAV. The CDSC will not be imposed
on shares representing payment of dividends or other 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 the shares purchased during
the CDSC period. For Class B, the date of redemption is measured in calendar
months from the month of purchase. Solely for purposes of determining the number
of months or years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the first
day of the month. 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, a Fund, when requested to redeem a specific dollar
amount, will redeem additional shares of the applicable class that are 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 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 purchased Class A shares.
Class B shares and any dividends and distributions paid on such shares
automatically convert to Class A shares eight years after the end of the month
in which the shares were purchased. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The Class A shares have lower ongoing expenses.
43
<PAGE>
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
ON SHARES SOLD WITHIN YEAR AS % OF AMOUNT SUBJECT TO CHARGE
<S> <C>
1 5.0%
----------------------------------------------------------------------------
2 4.0%
----------------------------------------------------------------------------
3 3.0%
----------------------------------------------------------------------------
4 3.0%
----------------------------------------------------------------------------
5 2.0%
----------------------------------------------------------------------------
6 1.0%
----------------------------------------------------------------------------
7+ 0.0%
============================================================================
</TABLE>
In the table, a "year" is a 12-month period. In applying the CDSC, all purchases
are considered to have been made on the first day of the month in which the
purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%, the
rate applicable to redemptions made within the second year of purchase. All
Class B purchases made prior to July 1, 2000 will be automatically accelerated
to the revised method of calculating the CDSC. Any purchase made in 1999 will be
deemed to have been made on December 1, 1998. Any purchase made from January 1,
2000 to June 30, 2000 will be deemed to have been made on December 1, 1999.
CLASS C SHARES are not subject to an initial sales charge when you buy them, but
if you sell your Class C shares within twelve months after purchase, you will
pay a 1% CDSC. For purposes of the 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 purchased Class A shares. Class C shares do not convert to any other class.
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.
44
<PAGE>
THE CDSC WILL NOT APPLY IN THE FOLLOWING CIRCUMSTANCES:
- redemptions of 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.
- redemptions of 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.
- redemptions of shares purchased by current or retired Directors of the Fund,
and Directors of affiliated companies, current or retired officers or
employees of the Fund, WRIMCO, the Distributor or their affiliated companies,
financial advisors of Waddell & Reed, Inc., and by the members of immediate
families of such persons.
- redemptions of 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.)
- redemptions the proceeds of which are reinvested within forty-five days in
shares of the same class of the Fund as that redeemed.
- the exercise of certain exchange privileges.
- redemptions effected pursuant to each Fund's right (other than Continental
Income Fund) to liquidate a shareholder's shares if the aggregate NAV of
those shares is less than $500.
- redemptions effected by another registered investment company by virtue of a
merger or other reorganization with a Fund or by a former shareholder of such
investment company of shares of a Fund acquired pursuant to such
reorganization.
45
<PAGE>
These exceptions may be modified or eliminated by a 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 notice.
CLASS Y SHARES are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
- 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;
- banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
- government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
- certain retirement plans and trusts for employees and financial advisors of
Waddell & Reed, Inc. and its affiliates.
WAYS TO SET UP YOUR ACCOUNT
The different ways to set up (register) your account are listed below.
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
46
<PAGE>
RETIREMENT PLANS
TO SHELTER YOUR RETIREMENT SAVINGS FROM INCOME TAXES
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
- INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow a certain individual under age
70 1/2, with earned income, to invest up to $2,000 per tax year. The maximum
for an investor and his or her spouse is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year.
- IRA ROLLOVERS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- ROTH IRAS allow certain individuals to make nondeductible contributions up to
$2,000 per 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. Withdrawals of earnings may be
tax free if the account is at least five years old and certain other
requirements are met.
- EDUCATION IRAS are established for the benefit of a minor, with nondeductible
contributions, up to $500 per year, and permit tax-free withdrawals to pay
the higher education expenses of the beneficiary.
- SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) provide business owners or those
with self-employed income (and their eligible employees) with many of the
same advantages as a Profit Sharing Plan, but with fewer administrative
requirements.
- SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLAN) can be established
by small employers to contribute to and allow their employees to contribute a
portion of their wages pre-tax to retirement accounts. This plan-type
generally involves fewer administrative requirements than 401(k) or other
qualified plans.
- 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.
- 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.
47
<PAGE>
- 403(b) CUSTODIAL ACCOUNTS are available to employees of public school
systems, churches and certain types of charitable organizations.
- 457 ACCOUNTS allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
GIFTS OR TRANSFERS TO A MINOR
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Transfers to Minors Act ("UTMA") or the Uniform Gifts
to Minors Act ("UGMA").
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 financial advisor for
the form.
48
<PAGE>
BUYING SHARES
YOU MAY BUY SHARES OF EACH OF THE FUNDS through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend. To open your account you must
complete and sign an application. Your 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 800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
at the above address, 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, for the account of Waddell & Reed Number
9800007978, Special Account for Exclusive Benefit of Customers FBO Customer Name
and Account Number.
You may also buy Class Y shares of a 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 FUND SHARE is its offering price, which 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 per share of that class plus, for Class A shares, the
sales charge shown in the table.
49
<PAGE>
In the calculation of a Fund's NAV:
- The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
- Bonds are generally valued according to prices quoted by an independent
pricing service.
- Short-term debt securities are valued at amortized cost, which approximates
market value.
- 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.
EACH FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (the "NYSE")
is open. The Funds normally calculate their NAVs as of the close of business of
the NYSE, normally 4 p.m. Eastern time, except that an option or futures
contract held by a Fund may be priced at the close of the regular session of any
other securities exchange on which that instrument is traded.
The Funds 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
a Fund does not price its shares and when you are not able to purchase or redeem
a 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 each Fund's Board of
Directors.
50
<PAGE>
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:
- All of your purchases must be made in U.S. dollars.
- If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the Waddell & Reed Advisors Funds and/or
the W&R Funds, the payment may be delayed for up to ten days to ensure that
your previous investment has cleared.
- The Funds do not issue certificates representing Class B, Class C or Class Y
shares. Asset Strategy Fund and Tax-Managed Equity Fund do not issue
certificates representing any class of shares.
- If you purchase shares of a 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 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 a 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 Funds reserve the right to discontinue
offering Fund shares for purchase.
51
<PAGE>
MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
FOR CLASS A, CLASS B AND CLASS C:
<S> <C>
TO OPEN AN ACCOUNT $500 (per Fund)
------------------------------------------------------------------------------------
For certain exchanges $100 (per Fund)
------------------------------------------------------------------------------------
For certain retirement accounts and accounts
opened with Automatic Investment Service $50 (per Fund)
------------------------------------------------------------------------------------
For certain retirement accounts and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25 (per Fund)
------------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
------------------------------------------------------------------------------------
For certain exchanges $100 (per Fund)
------------------------------------------------------------------------------------
For Automatic Investment Service $25 (per Fund)
------------------------------------------------------------------------------------
<CAPTION>
FOR CLASS Y:
<S> <C>
TO OPEN AN ACCOUNT
------------------------------------------------------------------------------------
For a government entity or authority $10 million
or for a corporation (within first twelve months)
------------------------------------------------------------------------------------
For other investors Any amount
------------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
====================================================================================
</TABLE>
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:
- the detachable form that accompanies the confirmation of a prior purchase or
your year-to-date statement; or
- a letter stating your account number, the account registration, the Fund and
the class of shares that you wish to purchase.
52
<PAGE>
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, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase shares of the Funds from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
SELLING SHARES
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The REDEMPTION PRICE (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
A, Class B or Class C shares.
TO SELL SHARES BY WRITTEN REQUEST: Complete an Account Service Request form,
available from your financial advisor, or write a letter of instruction with:
- the name on the account registration;
- the Fund's name;
- the Fund account number;
- the dollar amount or number, and the class, of shares to be redeemed; and
- any other applicable requirements listed in the table below.
Deliver the form or your letter to your 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 888-WADDELL, or fax your
request to 913-236-1599, 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.
53
<PAGE>
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
listed above. Note the following:
- If more than one person owns the shares, each owner must sign the written
request.
- If you hold a certificate, it must be properly endorsed and sent to the Fund.
- If you recently purchased the shares by check, a 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.
- Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission.
- Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when a Fund's Board of
Directors determines that conditions exist making cash payments undesirable.
A Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its NAV during any 90-day period for any one shareholder.
- If you purchased 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
shares when that firm (or its designee) has received your order. Your order
will receive the NAV of the applicable Class subject to any applicable CDSC
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 shares at that
day's price.
54
<PAGE>
<TABLE>
<CAPTION>
SPECIAL REQUIREMENTS FOR SELLING SHARES
ACCOUNT TYPE SPECIAL REQUIREMENTS
----------------------------------------------------------------------------------------
<S> <C>
Individual or The written instructions must be signed by all
Joint Tenant persons required to sign for transactions, exactly as
their names appear on the account.
----------------------------------------------------------------------------------------
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
----------------------------------------------------------------------------------------
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
----------------------------------------------------------------------------------------
Retirement Account The written instructions must be signed by a properly
authorized person.
----------------------------------------------------------------------------------------
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's name is
not in the account registration, provide a currently
certified copy of the trust document.
----------------------------------------------------------------------------------------
Business or Organization At least one person authorized by corporate resolution
to act on the account must sign the written instructions.
----------------------------------------------------------------------------------------
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by court order to act in the
particular fiduciary capacity.
========================================================================================
</TABLE>
A Fund may require a signature guarantee in certain situations such as:
- a redemption request made by a corporation, partnership or fiduciary;
- a redemption request made by someone other than the owner of record; or
- the check is made payable to someone other than the owner of record.
This requirement is 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.
EACH FUND (OTHER THAN CONTINENTAL INCOME FUND) RESERVES THE RIGHT TO REDEEM at
NAV all of your Fund shares in your account 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.
55
<PAGE>
YOU MAY REINVEST, without charge, all or part of the amount of Class A shares of
a Fund you redeemed by sending to the Fund the amount you want to reinvest. The
reinvested amounts must be received by the Fund within forty-five days after the
date of your redemption. You may do this only once with Class A shares of a
Fund.
The CDSC will not apply to the proceeds of Class A (as applicable), Class B or
Class C shares of a Fund which are redeemed and then reinvested in Class A,
Class B or Class C shares of the Fund within forty-five 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 A shares of a Fund, once
as to Class B shares of a Fund and once as to Class C shares of a Fund.
Payments of principal and interest on loans made pursuant to a 401(a) qualified
plan (if such loans are permitted by the plan) may be reinvested, without
payment of a sales charge, in Class A shares of any Waddell & Reed Advisors Fund
in which the plan may invest.
TELEPHONE TRANSACTIONS
The Funds and their agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. Each Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If a 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.
56
<PAGE>
SHAREHOLDER SERVICES
Waddell & Reed provides a variety of services to help you manage your account.
PERSONAL SERVICE
Your local financial advisor is available to provide personal service.
Additionally, a toll-free call, 800-366-5465, connects you to a Client Services
Representative or our automated customer telephone service. During normal
business hours, our Client Services staff is available to answer your questions
or update your account records. At almost any time of the day or night, you may
access your account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
- Obtain information about your accounts;
- Obtain price information about other funds in the Waddell & Reed Advisors
Funds and/or W&R Funds; or
- Request duplicate statements.
REPORTS
Statements and reports sent to you include the following:
- confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
- year-to-date statements (quarterly)
- annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports of the Funds may be mailed to your household, even if you have more than
one account with a Fund. Call the telephone number listed for Client Services 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 another Fund in the
Waddell & Reed Advisors Funds or in W&R Funds 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 or Class A
shares to which the CDSC would otherwise apply the time period for the deferred
sales charge will continue to run. In addition,
57
<PAGE>
exchanging Class Y shareholders in the Waddell & Reed Advisors Funds may buy
Class A shares of Waddell & Reed Advisors Cash Management.
You may exchange only into funds that are legally permitted for sale in your
state of residence. Note that exchanges out of a Fund may have tax consequences
for you. Before exchanging into a fund, read its prospectus.
THE FUNDS RESERVE 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, or
between fund accounts, 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 financial advisor for more information.
<TABLE>
<CAPTION>
REGULAR INVESTMENT PLANS
AUTOMATIC INVESTMENT SERVICE
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO AN EXISTING FUND ACCOUNT
MINIMUM AMOUNT MINIMUM FREQUENCY
<S> <C>
$25 (per Fund) Monthly
------------------------------------------------------------------------
<CAPTION>
FUNDS PLUS SERVICE
TO MOVE MONEY FROM WADDELL & REED ADVISORS CASH MANAGEMENT TO A FUND
WHETHER IN THE SAME OR A DIFFERENT ACCOUNT IN THE SAME CLASS
MINIMUM AMOUNT MINIMUM FREQUENCY
<S> <C>
$100 (per Fund) Monthly
========================================================================
</TABLE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, a Fund distributes net investment income at the following times: Asset
Strategy Fund, Continental Income Fund, Income Fund and
58
<PAGE>
Retirement Shares, quarterly in March, June, September and December; Tax-Managed
Equity Fund, 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. Each Fund offers two 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. 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 a 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 a Fund's investment company taxable
income (which includes net short-term gains), if any, generally are taxable to
you as ordinary income whether received in cash or paid in additional Fund
shares. Distributions of a 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%.
Each 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 a 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
59
<PAGE>
aggregate dividends received by a 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. Each 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 Waddell & Reed Advisors Funds or W&R Funds generally will have similar tax
consequences. However, special rules apply when you dispose of a Fund's Class A
shares through a redemption or exchange within ninety days after your purchase
and then reacquire Class A shares of that Fund or acquire Class A shares of
another fund in the Waddell & Reed Advisors Funds without paying a sales charge
due to the forty-five day reinvestment privilege or exchange privilege. See
"Your Account." In these cases, any gain on the disposition of the original Fund
shares will 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
shares of a Fund within thirty days before or after redeeming other shares of
the Fund (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.
60
<PAGE>
STATE AND LOCAL INCOME TAXES. The portion of the dividends paid by each Fund
attributable to interest earned on U.S. Government securities generally is not
subject to state and local income taxes, although distributions by any 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 Funds in your state and
locality.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; you will find
more information in the Fund's 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.
61
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
THE MANAGEMENT OF THE FUNDS
PORTFOLIO MANAGEMENT
Each Fund is managed by WRIMCO, subject to the authority of each Fund's Board of
Directors. WRIMCO provides investment advice to each of the Funds and supervises
each Fund's investments. WRIMCO and/or its predecessors have served as
investment manager to each of the registered investment companies in the Waddell
& Reed Advisors Funds, W&R Funds and Target/United Funds since the inception of
each company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Michael L. Avery is primarily responsible for the management of the equity
portion of the Asset Strategy Fund. Mr. Avery has managed the equity portion of
the Fund since January 1997. He is Senior Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. From March 1995 to March 1998, Mr. Avery
was Vice President of, and Director of Research for, Waddell & Reed Asset
Management Company, a former affiliate of WRIMCO. Mr. Avery has served as the
portfolio manager for investment companies managed by WRIMCO since February 1,
1994, has served as the Director of Research for WRIMCO and its predecessors
since August 1987, and has been an employee of such since June 1981.
Daniel J. Vrabac is primarily responsible for the management of the fixed-income
portion of the Asset Strategy Fund. Mr. Vrabac has managed the fixed-income
portion of the Fund since January 1997. He is Vice President of the Fund and
Vice President of other investment companies for which WRIMCO serves as
investment manager. From May 1994 to March 1998, Mr. Vrabac was Vice President
of, and a portfolio manager for, Waddell & Reed Asset Management Company. Mr.
Vrabac has been an employee of WRIMCO since May 1994.
Cynthia P. Prince-Fox is primarily responsible for the management of the
Continental Income Fund and the Tax-Managed Equity Fund. Ms. Prince-Fox has held
her Fund responsibilities for Continental Income Fund since February 1993, and
for Tax-Managed Equity Fund since the inception of the Fund. She is Vice
President of WRIMCO and Vice President of both Funds. From January 1993 to March
1998, Ms. Prince-Fox was Vice President of, and a portfolio manager for, Waddell
& Reed Asset Management Company. Ms. Prince-Fox is a Vice President and
Portfolio Manager for Austin,
62
<PAGE>
Calvert & Flavin, Inc., an affiliate of WRIMCO. Ms. Prince-Fox has served as the
portfolio manager for investment companies managed by WRIMCO since January 1993.
From 1983 to January 1993, Ms. Prince-Fox served as an investment analyst for
WRIMCO and its predecessors.
James D. Wineland is primarily responsible for the management of the Income
Fund. Mr. Wineland has held his Fund responsibilities since July 1, 1997. He is
Vice President of WRIMCO, Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. From March
1995 to March 1998, Mr. Wineland was Vice President of, and a portfolio manager
for, Waddell & Reed Asset Management Company. Mr. Wineland has served as the
portfolio manager for investment companies managed by WRIMCO and its
predecessors since January 1988 and has been an employee of such since November
1984.
Charles W. Hooper, Jr. is primarily responsible for the management of Retirement
Shares. Mr. Hooper has held his Fund responsibilities since April 1999. He is
Vice President of WRIMCO and Vice President of the Fund. From August 1987 to
December 1991, Mr. Hooper served as the portfolio manager for another investment
company managed by WRIMCO. From October 1984 to December 1991, Mr. Hooper was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. From December 1991 to July 1996, Mr. Hooper was a portfolio manager for
Founders Asset Management Company, and from July 1996 to April 1999, Mr. Hooper
was the Chief Investment Officer for Owen Joseph.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
MANAGEMENT FEE
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
63
<PAGE>
The management fee is payable at the annual rates of:
for Asset Strategy Fund, 0.70% of net assets up to $1 billion, 0.65% of net
assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion
and up to $3 billion, and 0.55% of net assets over $3 billion. Management fees
for the Fund as a percent of the Fund's net assets for the fiscal year ended
September 30, 1999 were 0.69%;
for Continental Income Fund, 0.70% of net assets up to $1 billion, 0.65% of net
assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion
and up to $3 billion, and 0.55% of net assets over $3 billion. Management fees
for the Fund as a percent of the Fund's net assets for the fiscal year ended
March 31, 2000 were 0.66%;
for Income Fund, 0.70% of net assets up to $1 billion, 0.65% of net assets over
$1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up to
$3 billion, 0.55% of net assets over $3 billion and up to $6 billion, and 0.50%
of net assets over $6 billion. Management fees for the Fund as a percent of the
Fund's net assets for the fiscal year ended December 31, 1999 were 0.56%;
for Retirement Shares, 0.70% of net assets up to $1 billion, 0.65% of net assets
over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion and up
to $3 billion, and 0.55% of net assets over $3 billion. Management fees for the
Fund as a percent of the Fund's net assets for the fiscal year ended June 30,
1999 were 0.54%; and
for Tax-Managed Equity Fund, 0.65% of net assets up to $1 billion, 0.60% of net
assets over $1 billion and up to $2 billion, 0.55% of net assets over $2 billion
and up to $3 billion, and 0.50% of net assets over $3 billion.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to change
or modify this waiver.
64
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance of
each Fund's Class A, Class B, Class C and Class Y shares for the fiscal periods
shown. Certain information reflects financial results for a single Fund share.
"Total return" shows how much your investment would have increased (or
decreased) during each period, assuming reinvestment of all dividends and
distributions.
65
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
ASSET STRATEGY FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR FOR THE
SIX MONTHS ENDED SEPTEMBER 30, PERIOD FROM
ENDED ----------------------------------- 3/9/95(2) TO
3/31/00 1999 1998 1997 1996 9/30/95
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $5.82 $5.78 $5.99 $5.24 $5.42 $5.00
--------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.01 0.09 0.15 0.16 0.15 0.07
Net realized and
unrealized gain (loss)
on investments 1.83 0.29 0.28 0.74 (0.17) 0.40
--------------------------------------------------------------------------------------------
Total from investment
operations 1.84 0.38 0.43 0.90 (0.02) 0.47
--------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.01) (0.10) (0.17) (0.15) (0.15) (0.05)
From capital gains (0.18) (0.24) (0.47) (0.00) (0.00) (0.00)
In excess of capital gains (0.00) (0.00) (0.00) (0.00) (0.01) (0.00)
--------------------------------------------------------------------------------------------
Total distributions (0.19) (0.34) (0.64) (0.15) (0.16) (0.05)
--------------------------------------------------------------------------------------------
Net asset value,
end of period $7.47 $5.82 $5.78 $5.99 $5.24 $5.42
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(3) 32.45% 6.90% 7.89% 17.46% -0.49% 9.42%
Net assets, end of period
(in millions) $67 $48 $33 $28 $32 $22
Ratio of expenses to
average net assets 1.86%(4) 1.90% 1.62% 1.70% 1.68% 1.64%(4)
Ratio of net investment
income to average
net assets 0.31%(4) 1.55% 2.45% 2.87% 2.93% 3.71%(4)
Portfolio turnover rate 111.62% 176.63% 230.09% 173.88% 91.06% 9.32%
============================================================================================
</TABLE>
(1) ON SEPTEMBER 12, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A
SHARES.
(2) COMMENCEMENT OF OPERATIONS.
(3) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD
DEDUCTED ON AN INITIAL PURCHASE.
(4) ANNUALIZED.
66
<PAGE>
--------------------------------------------------------------------------------
ASSET STRATEGY FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/6/99(1) TO
3/31/00
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $5.89
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 1.76
--------------------------------------------------------------------------------
Total from investment operations 1.75
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.01)
From capital gains (0.18)
--------------------------------------------------------------------------------
Total distributions (0.19)
--------------------------------------------------------------------------------
Net asset value, end of period $7.45
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 30.34%
Net assets, end of period (in millions) $2
Ratio of expenses to average net assets 2.56%(2)
Ratio of net investment loss to average net assets -0.66%(2)
Portfolio turnover rate 111.62%(3)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
67
<PAGE>
--------------------------------------------------------------------------------
ASSET STRATEGY FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/5/99(1) TO
3/31/00
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $5.86
--------------------------------------------------------------------------------
Income from investment operations:
Net investment loss 0.00
Net realized and unrealized gain on investments 1.78
--------------------------------------------------------------------------------
Total from investment operations 1.78
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.01)
From capital gains (0.18)
--------------------------------------------------------------------------------
Total distributions (0.19)
--------------------------------------------------------------------------------
Net asset value, end of period $7.45
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 31.01%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.44%(2)
Ratio of net investment loss to average net assets -0.50%(2)
Portfolio turnover rate 111.62%(3)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
68
<PAGE>
--------------------------------------------------------------------------------
ASSET STRATEGY FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR FOR THE
SIX MONTHS ENDED SEPTEMBER 30, PERIOD FROM
ENDED ----------------------------------- 9/27/95(1) TO
3/31/00 1999 1998 1997 1996 9/30/95
<S> <C> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $5.83 $5.78 $5.99 $5.24 $5.42 $5.41
-----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.02 0.12 0.16 0.17 0.16 0.00
Net realized and
unrealized gain (loss)
on investments 1.82 0.28 0.29 0.75 (0.17) 0.01
-----------------------------------------------------------------------------------------------
Total from investment
operations 1.84 0.40 0.45 0.92 (0.01) 0.01
-----------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.02) (0.11) (0.19) (0.17) (0.16) (0.00)
From capital gains (0.18) (0.24) (0.47) (0.00) (0.00) (0.00)
In excess of capital gains (0.00) (0.00) (0.00) (0.00) (0.01) (0.00)
-----------------------------------------------------------------------------------------------
Total distributions (0.20) (0.35) (0.66) (0.17) (0.17) (0.00)
-----------------------------------------------------------------------------------------------
Net asset value, end of
period $7.47 $5.83 $5.78 $5.99 $5.24 $5.42
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 32.48% 7.35% 8.26% 17.93% -0.21% 0.18%
Net assets, end of
period (000 omitted) $395 $284 $243 $322 $330 $3
Ratio of expenses
to average net assets 1.60%(3) 1.49% 1.37% 1.28% 1.29% 0.00%
Ratio of net investment
income to average
net assets 0.56%(3) 1.96% 2.79% 3.29% 3.43% 0.00%
Portfolio turnover rate 111.62% 176.63% 230.09% 173.88% 91.06% 9.32%(2)
===============================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) RATE IS FOR THE PERIOD FROM MARCH 9, 1995 THROUGH SEPTEMBER 30, 1995.
(3) ANNUALIZED.
69
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
CONTINENTAL INCOME FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended March 31, 2000, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED MARCH 31,
-------------------------------------
2000 1999 1998 1997 1996
CLASS A PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.97 $8.32 $7.57 $8.00 $6.95
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.33 0.24 0.24 0.24
Net realized and unrealized gain
on investments 1.04 0.04 1.58 0.22 1.35
---------------------------------------------------------------------------------
Total from investment operations 1.22 0.37 1.82 0.46 1.59
---------------------------------------------------------------------------------
Less distributions:
From net investment income (0.18) (0.32) (0.24) (0.24) (0.23)
From capital gains (0.81) (0.40) (0.83) (0.65) (0.31)
---------------------------------------------------------------------------------
Total distributions (0.99) (0.72) (1.07) (0.89) (0.54)
---------------------------------------------------------------------------------
Net asset value, end of period $8.20 $7.97 $8.32 $7.57 $8.00
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 16.36% 3.38% 25.20% 5.88% 23.29%
Net assets, end of period (in millions) $597 $581 $599 $508 $502
Ratio of expenses to average net assets 1.15% 0.99% 0.91% 0.93% 0.89%
Ratio of net investment income to
average net assets 2.22% 2.69% 2.88% 3.01% 3.06%
Portfolio turnover rate 72.40% 50.68% 55.46% 40.29% 41.34%
=================================================================================
</TABLE>
(1) ON AUGUST 29, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 200% STOCK
DIVIDEND EFFECTED JUNE 26, 1998.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
70
<PAGE>
--------------------------------------------------------------------------------
CONTINENTAL INCOME FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $8.11
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05
Net realized and unrealized gain on investments 0.91
--------------------------------------------------------------------------------
Total from investment operations 0.96
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.06)
From capital gains (0.81)
--------------------------------------------------------------------------------
Total distributions (0.87)
--------------------------------------------------------------------------------
Net asset value, end of period $8.20
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 12.75%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.08%(2)
Ratio of net investment income to average net assets 1.14%(2)
Portfolio turnover rate 72.40%(2)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
71
<PAGE>
--------------------------------------------------------------------------------
CONTINENTAL INCOME FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $8.09
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05
Net realized and unrealized gain on investments 0.93
--------------------------------------------------------------------------------
Total from investment operations 0.98
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.06)
From capital gains (0.81)
--------------------------------------------------------------------------------
Total distributions (0.87)
--------------------------------------------------------------------------------
Net asset value, end of period $8.20
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 12.98%
Net assets, end of period (in thousands) $279
Ratio of expenses to average net assets 2.23%(2)
Ratio of net investment income to average net assets 1.09%(2)
Portfolio turnover rate 72.40%(2)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
72
<PAGE>
--------------------------------------------------------------------------------
CONTINENTAL INCOME FUND
For a Class Y share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR ENDED MARCH 31, PERIOD FROM
----------------------------------- 1/4/96(2) TO
2000 1999 1998 1997 3/31/96
CLASS Y PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.97 $8.33 $7.57 $8.00 $7.78
--------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.21 0.07 0.26 0.26 0.03
Net realized and
unrealized gain
on investments 1.03 0.32 1.58 0.21 0.25
--------------------------------------------------------------------------------
Total from investment
operations 1.24 0.39 1.84 0.47 0.28
--------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.20) (0.35) (0.26) (0.26) (0.06)
From capital gains (0.81) (0.40) (0.82) (0.64) (0.00)
--------------------------------------------------------------------------------
Total distributions (1.01) (0.75) (1.08) (0.90) (0.06)
--------------------------------------------------------------------------------
Net asset value,
end of period $8.20 $7.97 $8.33 $7.57 $8.00
CLASS Y RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return 16.72% 3.58% 25.43% 6.07% 3.53%
Net assets, end of
period (in millions) $1 $1 $11 $6 $6
Ratio of expenses
to average net assets 0.86% 0.81% 0.75% 0.75% 0.80%(3)
Ratio of net
investment income
to average net
assets 2.50% 3.32% 3.01% 3.20% 3.35%(3)
Portfolio turnover rate 72.40% 50.68% 55.46% 40.29% 41.34%(3)
================================================================================
</TABLE>
(1) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 200% STOCK
DIVIDEND EFFECTED JUNE 26, 1998.
(2) COMMENCEMENT OF OPERATIONS.
(3) ANNUALIZED.
73
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
INCOME FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1999, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $7.52 $7.59 $6.58 $5.79 $4.67
--------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.08 0.20 0.06 0.07 0.07
Net realized and unrealized gain
on investments 1.13 1.66 1.73 1.10 1.30
--------------------------------------------------------------------------------
Total from investment operations 1.21 1.86 1.79 1.17 1.37
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.08) (0.19) (0.06) (0.06) (0.07)
From capital gains (0.52) (1.74) (0.72) (0.32) (0.18)
--------------------------------------------------------------------------------
Total distributions (0.60) (1.93) (0.78) (0.38) (0.25)
--------------------------------------------------------------------------------
Net asset value, end of period $8.13 $7.52 $7.59 $6.58 $5.79
CLASS A RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return(2) 16.41% 24.02% 27.34% 20.36% 29.60%
Net assets, end of
period (in millions) $8,102 $7,368 $6,196 $4,851 $3,976
Ratio of expenses to
average net assets 0.94% 0.89% 0.84% 0.86% 0.83%
Ratio of net investment
income to average net assets 0.94% 1.11% 0.74% 1.03% 1.31%
Portfolio turnover rate 53.79% 49.29% 33.59% 22.24% 17.59%
================================================================================
</TABLE>
(1) ON JUNE 17, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 400% STOCK
DIVIDEND EFFECTED JUNE 26, 1998.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
74
<PAGE>
------------------------------------------------------------------------------
INCOME FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $7.77
-----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.00)
Net realized and unrealized gain on investments 0.88
-----------------------------------------------------------------------------
Total from investment operations 0.88
-----------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (0.52)
-----------------------------------------------------------------------------
Total distributions (0.52)
-----------------------------------------------------------------------------
Net asset value, end of period $8.13
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 11.53%
Net assets, end of period (in millions) $13
Ratio of expenses to average net assets 2.18%(2)
Ratio of net investment loss to average net assets -0.59%(2)
Portfolio turnover rate 53.79%(2)
=============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
75
<PAGE>
------------------------------------------------------------------------------
INCOME FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1)TO
12/31/99
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $7.77
-----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.00)
Net realized and unrealized gain on investments 0.88
-----------------------------------------------------------------------------
Total from investment operations 0.88
-----------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (0.52)
-----------------------------------------------------------------------------
Total distributions (0.52)
-----------------------------------------------------------------------------
Net asset value, end of period $8.13
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 11.53%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.23%(2)
Ratio of net investment loss to average net assets -0.63%(2)
Portfolio turnover rate 53.79%(2)
=============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
76
<PAGE>
------------------------------------------------------------------------------
INCOME FUND
For a Class Y share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR ENDED DECEMBER 31, PERIOD FROM
-------------------------------------------- 6/19/95(2) TO
1999 1998 1997 1996 12/31/95
<S> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $7.52 $7.59 $6.58 $5.79 $5.55
------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.10 0.24 0.07 0.07 0.04
Net realized and
unrealized gain
on investments 1.13 1.66 1.73 1.11 0.42
------------------------------------------------------------------------------------------------
Total from investment
operations 1.23 1.90 1.80 1.18 0.46
------------------------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.10) (0.23) (0.07) (0.07) (0.04)
From capital gains (0.52) (1.74) (0.72) (0.32) (0.18)
------------------------------------------------------------------------------------------------
Total distributions (0.62) (1.97) (0.79) (0.39) (0.22)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.13 $7.52 $7.59 $6.58 $5.79
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 16.67% 24.27% 27.49% 20.53% 8.45%
Net assets, end of
period (in millions) $283 $399 $299 $151 $107
Ratio of expenses to
average net assets 0.73% 0.71% 0.72% 0.73% 0.74%(3)
Ratio of net investment
income to average
net assets 1.18% 1.29% 0.85% 1.17% 1.36%(3)
Portfolio turnover rate 53.79% 49.29% 33.59% 22.24% 17.59%(3)
================================================================================================
</TABLE>
(1) PER-SHARE AMOUNTS HAVE BEEN ADJUSTED RETROACTIVELY TO REFLECT THE 400%
STOCK DIVIDEND EFFECTED JUNE 26, 1998.
(2) COMMENCEMENT OF OPERATIONS.
(3) ANNUALIZED.
77
<PAGE>
[GRAPHIC]
------------------------------------------------------------------------------
RETIREMENT SHARES
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended June 30, 1999, and the six months ended December 31, 1999, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED JUNE 30,
ENDED ----------------------------------------------
12/31/99 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $9.84 $9.28 $9.14 $8.72 $8.26 $7.64
----------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.03 0.19 0.24 0.27 0.26 0.24
Net realized and unrealized
gain on investments 2.82 0.92 0.99 1.08 0.94 0.86
----------------------------------------------------------------------------------------------------
Total from investment
operations 2.85 1.11 1.23 1.35 1.20 1.10
----------------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.04) (0.18) (0.25) (0.27) (0.27) (0.22)
From capital gains (1.71) (0.37) (0.84) (0.66) (0.47) (0.26)
----------------------------------------------------------------------------------------------------
Total distributions (1.75) (0.55) (1.09) (0.93) (0.74) (0.48)
----------------------------------------------------------------------------------------------------
Net asset value, end of period $10.94 $9.84 $9.28 $9.14 $8.72 $8.26
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 30.10% 12.75% 14.45% 16.70% 14.93% 15.07%
Net assets, end of
period (in millions) $1,183 $890 $825 $716 $607 $528
Ratio of expenses to
average net assets 1.10%(3) 0.99% 0.93% 0.92% 0.89% 0.89%
Ratio of net investment
income to average net assets 0.56%(3) 2.04% 2.57% 3.12% 3.01% 3.04%
Portfolio turnover rate 152.04% 122.58% 53.52% 39.55% 42.05% 48.62%
====================================================================================================
</TABLE>
(1) ON OCTOBER 7, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD
DEDUCTED ON AN INITIAL PURCHASE.
(3) ANNUALIZED.
78
<PAGE>
------------------------------------------------------------------------------
RETIREMENT SHARES
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $10.12
-----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 2.53
-----------------------------------------------------------------------------
Total from investment operations 2.52
-----------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.71)
-----------------------------------------------------------------------------
Total distributions (1.71)
-----------------------------------------------------------------------------
Net asset value, end of period $10.93
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 25.95%
Net assets, end of period (in millions) $6
Ratio of expenses to average net assets 2.24%(2)
Ratio of net investment loss to average net assets -0.86%(2)
Portfolio turnover rate 152.04%(3)
=============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED DECEMBER 31, 1999.
79
<PAGE>
------------------------------------------------------------------------------
RETIREMENT SHARES
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
12/31/99
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $10.12
----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 2.53
----------------------------------------------------------------------------
Total from investment operations 2.52
----------------------------------------------------------------------------
Less distributions:
From net investment income (0.00)
From capital gains (1.71)
----------------------------------------------------------------------------
Total distributions (1.71)
----------------------------------------------------------------------------
Net asset value, end of period $10.93
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 25.95%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.29%(2)
Ratio of net investment loss to average net assets -0.92%(2)
Portfolio turnover rate 152.04%(3)
============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED DECEMBER 31, 1999.
80
<PAGE>
------------------------------------------------------------------------------
RETIREMENT SHARES
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR FOR THE
SIX MONTHS ENDED JUNE 30, PERIOD FROM
ENDED ---------------------------- 2/27/96(1) TO
12/31/99 1999 1998 1997 6/30/96
<S> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $9.85 $9.28 $9.14 $8.72 $8.68
-----------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.06 0.20 0.25 0.29 0.10
Net realized and
unrealized gain
on investments 2.80 0.94 0.99 1.07 0.06
-----------------------------------------------------------------------------------------------
Total from investment
operations 2.86 1.14 1.24 1.36 0.16
-----------------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.06) (0.20) (0.26) (0.28) (0.12)
From capital gains (1.71) (0.37) (0.84) (0.66) (0.00)
-----------------------------------------------------------------------------------------------
Total distributions (1.77) (0.57) (1.10) (0.94) (0.12)
-----------------------------------------------------------------------------------------------
Net asset value,
end of period $10.94 $9.85 $9.28 $9.14 $8.72
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 30.16% 13.11% 14.62% 16.87% 1.91%
Net assets, end of period
(in millions) $10 $3 $3 $3 $2
Ratio of expenses
to average net assets 0.90%(2) 0.75% 0.79% 0.78% 0.71%(2)
Ratio of net investment
income to average
net assets 0.74%(2) 2.32% 2.71% 3.28% 3.36%(2)
Portfolio turnover rate 152.04% 122.58% 53.52% 39.55% 42.05%(2)
===============================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
81
<PAGE>
This space is intended for your notes and calculations.
82
<PAGE>
This space is intended for your notes and calculations.
83
<PAGE>
This space is intended for your notes and calculations.
84
<PAGE>
This space is intended for your notes and calculations.
85
<PAGE>
This space is intended for your notes and calculations.
86
<PAGE>
[GRAPHIC]
------------------------------------------------------------------------------
WADDELL & REED ADVISORS FUNDS
CUSTODIAN
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64141
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N. W.
Washington, D. C. 20036
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1010 Grand Boulevard
Kansas City, Missouri
64106-2232
INVESTMENT MANAGER
Waddell & Reed Investment
Management Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
UNDERWRITER
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
SHAREHOLDER SERVICING AGENT
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
ACCOUNTING SERVICES AGENT
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
87
<PAGE>
[GRAPHIC]
------------------------------------------------------------------------------
WADDELL & REED ADVISORS FUNDS
You can get more information about each Fund in its --
- STATEMENT OF ADDITIONAL INFORMATION (SAI), which contains detailed
information about the Fund, particularly the 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).
- 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 a Fund's current SAI or copies of its most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below. Copies of the
SAI, Annual and/or Semiannual reports may also be requested via e-mail at
[email protected].
Information about each Fund (including the current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and may also be obtained, after paying a duplicating fee, by
electronic request at [email protected] or 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 202-942-8090.
The Funds' SEC file numbers are as follows:
Waddell & Reed Advisors Asset Strategy Fund, Inc.: 811-7217
Waddell & Reed Advisors Continental Income Fund, Inc.: 811-2008
Waddell & Reed Advisors Funds, Inc. Income Fund: 811-2552
Waddell & Reed Advisors Retirement Shares, Inc.: 811-2263
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.: 811-9789
Waddell & Reed, Inc.
6300 Lamar Avenue P. O. Box 29217
[LOGO] WADDELL & REED Shawnee Mission, Kansas 66201-9217
FINANCIAL SERVICES-Registered Trademark- 913-236-2000
888-WADDELL
<PAGE>
PROSPECTUS
JUNE 30, 2000
WADDELL & REED ADVISORS FUNDS
FIXED INCOME &
MONEY MARKET FUNDS
Bond Fund [GRAPHIC]
Government Securities Fund
High Income Fund
High Income Fund II
Municipal Bond Fund [GRAPHIC]
Municipal High Income Fund
Cash Management
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE [LOGO]
FUNDS' SECURITIES, OR DETERMINED
WHETHER THIS PROSPECTUS IS ACCURATE OR
ADEQUATE. IT IS A CRIMINAL OFFENSE
TO STATE OTHERWISE.
<PAGE>
CONTENTS
[GRAPHIC]
3 An Overview of the Funds
3 Bond Fund
9 Government Securities Fund
14 High Income Fund
14 High Income Fund II
24 Municipal Bond Fund
30 Municipal High Income Fund
37 Cash Management
42 The Investment Principles of the Funds
52 Your Account
75 The Management of the Funds
78 Financial Highlights
2
<PAGE>
-------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC] GOAL
WADDELL & REED ADVISORS
BOND FUND
(FORMERLY UNITED BOND FUND) SEEKS A REASONABLE RETURN WITH EMPHASIS ON
PRESERVATION OF CAPITAL.
PRINCIPAL STRATEGIES
Bond Fund seeks to achieve its goal by investing primarily in domestic debt
securities usually of investment grade (rated BBB and higher by Standard &
Poor's ("S&P") and Baa and higher by Moody's Investors Service, Inc. ("MIS")).
The Fund has no limitations regarding the maturity duration or dollar weighted
average of its holdings. In selecting the debt securities for the Fund's
portfolio, Waddell & Reed Investment Management Company ("WRIMCO"), the Fund's
investment manager, considers yield and relative safety and, in the case of
convertible securities, the possibility of capital growth. The Fund can invest
in securities of companies of any size.
In selecting debt securities for the Fund, WRIMCO may look at many factors.
These include the issuer's past, present and estimated future:
- financial strength;
- cash flow;
- management;
- borrowing requirements; and
- responsiveness to changes in interest rates and business conditions.
As well, WRIMCO considers the maturity of the obligation and the size or nature
of the bond issue.
3
<PAGE>
In general, in determining whether to sell a security, WRIMCO uses the same type
of analysis that it uses in buying securities. For example, WRIMCO may sell a
holding if the issuer's financial strength weakens and/or the yield and relative
safety of the security declines. WRIMCO may also sell a security to take
advantage of more attractive investment opportunities or to raise cash.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Bond Fund owns different types of securities, a variety of factors can
affect its investment performance, such as:
- prepayment of higher-yielding bonds held by the Fund;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- changes in the maturities of bonds owned by the Fund;
- WRIMCO's skill in evaluating and managing the interest rate and credit
risks of the Fund's portfolio; and
- adverse bond and stock 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.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Bond Fund is designed for investors who primarily seek current income while
also seeking to preserve investment principal. You should consider whether
the Fund fits your particular investment objectives.
4
<PAGE>
[GRAPHIC]
-------------------------------------------------------------------------------
PERFORMANCE
BOND FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.24% 17.76% 7.84% 13.19% -5.76% 20.50% 3.20% 9.77% 7.27% -1.08%
========================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 7.11% (THE
THIRD QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -7.37% (THE FIRST
QUARTER OF 1997). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
2.32%.
5
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF BOND FUND -6.77% 6.42% 6.84%
------------------------------------------------------------------------------------
Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75%
------------------------------------------------------------------------------------
Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30%
------------------------------------------------------------------------------------
CLASS B SHARES OF BOND FUND -4.64%
------------------------------------------------------------------------------------
Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75% -0.16%
------------------------------------------------------------------------------------
Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30% -0.45%
------------------------------------------------------------------------------------
CLASS C SHARES OF BOND FUND -0.86%
------------------------------------------------------------------------------------
Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75% -0.16%
------------------------------------------------------------------------------------
Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30% -0.45%
------------------------------------------------------------------------------------
CLASS Y SHARES OF BOND FUND -0.81% 5.93%
------------------------------------------------------------------------------------
Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75% 6.04%
------------------------------------------------------------------------------------
Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30% 5.09%
------------------------------------------------------------------------------------
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE SEPTEMBER 9, 1999 FOR CLASS B SHARES, SEPTEMBER 9, 1999 FOR CLASS C
SHARES AND JUNE 19, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX ARE NOT AVAILABLE, INDEX
PERFORMANCE IS CALCULATED FROM SEPTEMBER 30, 1999, SEPTEMBER 30, 1999, AND
JUNE 30, 1995, RESPECTIVELY.
6
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
BOND FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
================================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
MANAGEMENT FEES 0.52% 0.52% 0.52% 0.52%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.23% 0.39% 0.48% 0.21%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.00% 1.91% 2.00% 0.73%
================================================================================
</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 YEAR OF
PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR, TO 3% FOR
REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE
WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH
YEAR. 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 AFTER PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF
MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF
SHARES, ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN
MADE ON THE FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS
A SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN
RESTATED TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30,
1999; OTHERWISE EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
7
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $671 $875 $1,096 $1,729
--------------------------------------------------------------------------------
Class B Shares $594 $901 $1,134 $1,998(1)
--------------------------------------------------------------------------------
Class C Shares $303 $626 $1,076 $2,324
--------------------------------------------------------------------------------
Class Y Shares $ 75 $233 $ 406 $ 906
--------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $671 $875 $1,096 $1,729
--------------------------------------------------------------------------------
Class B Shares $194 $601 $1,034 $1,998(1)
--------------------------------------------------------------------------------
Class C Shares $203 $626 $1,076 $2,324
--------------------------------------------------------------------------------
Class Y Shares $ 75 $233 $ 406 $ 906
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
8
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
GOVERNMENT SECURITIES FUND
(FORMERLY UNITED GOVERNMENT SECURITIES FUND) SEEKS AS HIGH A CURRENT INCOME AS
IS CONSISTENT WITH SAFETY OF PRINCIPAL.
PRINCIPAL STRATEGIES
Government Securities Fund seeks to achieve its goal by investing exclusively in
debt securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities"). The Fund invests in a
diversified portfolio of U.S. Government securities, including treasury issues
and mortgage-backed securities. The Fund has no limitations on the range of
maturities of the debt securities in which it may invest.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Government Securities Fund owns different types of fixed-income
instruments, a variety of factors can affect its investment performance, such
as:
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- adverse bond and stock 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;
- prepayment of higher-yielding bonds and mortgage-backed securities; and
- WRIMCO's skill in evaluating and selecting securities for the Fund.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. As well, not all U.S. Government
securities are backed by the full faith and credit of the United States.
WHO MAY WANT TO INVEST
Government Securities Fund is designed for investors who seek current income and
the relative security of investing in U.S. Government securities. You should
consider whether the Fund fits your particular investment objectives.
9
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
GOVERNMENT SECURITIES FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.27% 16.07% 7.54% 9.99% -3.88% 19.30% 1.77% 9.16% 7.49% -0.64%
========================================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 6.81% (THE
THIRD QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -3.32% (THE FIRST
QUARTER OF 1994). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
2.19%.
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
GOVERNMENT SECURITIES FUND -4.86% 6.27% 6.76%
-----------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64%
-----------------------------------------------------------------------------------------
Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63%
-----------------------------------------------------------------------------------------
CLASS B SHARES OF
GOVERNMENT SECURITIES FUND -5.09%
-----------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64% -0.52%
-----------------------------------------------------------------------------------------
Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63% -0.82%
-----------------------------------------------------------------------------------------
CLASS C SHARES OF
GOVERNMENT SECURITIES FUND -0.87%
-----------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64% -0.52%
-----------------------------------------------------------------------------------------
Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63% -0.82%
-----------------------------------------------------------------------------------------
CLASS Y SHARES OF
GOVERNMENT SECURITIES FUND -0.28% 5.73%
-----------------------------------------------------------------------------------------
Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64% 5.96%
-----------------------------------------------------------------------------------------
Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63% 4.69%
=========================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 8, 1999 FOR CLASS C SHARES
AND SEPTEMBER 27, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE INDEX (INCLUDING INCOME) ARE NOT
AVAILABLE, PERFORMANCE OF THE INDEX IS FROM OCTOBER 31, 1999, OCTOBER 31,
1999 AND SEPTEMBER 30, 1995, RESPECTIVELY.
11
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
GOVERNMENT SECURITIES FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE) 4.25% None None None
------------------------------------------------------------------------------
MAXIMUM DEFERRED
SALES CHARGE (LOAD)(1)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
------------------------------------------------------------------------------
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.50% 0.50% 0.50% 0.50%
------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
------------------------------------------------------------------------------
OTHER EXPENSES 0.40% 0.40% 0.60% 0.30%
------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.15% 1.90% 2.10% 0.80%
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL FUND OPERATING EXPENSES HAVE BEEN RESTATED TO
REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED MARCH 31, 2000. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
12
<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 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 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $537 $775 $1,031 $1,763
------------------------------------------------------------------------------
Class B Shares $593 $897 $1,126 $2,025(1)
------------------------------------------------------------------------------
Class C Shares $313 $658 $1,129 $2,431
------------------------------------------------------------------------------
Class Y Shares $ 82 $255 $ 444 $ 990
------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $537 $775 $1,031 $1,763
------------------------------------------------------------------------------
Class B Shares $193 $597 $1,026 $2,025(1)
------------------------------------------------------------------------------
Class C Shares $213 $658 $1,129 $2,431
------------------------------------------------------------------------------
Class Y Shares $ 82 $255 $ 444 $ 990
==============================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
13
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUNDS
[GRAPHIC]
WADDELL & REED ADVISORS HIGH INCOME FUND
WADDELL & REED ADVISORS HIGH INCOME FUND II
(FORMERLY UNITED HIGH INCOME FUND AND UNITED HIGH INCOME FUND II) SEEK, AS A
PRIMARY GOAL, A HIGH LEVEL OF CURRENT INCOME. AS A SECONDARY GOAL, THE FUNDS
SEEK CAPITAL GROWTH WHEN CONSISTENT WITH THEIR PRIMARY GOAL.
PRINCIPAL STRATEGIES
High Income Fund and High Income Fund II seek to achieve their goals by
investing primarily in a diversified portfolio of high-yield, high-risk,
fixed-income securities the risks of which are, in the judgment of WRIMCO,
consistent with the Funds' goals. The Funds can invest in companies of any size.
The Funds invest primarily in the lower quality bonds, commonly called junk
bonds, that are rated BB and below by S&P or Ba and below by MIS or, if unrated,
deemed by WRIMCO to be of comparable quality. The Funds may invest an unlimited
amount of their respective total assets in junk bonds. As well, the Funds may
invest in bonds of any maturity.
The Funds may each invest up to 20% of their respective total assets in common
stock in order to seek capital growth. The Funds will emphasize a blend of value
and growth in their selection of common stock. Value stocks are those whose
earnings WRIMCO believes are currently selling below their true worth. Growth
stocks are those whose earnings WRIMCO believes are likely to grow faster than
the economy.
WRIMCO may look at a number of factors in selecting securities for the Funds.
These include an issuer's past, current and estimated future:
- financial strength;
- cash flow;
- management;
- borrowing requirements; and
- responsiveness to changes in interest rates and business conditions.
In general, in determining whether to sell a debt security, WRIMCO uses the same
type of analysis that it uses in buying debt securities. For example,
14
<PAGE>
WRIMCO may sell a holding if the issuer's financial strength declines to an
unacceptable level or management of the company weakens. As well, WRIMCO may
choose to sell an equity security if the issuer's growth potential has
diminished. WRIMCO may also sell a security to take advantage of more attractive
investment opportunities or to raise cash.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
Because High Income Fund and High Income Fund II own different types of
securities, a variety of factors can affect their investment performance, such
as:
- the earnings performance, credit quality and other conditions of the
companies whose securities the Funds hold;
- the susceptibility of junk bonds to greater risks of non-payment or default,
price volatility and lack of liquidity compared to higher-rated bonds;
- an increase in interest rates, which may cause the value of a bond held by
either Fund, especially bonds with longer maturities, to decline;
- changes in the maturities of bonds owned by the Funds;
- adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Funds' holdings
to fall as part of a broad market decline; and
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Funds' portfolios.
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies may have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of each Fund's shares will change, and you
could lose money on your investment. An investment in each 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
High Income Fund and High Income Fund II are designed for investors who
primarily seek a level of current income that is higher than is normally
available with securities in the higher rated categories and, secondarily, seek
capital growth where consistent with the goal of income. The Funds are not
suitable for all investors. You should consider whether either Fund fits your
particular investment objectives.
15
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
HIGH INCOME FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-14.97% 37.45% 16.33% 17.69% -3.66% 17.80% 11.88% 14.32% 3.88% 2.92%
==========================================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 12.12% (THE
FIRST QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -7.59% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
-1.73%.
16
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
HIGH INCOME FUND -3.00% 8.71% 8.93%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35%
-----------------------------------------------------------------------------------------
Lipper High Current Yield Funds
Universe Average 4.53% 8.84% 10.03%
-----------------------------------------------------------------------------------------
CLASS B SHARES OF
HIGH INCOME FUND -2.38%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 2.42%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 2.70%
-----------------------------------------------------------------------------------------
Lipper High Current Yield Funds
Universe Average 4.53% 8.84% 10.03% 2.78%
-----------------------------------------------------------------------------------------
CLASS C SHARES OF
HIGH INCOME FUND 1.62%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 2.42%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 2.70%
-----------------------------------------------------------------------------------------
Lipper High Current Yield Funds
Universe Average 4.53% 8.84% 10.03% 2.78%
-----------------------------------------------------------------------------------------
CLASS Y SHARES OF
HIGH INCOME FUND 3.15% 8.17%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 7.34%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 7.57%
-----------------------------------------------------------------------------------------
Lipper High Current Yield Funds
Universe Average 4.53% 8.84% 10.03% 7.02%
=========================================================================================
</TABLE>
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE UNMANAGED.
THE SALOMON BROTHERS HIGH YIELD MARKET INDEX WILL REPLACE THE SALOMON BROTHERS
HIGH YIELD COMPOSITE INDEX. WRIMCO BELIEVES THAT THE NEW INDEX PROVIDES A MORE
ACCURATE BASIS FOR COMPARING THE FUND'S PERFORMANCE TO THE TYPES OF SECURITIES
IN WHICH THE FUND INVESTS. BOTH INDEXES ARE PRESENTED FOR COMPARISON PURPOSES.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOALS OF THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS C SHARES
AND JANUARY 4, 1996 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE INDEXES (INCLUDING INCOME) ARE NOT
AVAILABLE, INDEX PERFORMANCE IS FROM OCTOBER 31, 1999, OCTOBER 31, 1999 AND
DECEMBER 31, 1995, RESPECTIVELY.
17
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
HIGH INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
==============================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.61% 0.61% 0.61% 0.61%
------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
------------------------------------------------------------------------------
OTHER EXPENSES 0.20% 0.38% 0.31% 0.20%
------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.06% 1.99% 1.92% 0.81%
==============================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF
THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL FUND OPERATING EXPENSES HAVE BEEN RESTATED TO
REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES # OF THE FUND FOR THE
FISCAL YEAR ENDED MARCH 31, 2000. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
18
<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 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 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $677 $893 $1,126 $1,795
------------------------------------------------------------------------------
Class B Shares $602 $924 $1,173 $2,074(1)
------------------------------------------------------------------------------
Class C Shares $295 $603 $1,037 $2,243
------------------------------------------------------------------------------
Class Y Shares $ 83 $259 $ 450 $1,002
------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $677 $893 $1,126 $1,795
------------------------------------------------------------------------------
Class B Shares $202 $624 $1,073 $2,074(1)
------------------------------------------------------------------------------
Class C Shares $195 $603 $1,037 $2,243
------------------------------------------------------------------------------
Class Y Shares $ 83 $259 $ 450 $1,002
==============================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
19
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
HIGH INCOME FUND II
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-5.29% 31.31% 15.23% 17.39% -4.07% 16.88% 11.93% 14.97% 2.69% 1.45%
==========================================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 11.52% (THE
FIRST QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -5.76% (THE THIRD
QUARTER OF 1998). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
-1.91%.
20
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
HIGH INCOME FUND II -4.38% 8.11% 9.10%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35%
-----------------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03%
-----------------------------------------------------------------------------------------
CLASS B SHARES OF
HIGH INCOME FUND II -2.55%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 2.42%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 2.70%
-----------------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 2.78%
-----------------------------------------------------------------------------------------
CLASS C SHARES OF
HIGH INCOME FUND II 1.45%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 2.42%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 2.70%
-----------------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 2.78%
-----------------------------------------------------------------------------------------
CLASS Y SHARES OF
HIGH INCOME FUND II 1.76% 7.36%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 7.08%
-----------------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 7.41%
-----------------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 6.48%
=========================================================================================
</TABLE>
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE UNMANAGED.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOALS OF THE FUND.
(1) SINCE OCTOBER 6, 1999 FOR CLASS B SHARES, OCTOBER 6, 1999 FOR CLASS C SHARES
AND FEBRUARY 27, 1996 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEXES (INCLUDING INCOME) ARE
NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED FROM OCTOBER 31, 1999,
OCTOBER 31, 1999, AND FEBRUARY 29, 1996, RESPECTIVELY.
21
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
HIGH INCOME FUND II
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
<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)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
==============================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.63% 0.63% 0.63% 0.63%
------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
------------------------------------------------------------------------------
OTHER EXPENSES 0.25% 0.25% 0.25% 0.21%
------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.13% 1.88% 1.88% 0.84%
==============================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
22
<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 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 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $683 $912 $1,159 $1,865
------------------------------------------------------------------------------
Class B Shares $590 $889 $1,114 $1,998(1)
------------------------------------------------------------------------------
Class C Shares $290 $589 $1,014 $2,196
------------------------------------------------------------------------------
Class Y Shares $ 85 $267 $ 463 $1,031
------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $683 $912 $1,159 $1,865
------------------------------------------------------------------------------
Class B Shares $190 $589 $1,014 $1,998(1)
------------------------------------------------------------------------------
Class C Shares $190 $589 $1,014 $2,196
------------------------------------------------------------------------------
Class Y Shares $ 85 $267 $ 463 $1,031
==============================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
23
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
MUNICIPAL BOND FUND
(FORMERLY UNITED MUNICIPAL BOND FUND) SEEKS TO PROVIDE INCOME THAT IS NOT
SUBJECT TO FEDERAL INCOME TAX.
PRINCIPAL STRATEGY
Municipal Bond Fund seeks to achieve its goal by investing primarily in
tax-exempt municipal bonds, mainly of investment grade. The Fund may invest in
bonds of any maturity. "Municipal bonds" mean obligations the interest on which
is not includable in gross income for Federal income tax purposes. However, a
significant portion of the Fund's municipal bond interest may be subject to the
Federal alternative minimum tax ("AMT").
The Fund diversifies its holdings among two main types of municipal bonds:
- general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
- revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds include
certain private activity bonds ("PABs") and industrial development bonds
("IDBs"), which finance privately operated facilities.
WRIMCO, the Fund's investment manager, may look at a number of factors in
selecting securities for the Fund's portfolio. These include:
- the security's current coupon;
- the maturity of the security;
- the relative value of the security;
- the creditworthiness of the particular issuer or of the private company
involved; and
- the structure of the security, including whether it has a put or a call
feature.
In general, in determining whether to sell a security, WRIMCO uses the same type
of analysis that is used in buying securities in order to determine whether the
security continues to be a desired investment for the Fund. WRIMCO may also sell
a security to take advantage of more attractive investment opportunities or to
raise cash.
24
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Municipal Bond Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- prepayment of asset-backed securities or other higher-yielding bonds held by
the Fund ("prepayment risk");
- changes in the maturities of bonds owned by the Fund;
- the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB-financed projects;
- the local economic, political or regulatory environment affecting bonds owned
by the Fund;
- failure of a bond's interest to qualify as tax-exempt;
- legislation affecting the tax status of municipal bond interest;
- adverse bond and stock 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
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; this would have the effect of reducing the Fund's return
to any such investor.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Municipal Bond Fund is designed for investors seeking current income that is
primarily free from Federal income tax, through a diversified portfolio. You
should consider whether the Fund fits your particular investment objectives.
25
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
MUNICIPAL BOND FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past performance
does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.63% 13.15% 9.53% 14.30% -7.14% 20.17% 4.12% 10.23% 5.20% -5.50%
================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 8.87% (THE
FIRST QUARTER OF 1995) AND THE LOWEST QUARTERLY RETURN WAS -6.48% (THE FIRST
QUARTER OF 1994). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
3.19%.
26
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
MUNICIPAL BOND FUND -9.52% 5.60% 6.23%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89%
--------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14%
--------------------------------------------------------------------------------
CLASS B SHARES OF
MUNICIPAL BOND FUND -6.88%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
--------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14% -0.03%
--------------------------------------------------------------------------------
CLASS C SHARES OF
MUNICIPAL BOND FUND -3.05%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
--------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14% -0.03%
--------------------------------------------------------------------------------
CLASS Y SHARES OF
MUNICIPAL BOND FUND -5.42% -5.41%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% -2.07%
--------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14% -4.63%
================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 5, 1999 FOR CLASS B SHARES, OCTOBER 7, 1999 FOR CLASS C SHARES
AND DECEMBER 30, 1998 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX (INCLUDING INCOME) ARE
NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED FROM OCTOBER 31, 1999,
OCTOBER 31, 1999 AND DECEMBER 31, 1998, RESPECTIVELY.
27
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
MUNICIPAL BOND FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE) 4.25% None None None
--------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES
CHARGE (LOAD)(1) (AS A
PERCENTAGE OF LESSER OF
AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
================================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.51% 0.51% 0.51% 0.51%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.23% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.11% 0.11% 0.11% 0.24%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.85% 1.62% 1.62% 0.75%
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
28
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $508 $685 $876 $1,429
--------------------------------------------------------------------------------
Class B Shares $565 $811 $981 $1,715(1)
--------------------------------------------------------------------------------
Class C Shares $265 $511 $881 $1,922
--------------------------------------------------------------------------------
Class Y Shares $ 77 $240 $417 $ 930
--------------------------------------------------------------------------------
<CAPTION>
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $508 $685 $876 $1,429
--------------------------------------------------------------------------------
Class B Shares $165 $511 $881 $1,715(1)
--------------------------------------------------------------------------------
Class C Shares $165 $511 $881 $1,922
--------------------------------------------------------------------------------
Class Y Shares $ 77 $240 $417 $ 930
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
29
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
MUNICIPAL HIGH INCOME FUND
(FORMERLY UNITED MUNICIPAL HIGH INCOME FUND) SEEKS TO PROVIDE A HIGH LEVEL OF
INCOME THAT IS NOT SUBJECT TO FEDERAL INCOME TAX.
PRINCIPAL STRATEGY
Municipal High Income Fund seeks to achieve its goal through a diversified
portfolio consisting mainly of tax-exempt municipal bonds. These bonds are rated
primarily in the lower tier of investment grade (BBB by S&P and Baa by MIS) or
lower, including bonds rated below investment grade, junk bonds (rated BB and
lower by S&P and Ba and lower by MIS), or, if unrated, judged by WRIMCO to be of
similar quality.
"Municipal bonds" mean obligations the interest on which is not includable in
gross income for Federal income tax purposes. The Fund diversifies its holdings
among two main types of municipal bonds:
- general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
- revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds, IDBs and
PABs finance privately operated facilities.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
- the security's current coupon;
- the maturity of the security;
- the relative value of the security;
- the creditworthiness of the particular issuer or of the private company
involved; and
- the structure of the security, including whether it has a put or a call
feature.
In general, in determining whether to sell a security, WRIMCO uses the same type
of analysis that is used in buying securities in order to determine whether the
security continues to be a desired investment for the Fund. As
30
<PAGE>
well, WRIMCO may sell a security to take advantage of more attractive investment
opportunities or to raise cash.
The Fund may invest significantly in IDBs and PABs in general, revenue bonds
payable from similar projects and municipal bonds of issuers located in the same
geographic area.
The Fund typically invests in municipal bonds with remaining maturities of 10 to
30 years.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Municipal High Income Fund owns different types of securities, a variety
of factors can affect its investment performance, such as:
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB or PAB financed projects;
- changes in the maturities of bonds owned by the Fund;
- prepayment of asset-backed securities or other higher-yielding bonds held by
the Fund ("prepayment risk");
- the local economic, political or regulatory environment affecting bonds owned
by the Fund;
- failure of a bond's interest to qualify as tax-exempt;
- legislation affecting the tax status of municipal bond interest;
- adverse bond and stock 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
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; this would have the effect of reducing the Fund's return
to any such investor.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
31
<PAGE>
WHO MAY WANT TO INVEST
Municipal High Income Fund is designed for investors seeking current income that
is primarily free from Federal income tax and that is higher than is normally
available with securities in the higher-rated categories, through a highly
diversified portfolio. The Fund is not suitable for all investors. You should
consider whether the Fund fits your particular investment objectives.
32
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
MUNICIPAL HIGH INCOME FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past performance
does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.19% 11.67% 10.15% 13.19% -3.12% 16.74% 6.90% 11.77% 6.82% -5.20%
================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 8.48% (THE
FOURTH QUARTER OF 1998) AND THE LOWEST QUARTERLY RETURN WAS -3.93% (THE FIRST
QUARTER OF 1994). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
1.44%.
33
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF
MUNICIPAL HIGH INCOME FUND -9.22% 6.23% 6.96%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89%
--------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14%
--------------------------------------------------------------------------------
CLASS B SHARES OF
MUNICIPAL HIGH INCOME FUND -7.84%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
--------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14% -0.79%
--------------------------------------------------------------------------------
CLASS C SHARES OF
MUNICIPAL HIGH INCOME FUND -4.06%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
--------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14% -0.79%
--------------------------------------------------------------------------------
CLASS Y SHARES OF
MUNICIPAL HIGH INCOME FUND -5.00% -4.46%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% -2.07%
--------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14% -4.16%
================================================================================
</TABLE>
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 5, 1999 FOR CLASS B SHARES, OCTOBER 7, 1999 FOR CLASS C SHARES
AND DECEMBER 30, 1998 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX (INCLUDING INCOME) ARE
NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED FROM OCTOBER 31, 1999,
OCTOBER 31, 1999 AND DECEMBER 31, 1998, RESPECTIVELY.
34
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
MUNICIPAL HIGH INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE) 4.25% None None None
--------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES
CHARGE (LOAD)(1) (AS A
PERCENTAGE OF LESSER OF
AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
================================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.52% 0.52% 0.52% 0.52%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.23% 1.00% 1.00% None
--------------------------------------------------------------------------------
OTHER EXPENSES 0.14% 0.14% 0.14% 0.30%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.89% 1.66% 1.66% 0.82%
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
35
<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 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 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $512 $697 $ 897 $1,474
--------------------------------------------------------------------------------
Class B Shares $569 $823 $1,002 $1,759(1)
--------------------------------------------------------------------------------
Class C Shares $269 $523 $ 902 $1,965
--------------------------------------------------------------------------------
Class Y Shares $ 84 $262 $ 455 $1,014
<CAPTION>
--------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Class A Shares $512 $697 $ 897 $1,474
--------------------------------------------------------------------------------
Class B Shares $169 $523 $ 902 $1,759(1)
--------------------------------------------------------------------------------
Class C Shares $169 $523 $ 902 $1,965
--------------------------------------------------------------------------------
Class Y Shares $ 84 $262 $ 455 $1,014
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
36
<PAGE>
--------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
CASH MANAGEMENT
(FORMERLY UNITED CASH MANAGEMENT) SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH
STABILITY OF PRINCIPAL.
PRINCIPAL STRATEGIES
Cash Management seeks to achieve its goal by investing in U.S.
dollar-denominated, high-quality money market obligations and instruments. High
quality indicates that the securities will be rated A-1 or A-2 by S&P or Prime-1
or Prime-2 by MIS, or if unrated, will be of comparable quality as determined by
WRIMCO. The Fund seeks, as well, to maintain a net asset value ("NAV") of $1.00
per share. The Fund maintains a dollar-weighted average maturity of 90 days or
less, and the Fund invests only in securities with a remaining maturity of not
more than 397 calendar days.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Cash Management owns different types of money market obligations and
instruments, a variety of factors can affect its investment performance, such
as:
- an increase in interest rates, which can cause the value of the Fund's
holdings, especially securities with longer maturities, to decline;
- the credit quality and other conditions of the issuers whose securities the
Fund holds;
- adverse 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
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund.
37
<PAGE>
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
WHO MAY WANT TO INVEST
Cash Management is designed for investors who are risk-averse and seek to
preserve principal while earning current income and saving for short-term needs.
You should consider whether the Fund fits your particular investment objectives.
38
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
PERFORMANCE
CASH MANAGEMENT
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing the Fund's average annual total returns for the periods
shown.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar years.
- The performance table shows average annual total returns for each Class.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past performance
does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
[CHART]
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.77% 5.65% 3.16% 2.38% 3.47% 5.30% 4.74% 4.91% 4.97% 4.61%
================================================================================
</TABLE>
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 1.93% (THE
SECOND QUARTER OF 1990) AND THE LOWEST QUARTERLY RETURN WAS 0.54% (THE FIRST
QUARTER OF 1994). AS OF DECEMBER 31, 1999, THE 7-DAY YIELD WAS EQUAL TO 5.35%.
YIELDS ARE COMPILED BY ANNUALIZING THE AVERAGE DAILY DIVIDEND PER SHARE DURING
THE TIME PERIOD FOR WHICH THE YIELD IS PRESENTED.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES OF THE FUND 4.61% 4.91% 4.69%
--------------------------------------------------------------------------------
CLASS B SHARES OF THE FUND -3.79%
--------------------------------------------------------------------------------
CLASS C SHARES OF THE FUND 0.20%
================================================================================
</TABLE>
(1) SINCE SEPTEMBER 9, 1999 FOR CLASS B SHARES AND SEPTEMBER 9, 1999 FOR CLASS C
SHARES.
39
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FEES AND EXPENSES
CASH MANAGEMENT
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
-------------------------------------------------------------------------------
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C
YOUR INVESTMENT) SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE) None None None
--------------------------------------------------------------------------------
MAXIMUM DEFERRED
SALES CHARGE (LOAD)(1)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None 5% 1%
================================================================================
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(2)
--------------------------------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C
FROM FUND ASSETS) SHARES SHARES SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
MANAGEMENT FEES 0.40% 0.40% 0.40%
--------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES None 1.00% 1.00%
--------------------------------------------------------------------------------
OTHER EXPENSES 0.44% 0.44% 0.44%
--------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.84% 1.84% 1.84%
================================================================================
</TABLE>
(1) THE 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 YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. 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 AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING
A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE
MONTH.
(2) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED JUNE 30, 1999 AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
40
<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 or Class
C shares for each time period specified, (b) your investment has a 5% return
each year, and (c) the expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $ 86 $268 $ 466 $1,037
--------------------------------------------------------------------------------
Class B Shares $587 $879 $1,095 $1,894(1)
--------------------------------------------------------------------------------
Class C Shares $287 $579 $ 995 $2,159
<CAPTION>
--------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $ 86 $268 $466 $1,037
--------------------------------------------------------------------------------
Class B Shares $187 $579 $995 $1,894(1)
--------------------------------------------------------------------------------
Class C Shares $187 $579 $995 $2,159
================================================================================
</TABLE>
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
41
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
THE INVESTMENT PRINCIPLES OF THE FUNDS
INVESTMENT GOALS, PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
WADDELL & REED ADVISORS BOND FUND
The goal of the Fund is a reasonable return with emphasis on preservation of
capital. The Fund seeks to achieve this goal by investing primarily in a
diversified portfolio of debt securities of any quality, and to a lesser extent,
in non-investment grade securities, convertible securities and debt securities
with warrants attached. The Fund may use various techniques (e.g., investing in
put bonds) to manage the duration of its holdings. As a result, as interest
rates rise, the duration, or price sensitivity to rising interest rates, of the
Fund's holdings will typically decline. There is no guarantee that the Fund will
achieve its goal.
The Fund limits its acquisition of securities so that at least 90% of its total
assets will consist of debt securities. These debt securities primarily include
corporate bonds, mostly of investment grade, and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
The Fund may invest in junk bonds, which are more susceptible to the risk of
non-payment or default, and their prices may be more volatile than higher-rated
bonds.
As well, the Fund may invest in foreign securities, which present additional
risks such as currency fluctuations and political or economic conditions
affecting the foreign country.
When WRIMCO believes that a defensive position is desirable, due to present or
anticipated market or economic conditions, WRIMCO may take a number of actions.
It may sell longer-term bonds and buy shorter-term bonds or money market
instruments with the sales proceeds.
By taking a temporary defensive position, the Fund may not achieve its
investment objective.
42
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND
The goal of the Fund is high current income consistent with safety of principal.
The Fund seeks to achieve its goal by investing exclusively in a diversified
portfolio of U.S. Government securities. U.S. Government securities are
high-quality instruments issued or guaranteed as to principal or interest by the
U.S. Treasury or by an agency or instrumentality of the U.S. Government. There
is no guarantee that the Fund will achieve its goal.
Not all U.S. Government securities are backed by the full faith and credit of
the United States. Some are backed by the right of the issuer to borrow from the
U.S. Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agency's obligations, while others are supported only
by the credit of the instrumentality. In the case of securities not backed by
the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. The Fund may invest a significant portion of its assets in
mortgage-backed securities guaranteed by the U.S. Government or one of its
agencies or instrumentalities. The Fund invests in securities of agencies or
instrumentalities only when WRIMCO is satisfied that the credit risk is
acceptable.
Generally, in determining whether to sell a security, WRIMCO uses the same type
of analysis that is used in buying securities of that type. For example, WRIMCO
may sell a security if it believes the security no longer provides significant
income potential or if the safety of the principal is weakened. As well, WRIMCO
may sell a security to take advantage of more attractive investment
opportunities or to raise cash.
When WRIMCO believes that a temporary defensive position is desirable, the Fund
may increase its investments in U.S. Treasury securities and/or increase its
cash position. By taking a temporary defensive position, the Fund may not
achieve its investment objective.
WADDELL & REED ADVISORS HIGH INCOME FUND
WADDELL & REED ADVISORS HIGH INCOME FUND II
The primary goal of the Funds is to earn a high level of current income. As a
secondary goal, the Funds seek capital growth when consistent with the primary
goal. The Funds seek to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Funds' goals.
There is no guarantee that the Funds will achieve their goals.
43
<PAGE>
The Funds primarily own debt securities; however, each Fund may also own, to a
lesser degree, preferred stock, common stock and convertible securities. In
general, the high income that the Funds seek is paid by debt securities in the
lower rating categories of the established rating services or unrated securities
that are determined by WRIMCO to be of comparable quality; these are securities
rated BB or lower by S&P, or Ba or lower by MIS. Lower-quality debt securities,
which include 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
higher-quality securities and may decline significantly in periods of general
economic difficulty.
The Funds will each normally invest at least 80% of their respective total
assets to seek a high level of current income. The Funds each limit their
acquisition of common stock so that no more than 20% of each Fund's total assets
will consist of common stock and no more than 10% of each Fund's total assets
will consist of non-dividend-paying common stock.
The Funds may invest an unlimited amount of their assets in foreign securities.
At this time, however, the Funds intend to invest in foreign securities to a
limited extent.
When WRIMCO believes that a full or partial temporary defensive position is
desirable, due to present or anticipated market or economic conditions, WRIMCO
may take any one or more of the following steps with respect to the assets in
each Fund's portfolio:
- shorten the average maturity of the Fund's debt holdings;
- hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit) in varying amounts designed for
defensive purposes; and/or
- emphasize high-grade debt securities.
By taking a temporary defensive position in any one or more of these manners,
the Funds may not achieve their investment objectives.
WADDELL & REED ADVISORS MUNICIPAL BOND FUND
The goal of the Fund is to provide income that is not subject to Federal income
tax. The Fund seeks to achieve this goal by investing principally in a
diversified portfolio of municipal bonds. There is no guarantee that the Fund
will achieve its goal.
44
<PAGE>
As used in this Prospectus, "municipal bonds" mean obligations the interest on
which is not includable in gross income for Federal income tax purposes. The
Fund and WRIMCO rely on the opinion of bond counsel for the issuer in
determining whether obligations are municipal bonds.The Fund anticipates that
not more than 40% of the dividends it will pay to shareholders will be treated
as a tax preference item for AMT purposes.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue source. IDBs and PABs are revenue
bonds issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities. The Fund may invest more than 25% of its total
assets in IDBs.
Other municipal obligations include lease obligations of municipal authorities
or entities and participations in these obligations.
At least 80% of the Fund's net assets will be invested, during normal market
conditions, in municipal bonds of investment grade.
The Fund may invest up to 10% of its total assets in taxable debt securities
other than municipal bonds. These must be either:
- U.S. Government securities;
- obligations of domestic banks and certain savings and loan associations;
- commercial paper rated at least A by S&P or MIS; and/or
- any of the foregoing obligations subject to repurchase agreements.
Subject to its policies regarding the amount of Fund assets invested in
municipal bonds and taxable debt securities, the Fund may invest in other types
of securities and use certain other instruments in seeking to achieve the Fund's
goal. For example, the Fund may invest, to a lesser extent, 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. Income from taxable obligations, repurchase
agreements and derivative instruments will be subject to Federal income tax. At
this time, the Fund has limited exposure to futures contracts and similar
derivative instruments. The Fund does, and may in the future, hold a
45
<PAGE>
significant portion of its assets in municipal bonds for which the applicable
interest rate formula varies inversely with prevailing interest rates or
otherwise may expose the bond to greater sensitivity to interest rate changes.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to up to all of the Fund's assets, including any
one or more of the following:
- shorten the average maturity of the Fund's portfolio;
- hold taxable obligations, subject to the limitations stated above;
- emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
- hedge exposure to interest rate risk by investing in futures contracts and
options on futures contracts.
By taking a temporary defensive position, the Fund may not achieve its
investment objective.
WADDELL & REED ADVISORS MUNICIPAL HIGH INCOME FUND
The goal of the Fund is to provide a high level of income that is not subject to
Federal income tax. The Fund seeks to achieve this goal by investing in medium
and lower-quality municipal bonds that provide higher yields than bonds of
higher quality. The Fund anticipates that not more than 40% of the dividends it
will pay to shareholders will be treated as a tax preference item for AMT
purposes. There is no guarantee that the Fund will achieve its goal.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue sources. IDBs and PABs are revenue
bonds issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities. Other municipal obligations include lease
obligations of municipal authorities or entities and participations in these
obligations.
Under normal market conditions, the Fund will:
- invest substantially in bonds with remaining maturities of 10 to 30 years;
46
<PAGE>
- invest at least 80% of its total assets in municipal bonds; and
- invest at least 75% of its total assets in medium and lower-quality
municipal bonds, which are bonds rated BBB through D by S&P, or Baa through
C by MIS, or, if unrated, are determined by WRIMCO to be of comparable
quality.
The Fund may invest in higher-quality municipal bonds, and invest less than 75%
of its total assets in medium and lower-quality municipal bonds, at times when
yield spreads are narrow and the higher yields do not justify the increased
risk; and/or when, in the opinion of WRIMCO, there is a lack of medium and
lower-quality securities in which to invest.
The Fund may invest 25% or more of its total assets in IDBs and PABs, in
securities the payment of principal and interest on which is derived from
revenue of similar projects, or in municipal bonds of issuers located in the
same geographic area. The Fund will not, however, have more than 25% of its
total assets in IDBs and PABs issued for any one industry or in any one state.
During normal market conditions, the Fund may invest up to 20% of its total
assets in a combination of taxable obligations and in options, futures contracts
and other taxable derivative instruments. The taxable obligations must be
either:
- U.S. Government securities;
- obligations of domestic banks and certain savings and loan associations;
- commercial paper rated at least A by S&P or MIS; and/or
- any of the foregoing obligations subject to repurchase agreements.
The Fund may invest in certain 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. Income from taxable obligations and certain derivative instruments
will be subject to Federal income tax. At this time, the Fund has limited
exposure to derivative instruments.
At times WRIMCO may believe that a full or partial defensive position is
desirable, temporarily, due to present or anticipated market or economic
conditions that are affecting or could affect the values of municipal bonds.
During such periods, the Fund may invest up to all of its assets in taxable
obligations, which would result in a higher proportion of the Fund's income (and
thus its dividends) being subject to Federal income tax. By taking a temporary
defensive position, the Fund may not achieve its investment objective.
47
<PAGE>
WADDELL & REED ADVISORS CASH MANAGEMENT
The goal of the Fund is maximum current income consistent with stability of
principal. The Fund seeks to achieve its goal by investing in a diversified
portfolio of high-quality money market instruments in accordance with the
requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended
(the "1940 Act"). There is no guarantee that the Fund will achieve its goal.
The Fund invests only in the following U.S. dollar-denominated money market
obligations and instruments:
- U.S. government obligations (including obligations of U.S. government
agencies and instrumentalities);
- bank obligations and instruments secured by bank obligations, such as
letters of credit;
- commercial paper;
- corporate debt obligations, including variable amount master demand notes;
- Canadian government obligations; and
- certain other obligations (including municipal obligations) guaranteed as
to principal and interest by a bank in whose obligations the Fund may
invest or a corporation in whose commercial paper the Fund may invest.
The Fund only invests in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets of at least
$500 million, and instruments secured by any such obligation.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
- the credit quality of the particular issuer or guarantor of the security;
- the maturity of the security; and
- the relative value of the security.
Generally, in determining whether to sell a security, WRIMCO uses the same
analysis that it uses in buying securities to determine if the security no
longer
48
<PAGE>
offers adequate return or does not comply with Rule 2a-7. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
You will find more information in the Statement of Additional Information
("SAI") about the Fund's valuation procedures.
ALL FUNDS
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goal(s). For example, each Fund is permitted to 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.
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in its SAI.
49
<PAGE>
RISK CONSIDERATIONS OF PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
Risks exist in any investment. Each Fund is subject to market risk, financial
risk and prepayment risk.
- 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
(other than Cash Management) will likely change as well.
- Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities
in which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing the
stock.
- Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
before its expected maturity date.
Certain types of each Fund's authorized investments and strategies, such as
derivative instruments, involve special risks. Lower-quality debt securities 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 higher-quality securities and may
decline significantly in periods of general economic difficulty. Foreign
securities and foreign currencies may involve risks relating to currency
fluctuations, political or economic conditions in the foreign country, and the
potentially less stringent investor protection and disclosure standards of
foreign markets. These factors could make foreign investments, especially those
in developing countries, more volatile.
For IDBs and PABs, their credit quality is generally dependent on the credit
standing of the company involved. To the extent that Municipal Bond Fund or
Municipal High Income Fund invests in municipal bonds the payment of principal
and interest on which is derived from revenue of similar projects,
50
<PAGE>
or in municipal bonds of issuers located in the same geographic area, each Fund
may be more susceptible to the risks associated with economic, political or
regulatory occurrences that might adversely affect particular projects or areas.
Currently, Municipal High Income Fund invests a significant portion of its
assets in IDBs and PABs associated with healthcare-oriented projects. The risks
particular to these types of projects are construction risk and occupancy risk.
You will find more information in the SAI about the types of projects in which
each Fund may invest from time to time and a discussion of the risks associated
with such projects.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
51
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
YOUR ACCOUNT
CHOOSING A SHARE CLASS
Each Fund offers four classes of shares: Class A, Class B, Class C and Class Y
(except Cash Management does not offer 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. Class B and Class C shares
are not available for investments of $2 million or more. If you are investing a
lesser amount, you may want to consider Class B shares (if investing for at
least seven years) or Class C shares (if investing for less than seven 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 a
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.
52
<PAGE>
GENERAL COMPARISON OF CLASS A, CLASS B AND CLASS C SHARES
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
- Initial sales charge - No initial sales charge - No initial sales charge
--------------------------------------------------------------------------------
- No deferred sales - Deferred sales charge on - A 1% deferred sales
charge(1) shares you sell within six charge on shares you
years after purchase sell within twelve
months after
purchase
--------------------------------------------------------------------------------
- Maximum distribution - Maximum distribution and - Maximum distribution
and service (12b-1) service (12b-1) and service (12b-1)
fees of 0.25% fees of 1.00% fees of 1.00%
--------------------------------------------------------------------------------
- For an investment of - Converts to Class A shares - Does not convert to
$2 million or more, 8 years after the month in Class A shares, so
only Class A shares which the shares were annual expenses do
are available purchased, thus reducing not decrease
future annual expenses
--------------------------------------------------------------------------------
- For an investment of
$300,000 or more,
your financial advisor
typically will recommend
purchase of Class A shares
due to a reduced sales
charge and lower annual
expenses
===============================================================================
</TABLE>
(1)A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES THAT
ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
53
<PAGE>
GENERAL COMPARISON OF CLASS A, CLASS B AND CLASS C SHARES
CASH MANAGEMENT
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------
<S> <C> <C>
No initial sales charge No initial sales charge No initial sales charge
--------------------------------------------------------------------------------
Funds Plus Service Funds Plus Service Funds Plus Service
optional required for required for
direct investment direct investment
--------------------------------------------------------------------------------
Deferred sales charge A 1% deferred sales
on shares you sell charge on shares
within six years you sell within
twelve months
--------------------------------------------------------------------------------
No distribution and Maximum distribution Maximum distribution
service (12b-1) fees and service (12b-1) fees and service (12b-1)
of 1.00% fees of 1.00%
--------------------------------------------------------------------------------
For an investment of Converts to Class A shares Does not convert to
$2,000,000 or more 8 years after the month Class A shares, so
only Class A shares in which the shares were annual expenses
are available purchased, thus reducing do not decrease
future annual expenses
===============================================================================
</TABLE>
Effective June 30, 2000, Cash Management Waddell & Reed Money Market C shares
are closed to all investments other than re-invested dividends.
EACH 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 other than Cash Management Class A. Under
the Class A Plan, each 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, each 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 ongoing basis, over time
these fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
54
<PAGE>
CLASS A SHARES are subject to an initial sales charge when you buy them (other
than Cash Management), based on the amount of your investment, according to the
tables 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.
BOND FUND
HIGH INCOME FUND
HIGH INCOME FUND II
SIZE OF PURCHASE
<TABLE>
<CAPTION>
SALES CHARGE REALLOWANCE
AS APPROX. TO DEALERS
SALES CHARGE PERCENT OF AS PERCENT
AS PERCENT OF AMOUNT OF OFFERING
OFFERING PRICE INVESTED PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 5.75% 6.10% 5.00%
--------------------------------------------------------------------------------
$100,000 to less than $200,000 4.75 4.99 4.00
--------------------------------------------------------------------------------
$200,000 to less than $300,000 3.50 3.63 2.80
--------------------------------------------------------------------------------
$300,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.20
--------------------------------------------------------------------------------
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
--------------------------------------------------------------------------------
$2,000,000 and over 0.00(1) 0.00(1) 0.50
===============================================================================
</TABLE>
(1)NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $2
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS A FUND MAY IMPOSE A CDSC OF 1.00%
ON CERTAIN REDEMPTIONS MADE WITHIN TWELVE MONTHS OF THE PURCHASE. THE CDSC IS
ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET VALUE OR
THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES CHARGE IS IMPOSED
ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL PURCHASE PRICE.
55
<PAGE>
GOVERNMENT SECURITIES FUND
MUNICIPAL BOND FUND
MUNICIPAL HIGH INCOME FUND
SIZE OF PURCHASE
<TABLE>
<CAPTION>
SALES CHARGE REALLOWANCE
AS APPROX. TO DEALERS
SALES CHARGE PERCENT OF AS PERCENT
AS PERCENT OF AMOUNT OF OFFERING
OFFERING PRICE INVESTED PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 4.25% 4.44% 3.60%
--------------------------------------------------------------------------------
$100,000 to less than $300,000 3.25 3.36 2.75
--------------------------------------------------------------------------------
$300,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.20
--------------------------------------------------------------------------------
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
--------------------------------------------------------------------------------
$2,000,000 and over 0.00(1) 0.00(1) 0.50
===============================================================================
</TABLE>
(1)NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $2
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A CDSC OF
1.00% ON CERTAIN REDEMPTIONS MADE WITHIN TWELVE MONTHS OF THE PURCHASE. THE CDSC
IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT MARKET VALUE OR
THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO SALES CHARGE IS IMPOSED
ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL PURCHASE PRICE.
Waddell & Reed, Inc. and its affiliates may pay additional compensation from its
own resources to securities dealers based upon the value of shares of the Fund
owned by the dealer for its own account or for its customers. Waddell & Reed,
Inc. may also provide compensation from its own resources to securities dealers
with respect to the other shares of the Fund purchased by customers of such
dealers without payment of a sales charge.
SALES CHARGE REDUCTIONS AND WAIVERS
LOWER SALES CHARGES ARE AVAILABLE BY:
- Combining additional purchases of Class A shares of any of the funds in the
Waddell & Reed Advisors Funds and/or the W&R Funds except shares of Waddell &
Reed Advisors Cash Management (formerly United Cash Management) or Class A
shares of W&R Funds Money Market Fund 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 ("NAV") of Class A shares
already held ("Rights of Accumulation");
- Grouping all purchases of Class A shares, except shares of Waddell & Reed
Advisors Cash Management or W&R Funds Money Market Fund, made during a
thirteen-month period ("Letter of Intent"); and
56
<PAGE>
- Grouping purchases by certain related persons.
Additional information and applicable forms are available from your financial
advisor.
WAIVERS FOR CERTAIN INVESTORS
CLASS A SHARES MAY BE PURCHASED AT NAV BY:
- The Directors and officers of the Fund or of any affiliated entity of Waddell
& Reed, Inc., employees of Waddell & Reed, Inc., employees of its affiliates,
financial advisors of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each;
- Certain retirement plans and certain trusts for these persons; and
- Until March 31, 2001, clients of Legend Equities Corporation ("Legend") if
the purchase is made with the proceeds of the redemption of shares of a
mutual fund which is not within the Waddell & Reed Advisors Funds or W&R
Funds and the purchase is made within 60 days of such redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
CONTINGENT DEFERRED SALES CHARGE. A CDSC may be assessed against your redemption
amount of Class B or Class C shares or certain Class A shares and paid to
Waddell & Reed, Inc. (the "Distributor"), as further described below. The
purpose of the CDSC is to compensate the Distributor for the costs incurred by
it in connection with the sale of the Fund's Class B or Class C shares or with
Class A investments of $2 million or more at NAV. The CDSC will not be imposed
on shares representing payment of dividends or other 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 the shares purchased during
the CDSC period. For Class B, the date of redemption is measured in calendar
months from the month of purchase. Solely for purposes of determining the number
of months or years from the time of any payment for the purchase of shares, all
payments during a month are totaled and deemed to have been made on the first
day of the month. 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.
57
<PAGE>
Unless instructed otherwise, a Fund, when requested to redeem a specific dollar
amount, will redeem additional shares of the applicable class that are 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 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 purchased Class A shares.
Class B shares, and any dividends and distributions paid on such shares,
automatically convert to Class A shares eight years after the end of the month
in which the shares were purchased. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The Class A shares have lower ongoing expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
ON SHARES SOLD WITHIN YEAR AS % OF AMOUNT SUBJECT TO CHARGE
--------------------------------------------------------------------------------
<S> <C>
1 5.0%
--------------------------------------------------------------------------------
2 4.0%
--------------------------------------------------------------------------------
3 3.0%
--------------------------------------------------------------------------------
4 3.0%
--------------------------------------------------------------------------------
5 2.0%
--------------------------------------------------------------------------------
6 1.0%
--------------------------------------------------------------------------------
7+ 0.0%
--------------------------------------------------------------------------------
</TABLE>
In the table, a "year" is a 12-month period. In applying the sales charge, all
purchases are considered to have been made on the first day of the month in
which the purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%, the
rate applicable to redemptions made within the second year of
58
<PAGE>
purchase. All Class B purchases made prior to July 1, 2000, will be
automatically accelerated to the revised method of calculating the CDSC. Any
purchase made in 1999 will be deemed to have been made on December 1, 1998. Any
purchase made from January 1, 2000 to June 30, 2000 will be deemed to have been
made on December 1, 1999.
CLASS C SHARES are not subject to an initial sales charge when you buy them, but
if you sell your Class C shares within twelve months after purchase, you will
pay a 1% CDSC. For purposes of the 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 purchased Class A shares. Class C shares do not convert to any other class.
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:
- redemptions of 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.
- redemptions of 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.
- redemptions of shares purchased by current or retired Directors of the Fund,
and Directors of affiliated companies, current or retired officers or
employees of the Fund, WRIMCO, the Distributor or their affiliated companies,
financial advisors of Waddell & Reed, Inc., and by the members of immediate
families of such persons.
59
<PAGE>
- redemptions of 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.)
- redemptions the proceeds of which are reinvested within forty-five days in
shares of the same class of the Fund as that redeemed.
- the exercise of certain exchange privileges.
- redemptions effected pursuant to each Fund's right (other than High Income
Fund ) to liquidate a shareholder's shares if the aggregate NAV of those
shares is less than $500, or $250 for Cash Management.
- redemptions effected by another registered investment company by virtue of a
merger or other reorganization with a Fund or by a former shareholder of such
investment company of shares of a Fund acquired pursuant to such
reorganization.
These exceptions may be modified or eliminated by a 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 notice.
CLASS Y SHARES are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
- 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;
- banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
- government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
- certain retirement plans and trusts for employees and financial advisors of
Waddell & Reed, Inc. and its affiliates.
60
<PAGE>
WAYS TO SET UP YOUR ACCOUNT
The different ways to set up (register) your account are listed below.
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 PLANS
TO SHELTER YOUR RETIREMENT SAVINGS FROM INCOME TAXES
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
- INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow a certain individual under age
70 1/2, with earned income, to invest up to $2,000 per tax year. The maximum
for an investor and his or her spouse is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year.
- IRA ROLLOVERS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- ROTH IRAs allow certain individuals to make nondeductible contributions up to
$2,000 per 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. Withdrawals of earnings may be
tax free if the account is at least five years old and certain other
requirements are met.
- EDUCATION IRAs are established for the benefit of a minor, with nondeductible
contributions up to $500 per year, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
- SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAs) provide business owners or those
with self-employed income (and their eligible employees) with many of the
same advantages as a Profit Sharing Plan, but with fewer administrative
requirements.
61
<PAGE>
- SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS) can be established
by small employers to contribute to and allow their employees to contribute a
portion of their wages pre-tax to retirement accounts. This plan-type
generally involves fewer administrative requirements than 401(k) or other
qualified plans.
- 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.
- 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.
- 403(b) CUSTODIAL ACCOUNTS are available to employees of public school
systems, churches and certain types of charitable organizations.
- 457 ACCOUNTS allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
GIFTS OR TRANSFERS TO A MINOR
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Transfers to Minors Act ("UTMA") or the Uniform Gifts
to Minors Act ("UGMA").
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 EACH OF THE FUNDS through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend. To open your account you must
complete and sign an application. Your financial advisor can help you with any
questions you might have.
62
<PAGE>
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 (AND CLASS A SHARES OF CASH MANAGEMENT) BY WIRE, you
must first obtain an account number by calling 800-366-2520, then mail a
completed application to Waddell & Reed, Inc., at the above address, 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, for the account of Waddell & Reed Number 9800007978, Special Account
for Exclusive Benefit of Customers FBO Customer Name and Account Number.
You may also buy Class Y shares of a 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 FUND SHARE is its offering price, which 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 per share of that class plus, for Class A shares, the
sales charge shown in the tables.
In the calculation of a Fund's NAV:
- The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
- Bonds are generally valued according to prices quoted by an independent
pricing service.
- Short-term debt securities are valued at amortized cost, which approximates
market value.
- 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.
63
<PAGE>
EACH FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (the "NYSE")
is open. The Funds normally calculate their NAVs as of the close of business of
the NYSE, normally 4 p.m. Eastern time, except that an option or futures
contract held by a Fund may be priced at the close of the regular session of any
other securities exchange on which that instrument is traded.
The Funds 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
a Fund does not price its shares and when you are not able to purchase or redeem
a 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 each Fund's 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:
- All of your purchases must be made in U.S. dollars.
- If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the Waddell & Reed Advisors Funds and/or
W&R Funds, the payment may be delayed for up to ten days to ensure that your
previous investment has cleared.
- The Funds do not issue certificates representing Class B, Class C or Class Y
shares. Cash Management also does not normally issue certificates
representing Class A shares.
- If you purchase shares of a 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 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 a Fund at that day's
price.
64
<PAGE>
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Funds reserve the right to discontinue
offering Fund shares for purchase.
MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
FOR CLASS A, CLASS B AND CLASS C:
<S> <C>
TO OPEN AN ACCOUNT $500 (per Fund)
-----------------------------------------------------------------------------------
For certain exchanges $100 (per Fund)
-----------------------------------------------------------------------------------
For certain retirement accounts and accounts opened
with Automatic Investment Service $50 (per Fund)
-----------------------------------------------------------------------------------
For certain retirement accounts and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25 (per Fund)
-----------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
-----------------------------------------------------------------------------------
For certain exchanges $100 (per Fund)
-----------------------------------------------------------------------------------
For Automatic Investment Service $25 (per Fund)
-----------------------------------------------------------------------------------
<CAPTION>
FOR CLASS Y:
<S> <C>
TO OPEN AN ACCOUNT
-----------------------------------------------------------------------------------
For a government entity or authority $10 million
or for a corporation (within first twelve months)
-----------------------------------------------------------------------------------
For other investors Any amount
-----------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
===================================================================================
</TABLE>
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:
- the detachable form that accompanies the confirmation of a prior purchase or
your year-to-date statement; or
65
<PAGE>
- a letter stating your account number, the account registration, the Fund and
the class of shares that you wish to purchase.
TO ADD TO YOUR CLASS Y ACCOUNT (OR YOUR CLASS A CASH MANAGEMENT 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, for
the account of Waddell & Reed Number 9800007978, Special Account for Exclusive
Benefit of Customers FBO Customer Name and Account Number.
If you purchase shares of the Funds from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
SELLING SHARES
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The REDEMPTION PRICE (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
A, Class B or Class C shares.
TO SELL SHARES BY WRITTEN REQUEST: Complete an Account Service Request form,
available from your financial advisor, or write a letter of instruction with:
- the name on the account registration;
- the Fund's name;
- the Fund account number;
- the dollar amount or number, and the class, of shares to be redeemed; and
- any other applicable requirements listed in the table below.
Deliver the form or your letter to your 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.
66
<PAGE>
TO SELL CLASS Y SHARES OR CLASS A SHARES OF CASH MANAGEMENT BY TELEPHONE OR FAX:
If you have elected this method in your application or by subsequent
authorization, call 888-WADDELL, or fax your request to 913-236-1599, 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.
TO SELL CLASS A SHARES OF CASH MANAGEMENT OR GOVERNMENT SECURITIES BY CHECK: If
you have elected this method in your application or by subsequent authorization,
the Fund will provide you with forms or checks drawn on UMB Bank, n.a. You may
make these checks payable to the order of any payee in any amount of $250 or
more.
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
listed above. Note the following:
- If more than one person owns the shares, each owner must sign the written
request.
- If you hold a certificate, it must be properly endorsed and sent to the Fund.
- If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance 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.
- Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission.
- Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when a Fund's Board of
Directors determines that conditions exist making cash payments undesirable.
A Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its NAV during any 90-day period for any one shareholder.
67
<PAGE>
- If you purchased 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
shares when that firm (or its designee) has received your order. Your order
will receive the NAV of the applicable Class subject to any applicable CDSC
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 shares at that
day's price.
SPECIAL REQUIREMENTS FOR SELLING SHARES
<TABLE>
<CAPTION>
ACCOUNT TYPE SPECIAL REQUIREMENTS
--------------------------------------------------------------------------------
<S> <C>
Individual The written instructions must be
or Joint Tenant signed by all persons required to sign for
transactions, exactly as their names appear on the
account.
--------------------------------------------------------------------------------
Sole The written instructions must be
Proprietorship signed by the individual owner of the business.
--------------------------------------------------------------------------------
UGMA, The custodian must sign the written instructions
UTMA indicating capacity as custodian.
--------------------------------------------------------------------------------
Retirement The written instructions must be signed by a
Account 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 At least one person authorized by
or Organization corporate resolution to act on the account must sign
the written instructions.
--------------------------------------------------------------------------------
Conservator, Guardian or The written instructions must be signed by the
Other Fiduciary person properly authorized by court order to act in
the particular fiduciary capacity.
================================================================================
</TABLE>
A Fund may require a signature guarantee in certain situations such as:
- a redemption request made by a corporation, partnership or fiduciary;
- a redemption request made by someone other than the owner of record; or
- the check is made payable to someone other than the owner of record.
This requirement is 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.
68
<PAGE>
EACH FUND RESERVES THE RIGHT TO REDEEM at NAV all of your Fund shares (other
than High Income Fund) in your account if their aggregate NAV is less than $500,
or $250 for Cash Management. 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, or $250 for Cash Management. Cash
Management may charge a fee of $1.75 per month on all accounts with a NAV of
less than $250, except for retirement plan accounts.
YOU MAY REINVEST, without charge, all or part of the amount of Class A shares of
a Fund you redeemed by sending to the Fund the amount you want to reinvest. The
reinvested amounts must be received by the Fund within forty-five days after the
date of your redemption. You may do this only once with Class A shares of a
Fund.
The CDSC will not apply to the proceeds of Class A (as applicable), Class B or
Class C shares of a Fund which are redeemed and then reinvested in Class A,
Class B or Class C shares, as applicable, of the Fund within forty-five 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 A shares of a Fund, once
as to Class B shares of a Fund and once as to Class C shares of a Fund.
Payments of principal and interest on loans made pursuant to a 401(a) qualified
plan (if such loans are permitted by the plan) may be reinvested, without
payment of a sales charge, in Class A shares of any Waddell & Reed Advisors Fund
in which the plan may invest.
TELEPHONE TRANSACTIONS
The Funds and their agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. Each Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If a 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.
69
<PAGE>
SHAREHOLDER SERVICES
Waddell & Reed provides a variety of services to help you manage your account.
PERSONAL SERVICE
Your local financial advisor is available to provide personal service.
Additionally, a toll-free call, 800-366-5465, connects you to a Client Services
Representative or our automated customer telephone service. During normal
business hours, our Client Services staff is available to answer your questions
or update your account records. At almost any time of the day or night, you may
access your account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
- Obtain information about your accounts;
- Obtain price information about other funds in the Waddell & Reed Advisors
Funds and/or W&R Funds; or
- Request duplicate statements.
REPORTS
Statements and reports sent to you include the following:
- confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
- year-to-date statements (quarterly)
- annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports of the Funds may be mailed to your household, even if you have more than
one account with a Fund. Call the telephone number listed for Client Services 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 another Fund in the
Waddell & Reed Advisors Funds or in W&R Funds 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 or Class A
shares to which the CDSC would otherwise apply, the time period for the deferred
sales charge will continue to run. In addition, exchanging Class Y shareholders
in the Waddell & Reed Advisors Funds may buy Class A shares of Waddell & Reed
Advisors Cash Management.
70
<PAGE>
You may exchange any Class A shares of the Government Securities, Municipal Bond
and Municipal High Income Funds that you have held for at least six months and
any Class A shares of these Funds acquired as payment of a dividend or
distribution for Class A shares of any other fund in the Waddell & Reed Advisors
Funds. You may exchange any Class A shares of the Government Securities,
Municipal Bond and Municipal High Income Funds that you have held for less than
six months only for Class A shares of Government Securities, Municipal Bond, and
Municipal High Income Funds and Cash Management.
You may exchange only into funds that are legally permitted for sale in your
state of residence. Note that exchanges out of a Fund may have tax consequences
for you. Before exchanging into a fund, read its prospectus.
THE FUNDS RESERVE 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, or
between fund accounts, 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 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 (per Fund) Monthly
--------------------------------------------------------------------------------
</TABLE>
FUNDS PLUS SERVICE
TO MOVE MONEY FROM WADDELL & REED ADVISORS CASH MANAGEMENT TO A FUND WHETHER
IN THE SAME OR A DIFFERENT ACCOUNT IN THE SAME CLASS
<TABLE>
<CAPTION>
MINIMUM AMOUNT MINIMUM FREQUENCY
<S> <C>
$100 (per Fund) Monthly
--------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, a Fund distributes net investment income at the following times: Bond
Fund, High Income Fund, and Municipal Bond Fund, monthly; Cash Management,
Government Securities Fund, Municipal High Income Fund and High Income Fund II,
daily. Dividends declared for a particular day are paid to shareholders of
record on the prior business day. However, dividends delared for Saturday and
Sunday are paid to shareholders of record on the preceeding Thursday. 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. Each Fund offers two 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. 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 a 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 a Fund's investment company taxable
income (which includes net short-term gains), if any, generally are taxable to
you as ordinary income whether received in cash or paid in additional Fund
shares. Distributions of a 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
72
<PAGE>
owned your shares. For Federal income tax purposes, your long-term capital
gains generally are taxed at a maximum rate of 20%.
Each 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 a 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 a 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. Each 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 Waddell & Reed Advisors Funds or W&R Funds generally will have similar tax
consequences. However, special rules apply when you dispose of a Fund's Class A
shares through a redemption or exchange within ninety days after your purchase
and then reacquire Class A shares of that Fund or acquire Class A shares of
another fund in the Waddell & Reed Advisors Funds without paying a sales charge
due to the forty-five day reinvestment privilege or exchange privilege. See
"Your Account." In these cases, any gain on the disposition of the original Fund
shares will 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
shares of a Fund within thirty days before or after redeeming other shares of
the Fund (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.
For Municipal Bond Fund and Municipal High Income Fund, interest on indebtedness
incurred or continued to purchase or carry shares of the Fund
73
<PAGE>
will not be deductible for Federal income tax purposes to the extent the Fund's
distributions consist of exempt-interest dividends. Proposals may be introduced
before Congress for the purpose of restricting or eliminating the Federal income
tax exemption for interest on municipal bonds. If such a proposal were enacted,
the availability of municipal bonds for investment by the Fund and the value of
its portfolio would be affected. In that event, the Fund may decide to
reevaluate its investment goal and policies.
STATE AND LOCAL INCOME TAXES. The portion of the dividends paid by each Fund
attributable to interest earned on U.S. Government securities generally is not
subject to state and local income taxes, although distributions by any 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 Funds in your state and
locality.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; you will find
more information in the Fund's 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.
74
<PAGE>
[GRAPHIC]
-------------------------------------------------------------------------------
THE MANAGEMENT OF THE FUNDS
PORTFOLIO MANAGEMENT
Each Fund is managed by WRIMCO, subject to the authority of each Fund's Board of
Directors. WRIMCO provides investment advice to each of the Funds and supervises
each Fund's investments. WRIMCO and/or its predecessor have served as investment
manager to each of the registered investment companies in the Waddell & Reed
Advisors Funds, W&R Funds and Target/United Funds since the inception of each
company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
James C. Cusser is primarily responsible for the management of the Bond Fund and
the Government Securities Fund. Mr. Cusser has held his Fund responsibilities
since September 1992 for Bond Fund and since January 1997 for Government
Securities Fund. He is Vice President of WRIMCO, Vice President of the Funds and
Vice President of other investment companies for which WRIMCO serves as
investment manager. Mr. Cusser has served as the portfolio manager for the Funds
and other investment companies managed by WRIMCO and has been an employee of
WRIMCO since August 1992.
Louise D. Rieke is primarily responsible for the management of the High Income
Fund and High Income Fund II. Ms. Rieke has held her Fund responsibilities for
High Income Fund since January 1990, and for High Income Fund II from the Fund's
inception to January 1990 and from May 1992 to the present. She is Vice
President of WRIMCO, Vice President of the Funds and Vice President of other
investment companies for which WRIMCO serves as investment manager. From
November 1985 to March 1998, Ms. Rieke was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company, a former affiliate of
WRIMCO. Ms. Rieke has served as the portfolio manager for investment companies
managed by WRIMCO and its predecessor since July 1986 and has been an employee
of such since May 1971.
Bryan J. Bailey is primarily responsible for the management of the Municipal
Bond Fund. Mr. Bailey has held his Fund responsibilities since June 14, 2000. He
is Vice President of WRIMCO and Vice President of the Fund. Mr. Bailey has
served as the Assistant Portfolio Manager for investment companies managed by
WRIMCO since January 1999 and has been an employee of WRIMCO since July 1993.
75
<PAGE>
Mark Otterstrom is primarily responsible for the management of the Municipal
High Income Fund. Mr. Otterstrom has held his Fund responsibilities since June
14, 2000. He is Vice President of WRIMCO and Vice President of the Fund. Mr.
Otterstrom has served as the Assistant Portfolio Manager for investment
companies managed by WRIMCO and its predecessor since January 1995 and has been
an employee of WRIMCO since May 1987.
Mira Stevovich is primarily responsible for the management of Cash Management.
Ms. Stevovich has held her Fund responsibilities since May 1998. She is Vice
President of WRIMCO, Vice President and Assistant Treasurer of the Fund and Vice
President and Assistant Treasurer of other investment companies for which WRIMCO
serves as investment manager. Ms. Stevovich has served as the Assistant
Portfolio Manager for investment companies managed by WRIMCO and its predecessor
since January 1989 and has been an employee of such since March 1987.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
MANAGEMENT FEE
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable at the annual rates of:
- for Bond Fund, 0.525% of net assets up to $500 million, 0.50% of net assets
over $500 million and up to $1 billion, 0.45% of net assets over $1 billion
and up to $1.5 billion, and 0.40% of net assets over $1.5 billion.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended December 31, 1999 were 0.47%;
- for Government Securities Fund, 0.50% of net assets up to $500 million,
0.45% of net assets over $500 million and up to $1 billion, 0.40% of net
assets over $1 billion and up to $1.5 billion, and 0.35% of net assets over
$1.5 billion. Management fees for the Fund as a percent of the Fund's net
assets for the fiscal year ended March 31, 2000 were 0.47%;
76
<PAGE>
- for High Income Fund, 0.625% of net assets up to $500 million, 0.60% of net
assets over $500 million and up to $1 billion, 0.55% of net assets over $1
billion and up to $1.5 billion, and 0.50% of net assets over $1.5 billion.
Management fees for the Fund as a percent of the Fund's net assets for the
fiscal year ended March 31, 2000 were 0.60%;
- for High Income Fund II, 0.625% of net assets up to $500 million, 0.60% of
net assets over $500 million and up to $1 billion, 0.55% of net assets over
$1 billion and up to $1.5 billion, and 0.50% of net assets over $1.5
billion. Management fees for the Fund as a percent of the Fund's net assets
for the fiscal year ended September 30, 1999 were 0.56%;
- for Municipal Bond Fund, 0.525% of net assets up to $500 million, 0.50% of
net assets over $500 million and up to $1 billion, 0.45% of net assets over
$1 billion and up to $1.5 billion, and 0.40% of net assets over $1.5
billion. Management fees for the Fund as a percent of the Fund's net assets
for the fiscal year ended September 30, 1999 were 0.44%;
- for Municipal High Income Fund, 0.525% of net assets up to $500 million,
0.50% of net assets over $500 million and up to $1 billion, 0.45% of net
assets over $1 billion and up to $1.5 billion, and 0.40% of net assets over
$1.5 billion. Management fees for the Fund as a percent of the Fund's net
assets for the fiscal year ended September 30, 1999 were 0.50%; and
- for Cash Management, at the annual rate of 0.40% of net assets.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to change
or modify this waiver.
77
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance of
each Fund's Class A, Class B, Class C and Class Y (other than for Cash
Management) shares for the fiscal periods shown. Certain information reflects
financial results for a single Fund share. "Total return" shows how much your
investment would have increased (or decreased) during each period, assuming
reinvestment of all dividends and distributions.
78
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
BOND FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1999, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.39 $6.32 $6.14 $6.34 $5.62
------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.35 0.38 0.39 0.39 0.40
Net realized and
unrealized gain
(loss) on investments (0.42) 0.07 0.19 (0.20) 0.72
------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.07) 0.45 0.58 0.19 1.12
------------------------------------------------------------------------------------------------------------
Less distributions from
net investment income (0.35) (0.38) (0.40) (0.39) (0.40)
------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.97 $6.39 $6.32 $6.14 $6.34
<CAPTION>
CLASS A RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return(2) -1.08% 7.27% 9.77% 3.20% 20.50%
Net assets, end of
period (in millions) $501 $551 $524 $519 $563
Ratio of expenses
to average net assets 0.95% 0.84% 0.77% 0.77% 0.74%
Ratio of net investment
income to average
net assets 5.72% 5.88% 6.34% 6.34% 6.54%
Portfolio turnover rate 34.12% 33.87% 35.08% 55.74% 66.38%
=============================================================================================================
</TABLE>
(1) ON JUNE 17, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
79
<PAGE>
------------------------------------------------------------------------------
BOND FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
9/9/99(1) TO
12/31/99
CLASS B PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $6.05
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10
Net realized and unrealized loss on investments (0.08)
------------------------------------------------------------------------------
Total from investment operations 0.02
------------------------------------------------------------------------------
Less distributions from net investment income (0.10)
------------------------------------------------------------------------------
Net asset value, end of period $5.97
<CAPTION>
CLASS B RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 0.30%
Net assets, end of period (in millions) $ 2
Ratio of expenses to average net assets 1.91%(2)
Ratio of net investment income to average net assets 4.93%(2)
Portfolio turnover rate 34.12%(2)
==============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
80
<PAGE>
------------------------------------------------------------------------------
BOND FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
9/9/99(1) TO
12/31/99
CLASS C PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $6.05
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10
Net realized and unrealized loss on investments (0.09)
---------------------------------------------------------------------------------
Total from investment operations 0.01
---------------------------------------------------------------------------------
Less distributions from net investment income (0.10)
---------------------------------------------------------------------------------
Net asset value, end of period $5.96
CLASS C RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 0.13%
Net assets, end of period (in thousands) $289
Ratio of expenses to average net assets 1.98%(2)
Ratio of net investment income to average net assets 4.87%(2)
Portfolio turnover rate 34.12%(2)
==================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
81
<PAGE>
------------------------------------------------------------------------------
BOND FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
ENDED DECEMBER 31, PERIOD FROM
----------------------------------------------------------- 6/19/95(1) TO
1999 1998 1997 1996 12/31/95
CLASS Y PER-SHARE DATA
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $6.39 $6.32 $6.14 $6.34 $6.11
---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.40 0.39 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments (0.45) 0.07 0.17 (0.20) 0.22
---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (0.05) 0.46 0.59 0.20 0.43
---------------------------------------------------------------------------------------------------------------------------
Less distributions from net
investment income (0.37) (0.39) (0.41) (0.40) (0.20)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.97 $6.39 $6.32 $6.14 $6.34
<CAPTION>
CLASS Y RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return -0.81% 7.54% 9.91% 3.35% 7.20%
Net assets, end of period
(in millions) $2 $6 $5 $12 $3
Ratio of expenses to
average net assets 0.69% 0.61% 0.64% 0.62% 0.63%(2)
Ratio of net investment
income to average net assets 6.00% 6.10% 6.48% 6.52% 6.41%(2)
Portfolio turnover rate 34.12% 33.87% 35.08% 55.74% 66.38%(2)
============================================================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
82
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended March 31, 2000, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
CLASS A PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.43 $5.46 $5.19 $5.32 $5.13
--------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.31 0.32 0.33 0.33 0.34
Net realized and unrealized
gain (loss) on investments (0.21) (0.03) 0.27 (0.13) 0.19
--------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.10 0.29 0.60 0.20 0.53
--------------------------------------------------------------------------------------------------------------------------
Less dividends declared from
net investment income (0.31) (0.32) (0.33) (0.33) (0.34)
--------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $5.22 $5.43 $5.46 $5.19 $5.32
CLASS A RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return(2) 1.82% 5.44% 11.84% 3.75% 10.48%
Net assets, end of
period (in millions) $117 $134 $131 $129 $146
Ratio of expenses
to average net assets 1.12% 0.96% 0.89% 0.91% 0.83%
Ratio of net investment income
to average net assets 5.77% 5.82% 6.14% 6.17% 6.34%
Portfolio turnover rate 26.78% 37.06% 35.18% 34.18% 63.05%
============================================================================================================================
</TABLE>
(1) ON JULY 31, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
83
<PAGE>
------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $5.25
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13
Net realized and unrealized loss on investments (0.03)
-------------------------------------------------------------------------------------
Total from investment operations 0.10
-------------------------------------------------------------------------------------
Less dividends declared from net investment income (0.13)
-------------------------------------------------------------------------------------
Net asset value, end of period $5.22
<CAPTION>
CLASS B RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 1.88%
Net assets, end of period (in thousands) $599
Ratio of expenses to average net assets 1.85%(2)
Ratio of net investment income to average net assets 5.19%(2)
Portfolio turnover rate 26.78%(2)
======================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
84
<PAGE>
GOVERNMENT SECURITIES FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
` PERIOD FROM
10/8/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $5.23
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized loss on investments (0.01)
-----------------------------------------------------------------------------
Total from investment operations 0.11
-----------------------------------------------------------------------------
Less dividends declared from net investment income (0.12)
-----------------------------------------------------------------------------
Net asset value, end of period $5.22
<CAPTION>
CLASS C RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 2.08%
Net assets, end of period (in thousands) $269
Ratio of expenses to average net assets 2.07%(2)
Ratio of net investment income to average net assets 4.98%(2)
Portfolio turnover rate 26.78%(2)
=============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
85
<PAGE>
GOVERNMENT SECURITIES FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
ENDED MARCH 31, PERIOD FROM
------------------------------------------------------------ 9/27/95(1) TO
2000 1999 1998 1997 3/31/96
CLASS Y PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.43 $5.46 $5.19 $5.32 $5.33
---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33 0.33 0.34 0.34 0.17
Net realized and
unrealized gain (loss)
on investments (0.21) (0.03) 0.27 (0.13) (0.01)
---------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.12 0.30 0.61 0.21 0.16
---------------------------------------------------------------------------------------------------------------------------
Less dividends declared
from net investment income (0.33) (0.33) (0.34) (0.34) (0.17)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $5.22 $5.43 $5.46 $5.19 $5.32
<CAPTION>
CLASS Y RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return 2.20% 5.71% 12.02% 3.99% 3.04%
Net assets, end of period
(in millions) $2 $2 $2 $1 $1
Ratio of expenses to
average net assets 0.75% 0.68% 0.66% 0.67% 0.60%(2)
Ratio of net investment
income to average net assets 6.15% 6.10% 6.37% 6.41% 6.40%(2)
Portfolio turnover rate 26.78% 37.06% 35.18% 34.18% 63.05%(2)
==============================================================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
86
<PAGE>
[GRAPHIC]
-------------------------------------------------------------------------------
HIGH INCOME FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended March 31, 2000, is included in the Fund's SAI, which is available upon
request.
For a Class A share outstanding throughout each period1:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------
2000 1999 1998 1997 1996
CLASS A PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.39 $10.04 $9.25 $9.09 $8.70
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.78 0.81 0.82 0.80 0.79
Net realized and
unrealized gain (loss)
on investments (0.84) (0.66) 0.79 0.16 0.40
--------------------------------------------------------------------------------
Total from investment
operations (0.06) 0.15 1.61 0.96 1.19
--------------------------------------------------------------------------------
Less dividends from net
investment income (0.79) (0.80) (0.82) (0.80) (0.80)
--------------------------------------------------------------------------------
Net asset value,
end of period $8.54 $9.39 $10.04 $9.25 $9.09
<CAPTION>
CLASS A RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return(2) -0.65% 1.70% 18.03% 10.94% 14.16%
Net assets, end of
period (in millions) $826 $1,009 $1,102 $983 $972
Ratio of expenses
to average net assets 1.04% 0.94% 0.84% 0.89% 0.85%
Ratio of net investment
income to average
net assets 8.65% 8.44% 8.38% 8.68% 8.74%
Portfolio turnover rate 41.55% 53.19% 63.40% 53.17% 41.67%
================================================================================
</TABLE>
(1) ON JULY 31, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
87
<PAGE>
HIGH INCOME FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $8.84
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36
Net realized and unrealized loss on investments (0.30)
----------------------------------------------------------------------------
Total from investment operations 0.06
----------------------------------------------------------------------------
Less dividends from net investment income (0.36)
----------------------------------------------------------------------------
Net asset value, end of period $8.54
<CAPTION>
CLASS B RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 0.61%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 1.96%(2)
Ratio of net investment income to average net assets 7.79%(2)
Portfolio turnover rate 41.55%(2)
============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
88
<PAGE>
HIGH INCOME FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $8.84
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36
Net realized and unrealized loss on investments (0.30)
----------------------------------------------------------------------------
Total from investment operations 0.06
----------------------------------------------------------------------------
Less dividends from net investment income (0.36)
----------------------------------------------------------------------------
Net asset value, end of period $8.54
<CAPTION>
CLASS C RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 0.65%
Net assets, end of period (in thousands) $404
Ratio of expenses to average net assets 1.91%(2)
Ratio of net investment income to average net assets 7.88%(2)
Portfolio turnover rate 41.55%(2)
============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
89
<PAGE>
HIGH INCOME FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR ENDED MARCH 31, PERIOD FROM
-------------------------------------- 1/4/96(1) TO
2000 1999 1998 1997 3/31/96
CLASS Y PER-SHARE DATA
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.39 $10.04 $9.25 $9.10 $9.19
--------------------------------------------------------------------------------
Income from investment operations:
Net investment
income 0.81 0.83 0.82 0.81 0.20
Net realized and
unrealized gain (loss)
on investments (0.84) (0.66) 0.79 0.15 (0.10)
--------------------------------------------------------------------------------
Total from investment
operations (0.03) 0.17 1.61 0.96 0.10
--------------------------------------------------------------------------------
Less dividends from
net investment income (0.82) (0.82) (0.82) (0.81) (0.19)
--------------------------------------------------------------------------------
Net asset value,
end of period $8.54 $9.39 $10.04 $9.25 $9.10
<CAPTION>
CLASS Y RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C>
Total return -0.39% 1.90% 18.13% 11.07% 1.00%
Net assets, end of
period (in millions) $2 $2 $3 $3 $2
Ratio of expenses to
average net assets 0.79% 0.74% 0.77% 0.77% 0.80%(2)
Ratio of net investment
income to average
net assets 8.91% 8.62% 8.46% 8.78% 8.55%(2)
Portfolio turnover rate 41.55% 53.19% 63.40% 53.17% 41.67%(2)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
90
<PAGE>
[GRAPHIC]
-------------------------------------------------------------------------------
HIGH INCOME FUND II
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
SIX MONTHS -----------------------------------------------
ENDED 3/31/00 1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $3.88 $4.12 $4.42 $4.14 $4.03 $3.96
--------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.17 0.35 0.37 0.36 0.35 0.35
Net realized and
unrealized gain (loss)
on investments (0.13) (0.24) (0.30) 0.28 0.11 0.07
--------------------------------------------------------------------------------
Total from investment
operations 0.04 0.11 0.07 0.64 0.46 0.42
--------------------------------------------------------------------------------
Less dividends declared
from net investment
income (0.17) (0.35) (0.37) (0.36) (0.35) (0.35)
--------------------------------------------------------------------------------
Net asset value, end of
period $3.75 $3.88 $4.12 $4.42 $4.14 $4.03
<CAPTION>
CLASS A RATIOS/SUPPLEMENTAL DATA
<S> <C> <C> <C> <C> <C> <C>
Total return(2) 0.94% 2.66% 1.22% 16.20% 11.90% 11.25%
Net assets, end of
period (in millions) $328 $371 $416 $407 $368 $368
Ratio of expenses
to average net assets 1.17%(3) 1.06% 0.96% 0.93% 0.95% 0.89%
Ratio of net investment
income to average
net assets 8.70%(3) 8.60% 8.26% 8.54% 8.60% 8.93%
Portfolio turnover rate 27.31% 46.17% 58.85% 64.38% 55.64% 26.82%
================================================================================
</TABLE>
(1) ON JANUARY 12, 1996, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(3) ANNUALIZED.
91
<PAGE>
HIGH INCOME FUND II
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/6/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $3.88
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.13)
-------------------------------------------------------------------------------
Total from investment operations 0.02
-------------------------------------------------------------------------------
Less dividends declared from net investment income (0.15)
-------------------------------------------------------------------------------
Net asset value, end of period $3.75
<CAPTION>
CLASS B RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 0.31%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.06%(2)
Ratio of net investment income to average net assets 7.77%(2)
Portfolio turnover rate 27.31%(3)
===============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
92
<PAGE>
HIGH INCOME FUND II
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/6/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $3.88
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.13)
---------------------------------------------------------------------------
Total from investment operations 0.02
---------------------------------------------------------------------------
Less dividends declared from net investment income (0.15)
---------------------------------------------------------------------------
Net asset value, end of period $3.75
<CAPTION>
CLASS C RATIOS/SUPPLEMENTAL DATA
<S> <C>
Total return 0.28%
Net assets, end of period (in thousands) $195
Ratio of expenses to average net assets 2.11%(2)
Ratio of net investment income to average net assets 7.73%(2)
Portfolio turnover rate 27.31%(3)
============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
93
<PAGE>
--------------------------------------------------------------------------------
HIGH INCOME FUND II
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
FOR THE ENDED SEPTEMBER 30, PERIOD FROM
SIX MONTHS ------------------------- 2/27/96(1) TO
ENDED 3/31/00 1999 1998 1997 9/30/96
<S> <C> <C> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $3.88 $4.12 $4.42 $4.14 $4.15
-----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18 0.36 0.37 0.37 0.21
Net realized and
unrealized gain (loss)
on investments (0.13) (0.24) (0.30) 0.28 (0.01)
-----------------------------------------------------------------------------------------
Total from investment
operations 0.05 0.12 0.07 0.65 0.20
-----------------------------------------------------------------------------------------
Less dividends declared
from net investment
income (0.18) (0.36) (0.37) (0.37) (0.21)
-----------------------------------------------------------------------------------------
Net asset value, end of
period $3.75 $3.88 $4.12 $4.42 $4.14
CLASS Y RATIOS/SUPPLEMENT DATA
Total return 1.10% 2.95% 1.38% 16.38% 5.00%
Net assets, end of
period (in millions) $3 $3 $2 $2 $2
Ratio of expenses to
average net assets 0.84%(2) 0.77% 0.79% 0.77% 0.77%(2)
Ratio of net
investment income to
average net assets 8.98%(2) 8.89% 8.43% 8.69% 8.83%(2)
Portfolio turnover rate 27.31% 46.17% 58.85% 64.38% 55.64%(2)
=========================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
94
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
MUNICIPAL BOND FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
ENDED ---------------------------------------
3/31/00 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $6.90 $7.63 $7.47 $7.32 $7.25 $6.91
-----------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18 0.36 0.37 0.38 0.39 0.39
Net realized and unrealized
gain (loss) on investments (0.13) (0.61) 0.25 0.30 0.12 0.38
-----------------------------------------------------------------------------------------
Total from investment
operations 0.05 (0.25) 0.62 0.68 0.51 0.77
-----------------------------------------------------------------------------------------
Less distributions:
From net investment income (0.18) (0.37) (0.37) (0.37) (0.39) (0.39)
From capital gains (0.03) (0.11) (0.09) (0.16) (0.05) (0.00)
In excess of capital gains (0.04) (0.00) (0.00) (0.00) (0.00) (0.04)
-----------------------------------------------------------------------------------------
Total distributions (0.25) (0.48) (0.46) (0.53) (0.44) (0.43)
-----------------------------------------------------------------------------------------
Net asset value, end of
period $6.70 $6.90 $7.63 $7.47 $7.32 $7.25
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 0.83% -3.46% 8.67% 9.77% 7.16% 11.51%
Net assets, end of period
(in millions) $774 $874 $997 $994 $997 $975
Ratio of expenses to average
net assets 0.90%(3) 0.79% 0.72% 0.67% 0.68% 0.65%
Ratio of net investment
income to average net assets 5.30%(3) 4.98% 4.95% 5.14% 5.23% 5.51%
Portfolio turnover
rate 9.41% 30.93% 50.65% 47.24% 74.97% 70.67%
=========================================================================================
</TABLE>
(1) ON JANUARY 21, 1996, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A
SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(3) ANNUALIZED.
95
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL BOND FUND
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/5/99(1) TO
3/31/00
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $6.87
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.10)
-----------------------------------------------------------------------------------
Total from investment operations 0.05
-----------------------------------------------------------------------------------
Less distributions:
From net investment income (0.15)
From capital gains (0.03)
In excess of capital gains (0.04)
-----------------------------------------------------------------------------------
Total distributions (0.22)
-----------------------------------------------------------------------------------
Net asset value, end of period $6.70
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 0.78%
Net assets, end of period (in thousands) $421
Ratio of expenses to average net assets 1.88%(2)
Ratio of net investment income to average net assets 4.34%(2)
Portfolio turnover rate 9.41%(3)
===================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
96
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL BOND FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/7/99(1) TO
3/31/00
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $6.87
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.10)
--------------------------------------------------------------------------------
Total from investment operations 0.05
--------------------------------------------------------------------------------
Less distributions:
From net investment income (0.15)
From capital gains (0.03)
In excess of capital gains (0.04)
--------------------------------------------------------------------------------
Total distributions (0.22)
--------------------------------------------------------------------------------
Net asset value, end of period $6.70
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 0.78%
Net assets, end of period (in thousands) $202
Ratio of expenses to average net assets 1.92%(2)
Ratio of net investment income to average net assets 4.30%(2)
Portfolio turnover rate 9.41%(3)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
97
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL BOND FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS PERIOD FROM
ENDED 12/30/98(1) TO
3/31/00 9/30/99
<S> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value, beginning of period $6.90 $7.41
----------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.28
Net realized and unrealized loss on investments (0.14) (0.51)
----------------------------------------------------------------------------------------
Total from investment operations 0.05 (0.23)
----------------------------------------------------------------------------------------
Less distributions
From net investment income (0.18) (0.28)
From capital gains (0.03) (0.00)
In excess of capital gains (0.04) (0.00)
----------------------------------------------------------------------------------------
Total distributions (0.25) (0.28)
----------------------------------------------------------------------------------------
Net asset value, end of period $6.70 $6.90
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 0.84% -3.21%
Net assets, end of period (in thousands) $7,954 $2
Ratio of expenses to average net assets 0.74%(2) 0.67%(2)
Ratio of net investment income to average net
assets 5.47%(2) 5.08%(2)
Portfolio turnover rate 9.41% 30.93%(3)
========================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
98
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
ENDED ---------------------------------------
3/31/00 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $5.19 $5.69 $5.55 $5.31 $5.27 $5.12
--------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.15 0.31 0.32 0.34 0.34 0.35
Net realized and unrealized
gain (loss) on investments (0.25) (0.37) 0.21 0.25 0.04 0.17
--------------------------------------------------------------------------------------
Total from investment
operations (0.10) (0.06) 0.53 0.59 0.38 0.52
--------------------------------------------------------------------------------------
Less distributions:
Declared from net
investment income (0.15) (0.31) (0.32) (0.34) (0.34) (0.35)
From capital gains (0.00)(2) (0.13) (0.07) (0.01) (0.00) (0.00)
In excess of capital gains (0.00)(2) (0.00) (0.00) (0.00) (0.00) (0.02)
--------------------------------------------------------------------------------------
Total distributions (0.15) (0.44) (0.39) (0.35) (0.34) (0.37)
--------------------------------------------------------------------------------------
Net asset value, end of
period $4.94 $5.19 $5.69 $5.55 $5.31 $5.27
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(3) -1.82% -1.22% 9.88% 11.45% 7.40% 10.63%
Net assets, end of
period (in millions) $437 $510 $522 $474 $400 $383
Ratio of expenses to
average net assets 0.95%(4) 0.87% 0.82% 0.78% 0.81% 0.76%
Ratio of net investment
income to average net assets 6.03%(4) 5.59% 5.72% 6.19% 6.41% 6.75%
Portfolio turnover rate 10.60% 26.83% 35.16% 19.47% 26.91% 19.07%
======================================================================================
</TABLE>
(1) ON JANUARY 30, 1996, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A
SHARES.
(2) NOT SHOWN DUE TO ROUNDING.
(3) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(4) ANNUALIZED.
99
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
For a class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/5/99(1) TO
3/31/00
<S> <C>
CLASS B PER-SHARE DATA
Net asset value, beginning of period $5.16
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized loss on investments (0.22)
--------------------------------------------------------------------------------
Total from investment operations (0.10)
--------------------------------------------------------------------------------
Less distributions:
Declared from net investment income (0.12)
From capital gains (0.00)(2)
In excess of capital gains (0.00)(2)
--------------------------------------------------------------------------------
Total distributions (0.12)
--------------------------------------------------------------------------------
Net asset value, end of period $4.94
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return -1.88%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 1.96%(3)
Ratio of net investment income to average net assets 5.10%(3)
Portfolio turnover rate 10.60%(4)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT SHOWN DUE TO ROUNDING.
(3) ANNUALIZED.
(4) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
100
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
10/8/99(1) TO
3/31/00
<S> <C>
CLASS C PER-SHARE DATA
Net asset value, beginning of period $5.16
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized loss on investments (0.22)
--------------------------------------------------------------------------------
Total from investment operations (0.10)
--------------------------------------------------------------------------------
Less distributions:
Declared from net investment income (0.12)
From capital gains (0.00)(2)
In excess of capital gains (0.00)(2)
--------------------------------------------------------------------------------
Total distributions (0.12)
--------------------------------------------------------------------------------
Net asset value, end of period $4.94
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return -1.91%
Net assets, end of period (in thousands) $331
Ratio of expenses to average net assets 1.87%(3)
Ratio of net investment income to average net assets 5.16%(3)
Portfolio turnover rate 10.60%(4)
================================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT SHOWN DUE TO ROUNDING.
(3) ANNUALIZED.
(4) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
101
<PAGE>
--------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD FROM PERIOD FROM
ENDED 12/30/98(1) TO 7/1/98(1) TO
3/31/00 9/30/99 8/25/98
<S> <C> <C> <C>
CLASS Y PER-SHARE DATA
Net asset value, beginning of period $5.19 $5.65 $5.64
------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.24 0.05
Net realized and unrealized
gain (loss) on investments (0.25) (0.33) 0.01
------------------------------------------------------------------------------------------
Total from investment operations (0.10) (0.09) 0.06
------------------------------------------------------------------------------------------
Less distributions:
Declared from net investment income (0.15) (0.24) (0.05)
From capital gains (0.00)(2) (0.13) (0.00)
In excess of capital gains (0.00)(2) (0.00) (0.00)
------------------------------------------------------------------------------------------
Total distributions (0.15) (0.37) (0.05)
------------------------------------------------------------------------------------------
Net asset value, end of period $4.94 $5.19 $5.65
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return -1.60% -1.53% 1.07%
Net assets, end of period (in thousands) $2 $2 $0
Ratio of expenses to average net assets 0.94%(3) 0.80%(3) 0.61%(3)
Ratio of net investment income
to average net assets 5.94%(3) 5.68%(3) 5.99%(3)
Portfolio turnover rate 10.60% 26.83%(4) 35.16%(3)
==========================================================================================
</TABLE>
(1) CLASS Y SHARES COMMENCED OPERATIONS ON JULY 1, 1998 AND CONTINUED
OPERATIONS UNTIL AUGUST 25, 1998 WHEN ALL OUTSTANDING CLASS Y SHARES WERE
REDEEMED AT THE ENDING NET ASSET VALUE SHOWN IN THE TABLE. OPERATIONS
RECOMMENCED ON DECEMBER 30, 1998.
(2) NOT SHOWN DUE TO ROUNDING.
(3) ANNUALIZED.
(4) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
102
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
CASH MANAGEMENT
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended June 30, 1999 and the six months ended December 31, 1999, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period1:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED JUNE 30,
ENDED ----------------------------------------
12/31/99 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------
Net investment income 0.0241 0.0455 0.0484 0.0472 0.0487 0.0465
Less dividends declared (0.0241) (0.0455) (0.0484) (0.0472) (0.0487) (0.0465)
-------------------------------------------------------------------------------------
Net asset value, end of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return 2.47% 4.67% 4.93% 4.80% 5.01% 4.74%
Net assets, end of
period (in millions) $800 $667 $533 $514 $402 $369
Ratio of expenses to
average net assets 0.83%(2) 0.83% 0.89% 0.87% 0.91% 0.97%
Ratio of net investment
income to average net assets 4.72%(2) 4.54% 4.84% 4.70% 4.89% 4.68%
=====================================================================================
</TABLE>
(1) ON SEPTEMBER 5, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A
SHARES.
(2) ANNUALIZED.
103
<PAGE>
-------------------------------------------------------------------------------
CASH MANAGEMENT
For a Class B share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
9/9/99(1) to
12/31/99
CLASS B PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $1.00
-------------------------------------------------------------------------------
Net investment income 0.0120
Less dividends declared (0.0120)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 1.21%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 1.65%(2)
Ratio of net investment income to average net assets 4.25%(2)
===============================================================================
</TABLE>
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
104
<PAGE>
-------------------------------------------------------------------------------
CASH MANAGEMENT
For a Class C share outstanding throughout the period:
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
9/9/99(1) to
12/31/99
CLASS C PER-SHARE DATA
<S> <C>
Net asset value, beginning of period $1.00
-------------------------------------------------------------------------------
Net investment income 0.0119
Less dividends declared (0.0119)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 1.20%
Net assets, end of period (in thousands) $160
Ratio of expenses to average net assets 1.81%(2)
Ratio of net investment income to average net assets 4.13%(2)
===============================================================================
</TABLE>
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
105
<PAGE>
This space is intended for your notes and calculations.
106
<PAGE>
This space is intended for your notes and calculations.
107
<PAGE>
This space is intended for your notes and calculations.
108
<PAGE>
This space is intended for your notes and calculations.
109
<PAGE>
This space is intended for your notes and calculations.
110
<PAGE>
[GRAPHIC]
================================================================================
WADDELL & REED ADVISORS FUNDS
CUSTODIAN
UMB Bank, n.a.
928 Grand Boulevard
Kansas City, Missouri 64141
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N. W.
Washington, D. C. 20036
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1010 Grand Boulevard
Kansas City, Missouri
64106-2232
INVESTMENT MANAGER
Waddell & Reed Investment
Management Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
UNDERWRITER
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
SHAREHOLDER SERVICING AGENT
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
ACCOUNTING SERVICES AGENT
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
111
<PAGE>
[GRAPHIC]
--------------------------------------------------------------------------------
WADDELL & REED ADVISORS FUNDS
You can get more information about each Fund in its --
- STATEMENT OF ADDITIONAL INFORMATION (SAI), which contains detailed
information about the Fund, particularly the 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).
- 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 a Fund's current SAI or copies of its most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below. Copies of the
SAI, Annual and/or Semiannual reports may also be requested via e-mail at
[email protected].
Information about each Fund (including the current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and may also be obtained, after paying a duplicating fee, by
electronic request at [email protected] or 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 202-942-8090.
The Funds' SEC file numbers are as follows:
Waddell & Reed Advisors Funds, Inc. Bond Fund: 811-2552
Waddell & Reed Advisors Cash Management, Inc.: 811-2922
Waddell & Reed Advisors Government Securities Fund, Inc.: 811-3458
Waddell & Reed Advisors High Income Fund, Inc.: 811-2907
Waddell & Reed Advisors High Income Fund II, Inc.: 811-4520
Waddell & Reed Advisors Municipal Bond Fund, Inc.: 811-2657
Waddell & Reed Advisors Municipal High Income Fund, Inc.: 811-4427
<TABLE>
<S><C>
[LOGO] WADDELL & REED Waddell & Reed, Inc.
FINANCIAL SERVICES-Registered Trademark- 6300 Lamar Avenue, P. O. Box 29217
------------------------- Shawnee Mission, Kansas 66201-9217
INVESTING. WITH A PLAN-SM-. 913-236-2000
888-WADDELL
</TABLE>
<PAGE>
WADDELL & REED ADVISORS FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
June 30, 2000
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with a prospectus ("Prospectus")
for the Waddell & Reed Advisors Funds, Inc. (the "Corporation"), formerly,
United Funds, Inc., dated June 30, 2000, which may be obtained from the
Corporation 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........................ 6
Investment Management and Other Services ............................42
Purchase, Redemption and Pricing of Shares ..........................49
Directors and Officers ..............................................68
Payments to Shareholders ............................................80
Taxes ...............................................................81
Portfolio Transactions and Brokerage ................................86
Other Information ...................................................90
Financial Statements ................................................92
</TABLE>
<PAGE>
Waddell & Reed Advisors Funds, Inc. is a mutual fund; an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the Corporation is an open-end, diversified management company
organized as a Maryland corporation on February 21, 1974, as a successor to a
Delaware corporation which commenced operations in 1940.
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's underwriter, or the Corporation
may, from time to time, publish for one or more of the four Funds' total return
information, yield information and/or performance rankings in advertisements and
sales materials.
TOTAL RETURN
Total return is the overall change in the value of an investment over a
given period of time. An average annual total return quotation is computed by
finding the average annual compounded rates of return over the one-, five-, and
ten-year periods that would equate the initial amount invested to the ending
redeemable value. Standardized total return information is calculated by
assuming an initial $1,000 investment and, for Class A shares, deducting the
maximum sales load of 5.75%. All dividends and distributions are assumed to be
reinvested in shares of the applicable class at net asset value for the class as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions on Class A shares. The formula used to
calculate the total return for a particular class of a 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, a Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that class.
The average annual total return quotations for Class A shares with sales
load deducted as of December 31, 1999, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
2
<PAGE>
<TABLE>
<CAPTION>
One-year Five-year Ten-year
period from period from period from
1-1-99 to 1-1-95 to 1-1-90 to
12-31-99 12-31-99 12-31-99
----------- ----------- -----------
<S> <C> <C> <C>
Accumulative Fund 18.49% 23.17% 14.65%
Bond Fund -6.77% 6.42% 6.84%
Income Fund 9.72% 22.01% 15.51%
Science and
Technology Fund 91.27% 40.63% 25.46%
</TABLE>
The average annual total return quotations for Class A shares without
sales load deducted as of December 31, 1999, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
<TABLE>
<CAPTION>
One-year Five-year Ten-year
period from period from period from
1-1-99 to 1-1-95 to -1-90 to
12-31-99 12-31-99 12-31-99
----------- ----------- -----------
<S> <C> <C> <C>
Accumulative Fund 25.72% 24.64% 15.33%
Bond Fund -1.08% 7.69% 7.48%
Income Fund 16.41% 23.46% 16.19%
Science and
Technology Fund 102.93% 42.30% 26.21%
</TABLE>
Prior to October 1, 1993, Waddell & Reed Advisors Science and Technology
Fund was named United Science and Energy Fund, and its investment policies
related to investments in science and energy securities rather than science and
technology securities.
Prior to June 17, 1995, each Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
The cumulative total return quotation for Class B shares of each Fund
with the maximum deferred sales charge deducted as of December 31, 1999, which
is the most recent balance sheet included in this SAI, for the period shown was
as follows:
<TABLE>
<CAPTION>
Period from
class inception* to
December 31, 1999
-----------------
<S> <C>
Accumulative Fund 17.89%
Bond Fund -4.64%
Income Fund 6.53%
Science and
Technology Fund 53.62%
</TABLE>
*For Waddell & Reed Advisors Bond Fund, September 9, 1999; and for Waddell &
Reed Advisors Accumulative Fund, Waddell & Reed Advisors Income Fund and
Waddell & Reed Advisors Science and Technology Fund, October 4, 1999.
3
<PAGE>
The cumulative total return quotation for the Class B shares of each fund
without the maximum deferred sales charge deducted as of December 31, 1999,
which is the most recent balance sheet included in this SAI, for the periods
shown was as follows:
<TABLE>
<CAPTION>
Period from
class inception* to
December 31, 1999
-----------------
<S> <C>
Accumulative Fund 22.89%
Bond Fund 0.30%
Income Fund 11.53%
Science and
Technology Fund 58.62%
</TABLE>
*For Waddell & Reed Advisors Bond Fund, September 9, 1999; and for Waddell &
Reed Advisors Accumulative Fund, Waddell & Reed Advisors Income Fund and
Waddell & Reed Advisors Science and Technology Fund, October 4, 1999.
The cumulative total return quotations for Class C shares of each Fund
with the maximum deferred sales charge deducted as of December 31, 1999, which
is the most recent balance sheet included in this SAI, for the periods shown
were as follows:
<TABLE>
<CAPTION>
Period from
class inception* to
December 31, 1999
-----------------
<S> <C>
Accumulative Fund 20.45%
Bond Fund -0.86%
Income Fund 10.53%
Science and
Technology Fund 57.70%
</TABLE>
*For Waddell & Reed Advisors Bond Fund, September 9, 1999; for Waddell & Reed
Advisors Income Fund and Waddell & Reed Advisors Science and Technology Fund,
October 4, 1999; and for Waddell & Reed Advisors Accumulative Fund,
October 6, 1999.
The cumulative total return quotations for the Class C shares of each
fund without the maximum deferred sales charge deducted as of December 31, 1999,
which is the most recent balance sheet included in this SAI, for the periods
shown were as follows:
<TABLE>
<CAPTION>
Period from
class inception* to
December 31, 1999
-----------------
<S> <C>
Accumulative Fund 21.45%
Bond Fund 0.13%
Income Fund 11.53%
Science and
Technology Fund 58.70%
</TABLE>
4
<PAGE>
*For Waddell & Reed Advisors Bond Fund, September 9, 1999; for Waddell & Reed
Advisors Income Fund and Waddell & Reed Advisors Science and Technology Fund,
October 4, 1999; and for Waddell & Reed Advisors Accumulative Fund,
October 6, 1999.
The total return quotations for Class Y shares as of December 31, 1999,
which is the most recent balance sheet included in this SAI, for the periods
shown were as follows:
<TABLE>
<CAPTION>
One year
period Period from class
ended inception* to
December 31, 1999 December 31, 1999
----------------- -----------------
<S> <C> <C>
Accumulative Fund 25.95% 22.93%
Bond Fund -0.81% 5.93%
Income Fund 16.67% 21.45%
Science and
Technology Fund 103.72% 39.63%
</TABLE>
*For Waddell & Reed Advisors Income Fund and Waddell & Reed Advisors Bond Fund,
June 19, 1995; for Waddell & Reed Advisors Accumulative Fund, July 11, 1995;
and for Waddell & Reed Advisors Science and Technology Fund February 27, 1996.
A 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.
YIELD
Yield refers to the income generated by an investment in the Fund over a
given period of time. A yield quoted for a class of a Fund is computed by
dividing the net investment income per share of that class earned during the
period for which the yield is shown by the maximum offering price per share of
that class on the last day of that period according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of a Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class
outstanding during the period that were entitled to
receive dividends.
d = the maximum offering price per share of the class on the last
day of the period.
The yield for Waddell & Reed Advisors Bond Fund Class A shares computed
according to the formula for the 30-day period
5
<PAGE>
ended on December 31, 1999, the date of the most recent balance sheet included
in this SAI, is 5.78%. The yield for Waddell & Reed Advisors Bond Fund Class B
shares computed according to the formula for the 30-day period ended on December
31, 1999, the date of the most recent balance sheet included in this SAI, is
5.46%. The yield for Waddell & Reed Advisors Bond Fund Class C shares computed
according to the formula for the 30-day period ended on December 31, 1999, the
date of the most recent balance sheet included in this SAI, is 5.86%. The yield
for Waddell & Reed Advisors Bond Fund Class Y shares computed according to the
formula for the 30-day period ended on December 31, 1999, the date of the most
recent balance sheet included in this SAI, is 6.48%.
Change in yields primarily reflect different interest rates received by a
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses of
the applicable class.
PERFORMANCE RANKINGS AND OTHER INFORMATION
Waddell & Reed, Inc. or the Corporation also may, from time to time,
publish in advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
FORBES, MONEY, THE WALL STREET JOURNAL, BUSINESS WEEK, BARRON'S, FORTUNE OR
MORNINGSTAR MUTUAL FUND VALUES. Each class of a 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.
Performance information for a Fund may be accompanied by information
about market conditions and other factors that affected the Fund's performance
for the period(s) shown.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a 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
6
<PAGE>
investment strategies and policies the Funds' investment manager, Waddell & Reed
Investment Management Company ("WRIMCO"), may employ and the types of
instruments in which a Fund may invest, in pursuit of the Fund's goal(s). 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 a Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help a Fund achieve its goal(s). See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of the
Funds.
WADDELL & REED ADVISORS SCIENCE AND TECHNOLOGY FUND
As described in the Prospectus, the portfolio of Waddell & Reed Advisors
Science and Technology Fund emphasizes science and technology securities.
Science and technology securities are securities of companies whose products,
processes or services, in the opinion of WRIMCO, are being or are expected to be
significantly benefited by the utilization or commercial application of
scientific or technological discoveries or developments in such areas as
aerospace, communications and electronic equipment, computer systems, computer
software and services, electronics, electronic media, business machines, office
equipment and supplies, biotechnology, medical and hospital supplies and
services, medical devices and drugs.
WADDELL & REED ADVISORS BOND FUND
In selecting debt securities for the portfolio of this Fund,
consideration will be given to their yield; this yield would include the yield
to maturity in the case of debt securities purchased at a discount.
Consideration will also be given to the relative safety of debt securities
purchased and, in the case of convertible debt securities, the possibility of
capital growth.
Among the other debt securities in which the Fund may invest are deposits
in banks (represented by certificates of deposit or other evidence of deposit
issued by such banks) of varying maturities. The Federal Deposit Insurance
Corporation insures the principal of certain such deposits ("Insured Deposits"),
currently to the extent of $100,000 per bank. Insured Deposits are not
marketable, and the Fund will invest in them only within the 10% limit mentioned
below under "Illiquid Investments" unless such obligations are payable at
principal amount plus accrued interest on demand or within seven days after
demand.
A debt security may not be purchased if, at the time of purchase, it is
in default in the payment of interest or if there is less than $1,000,000
principal amount outstanding.
7
<PAGE>
SECURITIES - GENERAL
The main types of securities in which the Funds may invest include 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. A Fund may invest in preferred stock rated in any rating
category of the established rating services 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 securities
rise. Similarly, long-term bonds are generally more sensitive to interest rate
changes than short-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 a Fund. WRIMCO
continuously monitors the issuers of lower-rated debt securities in a 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. A Fund may
choose, at its expense or in conjunction with others, to pursue litigation or
otherwise exercise its rights as a security holder to seek to protect the
interests of security holders if it determines this to be in the best interest
of the Fund's shareholders.
Each of the Funds may invest in debt securities rated in any rating
category of the established rating services, including securities rated in the
lowest category (securities rated D by Standard & Poor's ("S&P") and C by
Moody's Investors Service, Inc. ("MIS")). Debt securities rated D by S&P or C by
MIS are in payment default or are regarded as having extremely poor prospects of
ever attaining any real investment standing. Debt
8
<PAGE>
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, a Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security as 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.
Each of the Funds 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.
Each of the Funds may invest in convertible securities. A convertible
security is a bond, debenture, note, preferred stock or other security that may
be converted into or exchanged for a prescribed amount of common stock of the
same or different issuer within a particular period of time at a specified price
or formula. Convertible securities generally have higher yields than common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The
9
<PAGE>
credit standing of the issuer and other factors also may have an effect on the
convertible security's investment value.
Each of the Funds 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.
SPECIFIC SECURITIES AND INVESTMENT PRACTICES
U.S. GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government securities") are high quality debt
instruments issued or guaranteed as to principal or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
securities include Treasury Bills (which mature within one year of the date they
are issued), Treasury Notes (which have maturities of one to ten years) and
Treasury Bonds (which generally have maturities of more than ten years). All
such Treasury securities are backed by the full faith and credit of the United
States.
10
<PAGE>
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (also known as 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 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. Waddell & Reed Advisors Bond Fund will invest in securities of
agencies and instrumentalities only if WRIMCO is satisfied that the credit risk
involved is acceptable.
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 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.
11
<PAGE>
ZERO COUPON SECURITIES
Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin to pay current interest; instead, they are
sold at a deep discount from their face value and are redeemed at face value
when they mature. Because zero coupon securities do not pay current income,
their prices can be very volatile when interest rates change and generally are
subject to greater price fluctuations in response to changing interest rates
than prices of comparable maturities that make current distributions of interest
in cash.
Each of the Funds 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 a 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 a Fund's cash assets or by liquidation of portfolio
securities, if necessary, at a time when a Fund otherwise might not have done
so.
A broker-dealer creates a DERIVATIVE ZERO by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. ORIGINAL
ISSUE ZEROS are zero coupon securities originally issued by the U.S. Government,
a government agency, or a corporation in zero coupon form.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, mortgage
loans secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are
12
<PAGE>
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 a 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.
Each Fund may purchase mortgage-backed securities issued by both
government and non-government entities such as banks, mortgage lenders, or other
financial institutions. Other types of mortgage-backed securities will likely be
developed in the future, and a Fund may invest in them if WRIMCO determines they
are consistent with the Fund's goal(s) 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 guaranteed by the U.S. Government 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,
13
<PAGE>
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.
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
14
<PAGE>
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
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. However,
these effects may not be present, or may differ in degree, if the mortgage loans
in the pools have adjustable interest rates or other special payment terms, such
as a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in a
manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
VARIABLE OR FLOATING RATE INSTRUMENTS
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and may carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest
15
<PAGE>
from the issuers or certain financial intermediaries on dates prior to their
stated maturities. Floating rate securities have interest rates that change
whenever there is a change in a designated base rate while variable rate
instruments provide for a specified periodic adjustment in the interest rate.
These formulas are designed to result in a market value for the instrument that
approximates its par value.
INDEXED SECURITIES
Each 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.
Gold-indexed securities, for example, typically provide for a maturity
value that depends on the price of gold, resulting in a security whose price
tends to rise and fall together with gold prices. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose maturity
values or interest rates are determined by reference to the values of one or
more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
that performs similarly to a foreign-denominated instrument, or their maturity
value may decline when foreign currencies increase, resulting in a security
whose price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations
and certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
FOREIGN SECURITIES AND CURRENCIES
Each of the Funds may invest in the securities of foreign issuers,
including depository receipts. In general, depository receipts are securities
convertible into and evidencing ownership
16
<PAGE>
of securities of foreign corporate issuers, although depository receipts may not
necessarily be denominated in the same currency as the securities into which
they may be converted. American depository receipts, in registered form, are
dollar-denominated receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying securities. International depository
receipts and European depository 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 depository receipts are designed to
facilitate the trading of securities of foreign issuers by U.S. and non-U.S.
investors and traders.
WRIMCO believes that there are investment opportunities as well as risks
in investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Individual foreign companies
may also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. Thus, the value of securities denominated in or indexed to
foreign currencies, and of dividends and interest from such securities, can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar. WRIMCO believes that a Fund's ability to invest 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.
17
<PAGE>
investors, including the possibility of expropriation or nationalization of
assets, confiscatory taxation, restrictions on U.S. investment or on the ability
to repatriate assets or convert currency into U.S. dollars, or other government
intervention. There may be greater possibility of default by foreign governments
or government-sponsored enterprises. Investments in foreign countries also
involve a risk of local political, economic, or social instability, military
action or unrest, or adverse diplomatic developments. There is no assurance that
WRIMCO will be able to anticipate these potential events or counter their
effects.
The considerations noted above generally are intensified in developing
countries. A developing country is a nation that, in WRIMCO's opinion, is likely
to experience long-term gross domestic product growth above that expected to
occur in the United States, the United Kingdom, France, Germany, Italy, Japan
and Canada. Developing countries may have relatively unstable governments,
economies based on only a few industries and securities markets that trade a
small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Certain of the Funds 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.
Currency conversion involves dealer spreads and other costs, although
commissions are not usually charged. See "Options, Futures and Other
Strategies - Forward Currency Contracts."
RESTRICTED SECURITIES
Each of the Funds may purchase 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, a 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, a Fund might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
18
<PAGE>
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 a Fund from reselling the
securities at a time when such sale would be desirable. Restricted securities in
which a Fund seeks to invest need not be listed or admitted to trading on an
exchange and may be less liquid than listed securities. Certain restricted
securities, e.g. 144A securities, may be determined to be liquid in accordance
with guidelines adopted by the Board of Directors. See "Illiquid Investments."
INVESTMENT COMPANY SECURITIES
Each Fund may purchase securities of closed-end investment companies. As
a shareholder in an investment company, a 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.
LENDING SECURITIES
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing a Fund's income. If a 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. Under the Fund's current securities
lending procedures, each Fund may lend securities only to broker-dealers and
financial institutions deemed creditworthy by WRIMCO.
Any securities loan that a 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 a 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.
19
<PAGE>
The letters of credit that a Fund may accept as collateral are agreements
by banks (other than the borrowers of the Fund's securities), entered into at
the request of the borrower and for its account and risk, under which the banks
are obligated to pay to the Fund, while the letter is in effect, amounts
demanded by the Fund if the demand meets the terms of the letter. The Fund's
right to make this demand secures the borrower's obligations to it. The terms of
any such letters and the creditworthiness of the banks providing them (which
might include the Fund's custodian bank) must be satisfactory to the Fund. Each
Fund will make loans only under rules of the NYSE, which presently require the
borrower to give the securities back to the Fund within five business days after
the Fund gives notice to do so. If a 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. A Fund may pay
reasonable finder's, administrative and custodian fees in connection with loans
of securities.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, as well as
risks of delay in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially.
REPURCHASE AGREEMENTS
Each of the Funds 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 a
Fund purchases a security and the seller (normally a commercial bank or
broker-dealer) agrees, at the time of purchase, that it will repurchase the
security at a specified time and price. The amount by which the resale price is
greater than the purchase price reflects an agreed-upon market interest rate
effective for the period of the agreement. The return on the securities subject
to the repurchase agreement may be more or less than the return on the
repurchase agreement.
The majority of the repurchase agreements in which a Fund will 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 a Fund
may suffer a loss if
20
<PAGE>
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 and 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 Funds' 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 Funds' custodian bank or by a third party that
qualifies as a custodian under Section 17(f) of the Investment Company Act of
1940, as amended (the "1940 Act"), is and, during the entire term of the
agreement, will remain at least equal to the value of the loan, including the
accrued interest earned thereon. Repurchase agreements are entered into only
with those entities approved by WRIMCO.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each Fund may purchase any securities in which it may invest on a
when-issued or delayed-delivery basis or sell them on a delayed-delivery basis.
In either case, payment and delivery for the securities take place at a future
date. The securities so purchased or sold by a Fund are subject to market
fluctuation; their value may be less or more when delivered than the purchase
price paid or received. When purchasing securities on a when issued or
delayed-delivery basis, a Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. No interest accrues to a
Fund until delivery and payment is completed. When a Fund makes a commitment to
purchase securities on a when-issued or delayed-delivery basis, it will record
the transaction and thereafter reflect the value of the securities in
determining its net asset value per share. When a Fund sells a security on a
delayed-delivery basis, the Fund does not participate in further gains or losses
with respect to the security. When a Fund makes a commitment to sell securities
on a delayed basis, it will record the transaction and thereafter value the
securities at the sales price in determining the Fund's net asset value per
share. If the other party to a delayed-delivery transaction fails to deliver or
pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Ordinarily a Fund purchases securities on a when-issued or
delayed-delivery basis with the intention of actually taking delivery of the
securities. However, before the securities are delivered to the Fund and before
it has paid for them (the "settlement date"), the Fund could sell the securities
if WRIMCO decided it was advisable to do so for investment reasons. The Fund
will hold aside or segregate cash or other securities, other than those
purchased on a when-issued or delayed-delivery basis, at least equal to the
amount it will have to pay on the settlement date; these other securities may,
however, be sold at
21
<PAGE>
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
WARRANTS AND RIGHTS
Warrants are options to purchase equity securities at specific prices
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. 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 a
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
ILLIQUID INVESTMENTS
Illiquid investments are investments that cannot be sold or disposed of
in the ordinary course of business within seven days at approximately the price
at which they are valued. Investments currently considered to be illiquid
include:
(i) repurchase agreements not terminable within seven days;
(ii) securities for which market quotations are not readily available;
(iii) over-the-counter ("OTC") options and their underlying collateral;
(iv) bank deposits unless they are payable at principal plus accrued
interest on demand or within seven days after demand;
(v) restricted securities not determined to be liquid pursuant to
guidelines established by the Corporation's Board of Directors;
(vi) non-government stripped fixed-rate mortgage-backed securities; and
(vii) securities involved in swap, cap, floor and collar transactions.
The assets used as cover for OTC options written by a 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 will be considered illiquid
22
<PAGE>
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
If through a change in values, net assets, or other circumstances, the
Fund were in a position where more than 10% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
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, floors, collars, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance income
or yield or to attempt to hedge a Fund's investments. The strategies described
below may be used in an attempt to manage a Fund's foreign currency exposure as
well as other risks of a Fund's investments that can affect fluctuation in its
net asset value.
Generally, a Fund may purchase and sell any type of Financial Instrument.
However, as an operating policy, a 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 each 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 a Fund's portfolio. Thus, in a short hedge a 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 a Fund intends to acquire. Thus, in a long
hedge, a 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, a 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 a 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.
23
<PAGE>
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a 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 a 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, a Fund's ability to use Financial Instruments will be limited by
tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below,
WRIMCO expects to discover additional opportunities in connection with Financial
Instruments and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory 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 Funds' goal(s) and permitted by the
Funds' investment limitations and applicable regulatory authorities. The Funds
might not use any of these strategies, and there can be no assurance that any
strategy used will succeed. The Funds' 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 a 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
24
<PAGE>
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 a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a 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. A 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 a 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 a
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.
25
<PAGE>
(4) As described below, a 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 a Fund were unable to close out
its positions in such Financial Instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. These requirements might impair a 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 a Fund sell a portfolio security at a
disadvantageous time.
(5) A Fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of the
other party to the transaction ("counterparty") to enter into a transaction
closing out the position. Therefore, there is no assurance that any position can
be closed out at a time and price that is favorable to the Fund.
COVER. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. Each 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 a Fund's assets to cover or to accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed-upon
price during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the purchase
of put options can serve as a short hedge. Writing put or call options can
enable a Fund to enhance income or yield
26
<PAGE>
by reason of the premiums paid by the purchasers of such options. However, if
the market price of the security underlying a put option declines to less than
the exercise price on the option, minus the premium received, the Fund would
expect to suffer a loss.
Writing call options can serve as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security 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 a 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.
A Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a 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, a 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 a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
A type of put which the Funds may purchase is an "optional delivery
standby commitment" which is entered into by parties selling debt securities to
a Fund. An optional delivery standby commitment gives a Fund purchasing the
security the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
27
<PAGE>
RISKS OF OPTIONS ON SECURITIES. Options offer large amounts of leverage,
which will result in a Fund's net asset value being more sensitive to changes in
the value of the related instrument. Each of the Funds 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 a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a 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.
A 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 a 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, a Fund might be unable to close out an OTC
option position at any time prior to its expiration.
If a 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 a 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 a 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
"multiplier"), which determines the total dollar value for each point of such
difference. When a 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 a Fund buys a put on a
stock index, it pays a premium and has the right, prior to the expiration date,
to require the seller of the put, upon the Fund's exercise
28
<PAGE>
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 a 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 is 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 a Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A Fund can offset some of the risk of its writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, a 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 a 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, a Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value 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.
29
<PAGE>
If a 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 a 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. A Fund will not enter into any such
transactions other than purchased options 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.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies also can be used to manage the average
duration of a Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of a 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 a Fund's
fixed-income portfolio, the Fund may buy a debt futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be
30
<PAGE>
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 a Fund purchases an option on a futures contract, the premium paid
plus transaction costs is all that is at risk. In contrast, when a 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
contracts 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 contracts
and options on futures contracts 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
option position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily price
limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a 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
31
<PAGE>
required to maintain the position being hedged by the futures contract or option
or to maintain 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
market), due to 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 a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index future may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves 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, a 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 a Fund has sold index
futures contracts to
32
<PAGE>
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, a Fund would
lose money on the futures contract and also experience a decline in value of its
portfolio securities. However, while this could occur for a very brief period or
to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the market indices on
which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before a 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.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. Each 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 a
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.
Each 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, a Fund may seek to hedge against price movements in
that
33
<PAGE>
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, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of transactions involving foreign currencies might be required
to take place within the country issuing the underlying currency. Thus, a 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. Each 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, a Fund may
purchase a forward currency contract to lock in the U.S.
34
<PAGE>
dollar price of a security denominated in a foreign currency that a Fund intends
to acquire. Forward currency contract transactions may also serve as short
hedges; for example, a 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.
Each Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if a 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. Each 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.
Each Fund also may use forward currency contracts to attempt to enhance
income or yield. A 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 a 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 a 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 a 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
35
<PAGE>
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 a 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, a 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, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions 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 a 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 a Fund's exposure to changes in currency exchange rates and
could result in losses to a 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 a Fund or that WRIMCO will hedge at an
appropriate time.
COMBINED POSITIONS. A 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, a 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.
36
<PAGE>
TURNOVER. A Fund's options and futures activities may affect its turnover
rate and brokerage commission payments. The exercise of calls or puts written by
a Fund, and the sale or purchase of futures contracts, may cause it to sell or
purchase related investments, thus increasing its turnover rate. Once a 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 a 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. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
SWAPS, CAPS, FLOORS AND COLLARS. Each of the Funds may enter into swaps,
caps, floors and collars 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 on a notional
principal amount, 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, floors and collars, 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 a Fund's investments and its
share price and yield because, and to the extent, these agreements affect a
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 a Fund's investment exposure from one
type of investment to another. For example, if a 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.
37
<PAGE>
The creditworthiness of firms with which a 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, a Fund will
have contractual remedies pursuant to the agreements related to the transaction.
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. Each 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 Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. 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 Funds' investment restrictions and other limitations are
described in this SAI. The following are each Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's goal(s) and the
types of securities in which the Fund may invest, cannot be changed without
shareholder approval. For this purpose, shareholder approval means the approval,
at a meeting of Fund shareholders, by the lesser of (1) the holders of 67% or
more of the Fund's shares represented at the meeting, if more than 50% of the
Fund's outstanding shares are present in person or by proxy or (2) more than 50%
of the Fund's outstanding shares. A Fund may not:
(i) Buy real estate nor any nonliquid interests in real estate
investment trusts;
(ii) Buy shares of other investment companies that redeem their shares.
A Fund can buy shares of investment companies that do not redeem
their shares if it does so in a regular transaction in the open
market and then does not have more than one-tenth (i.e., 10%) of
the total assets of the four Funds in these shares;
(iii) Lend money or other assets, other than through certain limited
types of loans; the Funds may buy debt securities and other
obligations consistent with their respective goals and their other
investment policies
38
<PAGE>
and restrictions; they may also lend their portfolio securities to
the extent allowed, and in accordance with the requirements, under
the 1940 Act and enter into repurchase agreements (see "Repurchase
Agreements" above);
(iv) Invest for the purpose of exercising control or management of
other companies;
(v) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vi) Sell securities short (unless a Fund 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 a Fund from entering into short
positions in foreign currency, futures contracts, options, forward
contracts, swaps, caps, floors, collars and other financial
instruments, (2) a Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and (3) a Fund may
make margin payments in connection with futures contracts,
options, forward contracts, swaps, caps, floors, collars and other
financial instruments;
(vii) Engage in the underwriting of securities, that is, the selling of
securities for others;
(viii) 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 a Fund in the
securities of such issuer exceeds 5% of the value of a Fund's
total assets, or (b) a Fund owns more than 10% of the outstanding
voting securities of such issuer; Waddell & Reed Advisors Income
Fund, Waddell & Reed Advisors Accumulative Fund and Waddell & Reed
Advisors Bond Fund may not buy securities of companies in any one
industry if more than 25% of that Fund's total assets would then
be invested in companies in that industry;
(ix) Purchase or sell physical commodities; however, this policy shall
not prevent a Fund from purchasing and selling foreign currency,
futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments;
(x) Invest more than 5% of the Corporation's total assets in
securities issued by foreign governments;
(xi) Borrow money; however, this policy shall not prevent a Fund from
pledging its assets in connection with its
39
<PAGE>
purchase and sale of futures contracts, options, forward
contracts, swaps, caps, floors, collars and other financial
instruments; or
(xii) Issue senior securities.
THE FOLLOWING INVESTMENT RESTRICTIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED BY THE BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL:
(i) At least 65% of Waddell & Reed Advisors Bond Fund's total assets
will be invested during normal market conditions in bonds. Waddell
& Reed Advisors Bond Fund may not purchase any securities other
than debt securities if, as a result, more than 10% of the value
of the Fund's total assets would consist of such other securities.
This 10% limit does not include (1) any securities required to be
sold as promptly as practicable after conversion of convertible
debt securities or exercise of warrants, as set forth below, or
(2) premiums paid or received by the Fund as to those put and call
options that this Fund is permitted to use, the value of any put
or call options or futures contracts held by it or the amount of
initial or variation margin deposits as to those puts, calls or
futures contracts that it is permitted to use. The Fund may
convert convertible debt securities and exercise warrants provided
that, if as a result of conversion or exercise and/or as a result
of warrants becoming separately salable more than 10% of the
Fund's total assets consists of non-debt securities, sufficient
non-debt securities will be sold as promptly as practicable to
reduce the percentage of such non-debt securities held by the Fund
to 10% or less of its total assets, less the amounts set forth in
(2) above.
(ii) Under normal market conditions, Waddell & Reed Advisors Income
Fund will invest at least 65% of its total assets in
income-producing securities.
(iii) Waddell & Reed Advisors Accumulative Fund, Waddell & Reed Advisors
Income Fund and Waddell & Reed Advisors Science and Technology
Fund do 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. Waddell & Reed
Advisors Bond Fund does not intend to invest in non-investment
grade debt securities if, as a result of such investment, more
than 20% of its total assets would consist of such investments.
(iv) Each Fund may not invest more than 20% of its net assets in
foreign securities.
40
<PAGE>
(v) Each Fund may not purchase a security if, as a result, more than
10% of its net assets would consist of illiquid investments.
(vi) Each Fund does not currently intend to invest more than 5% of its
total assets in the securities of other investment companies.
(vii) Each Fund, other than Waddell & Reed Advisors Science and
Technology Fund, does not currently intend to purchase the
securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three
years of continuous operation. This restriction does not apply to
any obligations issued or guaranteed by the U.S. government or a
state or local government authority, or their respective
instrumentalities, or to collateralized mortgage obligations,
other mortgage-related securities, asset-backed securities,
indexed securities or OTC derivative instruments.
(viii) To the extent that a Fund enters into futures contracts, options
on futures contracts or options on foreign currencies traded on a
CFTC-regulated exchange, in each case other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial
margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the
time of purchase) will not exceed 5% of the liquidation value of
the Fund's portfolio, after taking into account unrealized profits
and unrealized losses on any contracts the Fund has entered into.
(In general, a call option on a futures contract is "in-the-money"
if the value of the underlying futures contract exceeds the
strike, i.e., exercise, price of the call; a put option on a
futures contract is "in-the-money" if the value of the underlying
futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of a Fund's total
assets that are at risk in futures contracts, options on futures
contracts and currency options.
An investment policy or limitation that states a maximum percentage of a
Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, a 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
41
<PAGE>
determining whether the investment complies with a 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. A Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for each of the Funds for the fiscal years
ended December 31, 1999 and December 31, 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Accumulative Fund ................ 372.35% 373.78%
Bond Fund ........................ 34.12 33.87%
Income Fund ...................... 53.79 49.29%
Science and
Technology Fund ................ 40.35 55.70%
</TABLE>
A high turnover rate will increase transaction costs and commission costs
that will be borne by the Fund and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
THE MANAGEMENT AGREEMENT
The Corporation has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Corporation's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to WRIMCO, a wholly owned subsidiary of Waddell &
Reed, Inc. Under the Management Agreement, WRIMCO is employed to supervise the
investments of the Funds and provide investment advice to the Funds. The address
of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Corporation'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 Corporation. The Management Agreement
contains detailed provisions as to the matters to be considered
42
<PAGE>
by the Corporation'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, which 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.
Waddell & Reed, Inc. and its predecessors have served as investment
manager to each of the registered investment companies in the Waddell & Reed
Advisors Funds (formerly, the United Group of Mutual Funds), since 1940 or the
company's inception date, whichever was later, and to Target/United Funds, Inc.
since that fund's inception, until January 8, 1992, when it assigned its duties
as investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for W&R Funds, Inc.
(formerly, Waddell & Reed Funds, Inc.) since its inception in September 1992.
Waddell & Reed, Inc. serves as principal underwriter for the investment
companies in the Waddell & Reed Advisors Funds and W&R Funds, Inc. (formerly,
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
Corporation 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 Corporation and handling of shareholder
inquiries. A new Shareholder Servicing Agreement, or amendments to the existing
one, may be approved by the Corporation's Board of Directors without shareholder
approval.
ACCOUNTING SERVICES
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides each Fund with bookkeeping and
accounting services and assistance, including
43
<PAGE>
maintenance of the Corporation's records, pricing of the Corporation's shares,
preparation of prospectuses for existing shareholders, preparation of proxy
statements and certain shareholder reports. A new Accounting Services Agreement,
or amendments to an existing one, may be approved by the Corporation's Board of
Directors without shareholder approval.
PAYMENTS BY THE CORPORATION FOR MANAGEMENT, ACCOUNTING AND SHAREHOLDER SERVICES
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO for each Fund during the last three
fiscal years were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Accumulative Fund ................. $11,969,745 $ 9,490,941 $ 8,111,304
Bond Fund ......................... 2,525,129 2,284,751 2,221,667
Income Fund ....................... 44,402,694 39,808,311 32,837,940
Science and Technology
Fund ............................ 16,101,855 7,557,688 5,997,091
----------- ---------- -----------
Total ........................... $74,999,423 $59,141,691 $49,168,002
=========== =========== ==========
</TABLE>
For purposes of calculating the daily fee the Corporation does not
include money owed to it by Waddell & Reed, Inc. for shares which it has sold
but not yet paid the Corporation. The Corporation accrues and pays this fee
daily.
Under the Shareholder Servicing Agreement, with respect to Class A, Class
B and Class C shares, each 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, each 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 Corporation 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; charges of any sub-agent used by Agent in performing
services under the Shareholder Servicing Agreement; and costs of legal and
special services not provided by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
44
<PAGE>
ACCOUNTING SERVICES FEE
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ ------------------
<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>
Fees paid to the Agent for the fiscal years ended December 31, 1999, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Accumulative Fund ................. $100,000 $100,000 $100,000
Bond Fund ......................... 60,833 61,667 60,000
Income Fund ....................... 100,000 100,000 100,000
Science and
Technology Fund ................. 100,000 100,000 93,750
</TABLE>
Since the Corporation 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 Corporation under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates pay the
Corporation's Directors and officers who are affiliated with WRIMCO and its
affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Corporation'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 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 Corporation. The aggregate dollar
amounts of underwriting commissions for Class A shares for the fiscal years
ended December 31, 1999, 1998 and 1997 were $35,273,006, $33,372,169 and
$28,736,826, respectively, and the amounts retained by Waddell & Reed, Inc. were
$14,082,052, $13,986,977 and $12,109,175, respectively.
45
<PAGE>
As described in the Prospectus, Waddell & Reed, Inc. reallows to selling
broker-dealers a portion of the sales charge paid for purchases of Class A
shares. A major portion of the sales charge for Class A shares and the
contingent deferred sales charges for Class B and Class C shares and for certain
Class A shares may be paid to financial advisors and managers of Waddell & Reed,
Inc. and selling broker-dealers. Waddell & Reed, Inc. may compensate its
financial advisors as to purchases for which there is no sales charge or
deferred charge.
The Corporation pays all of its other expenses. These include the costs
of materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Corporation 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 "Class A Plan") for Class A
shares adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act,
each Fund may pay Waddell & Reed, Inc., the principal underwriter for the
Corporation, a fee not to exceed .25% of a Fund's average annual net assets
attributable to Class A shares, paid monthly, to reimburse Waddell & Reed, Inc.
for its costs and expenses in connection with, either directly or through
others, the distribution of the Class A shares, the provision of personal
services to Class A shareholders and/or maintenance of Class A shareholder
accounts.
Waddell & Reed, Inc. offers each Fund's shares through its financial
advisors, registered representatives and sales managers (sales force)
46
<PAGE>
and through other broker-dealers, banks and other appropriate intermediaries. 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 cost for prospectuses, sales literature,
advertisements, sales office maintenance, processing of orders and general
overhead with respect to its efforts to distribute the Fund's shares. The Class
A Plan permits Waddell & Reed, Inc. to receive reimbursement for these Class
A-related distribution activities through the distribution fee, subject to the
limit contained in the Plan. The Class A Plan also permits Waddell & Reed, Inc.
to be reimbursed for amounts it expends in compensating, training and supporting
registered account representatives, sales managers and/or other appropriate
personnel in providing personal services to Class A shareholders of each Fund
and/or maintaining Class A shareholder accounts; increasing services provided to
Class A shareholders of each Fund by office personnel located at field sales
offices; engaging in other activities useful in providing personal service to
Class A shareholders of each Fund and/or maintenance of Class A shareholder
accounts; and in compensating broker-dealers who may regularly sell Class A
shares of each Fund, and other third parties, for providing shareholder services
and/or maintaining shareholder accounts with respect to Class A shares. For its
fiscal year ended December 31, 1999, service and distribution fees paid (or
accrued) under the Class A Plan were as follows:
<TABLE>
<CAPTION>
Service Distribution
Fee Fee
------- ------------
<S> <C> <C>
Accumulative Fund $ 4,352,839 $241,034
Bond Fund 1,245,968 75,758
Income Fund 16,986,294 947,361
Science and Technology
Fund 4,574,420 424,232
</TABLE>
To the extent that Waddell & Reed, Inc. incurs expenses for which
reimbursement may be made under the Plan that relate to distribution activities
also involving another fund in the Waddell & Reed Advisors Funds or W&R Funds,
Inc., Waddell & Reed, Inc. typically determines the amount attributable to each
Fund's expenses under the Plan on the basis of a combination of the respective
classes' relative net assets and number of shareholder accounts.
Under the Plans adopted by the Corporation for Class B shares and Class C
shares, respectively, each Fund may pay Waddell & Reed, Inc. a service fee not
to exceed 0.25% of the Fund's average annual net assets attributable to that
class, paid monthly, to compensate Waddell & Reed, Inc. for its services in
connection with the provision of personal services to shareholders of that class
and/or the maintenance of shareholder accounts of that class and a distribution
fee not to exceed 0.75%
47
<PAGE>
of the Fund's average annual net assets attributable to that class, paid
monthly, to compensate Waddell & Reed, Inc. for its services in connection with
the distribution of shares of that class. The Class B Plan and the Class C Plan
each permit Waddell & Reed, Inc. to receive compensation, through the
distribution fee 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 reimbursement under the Class A Plan.
The only Directors or interested persons, as defined in the 1940 Act, of
the Corporation 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 a Fund and its shareholders of the
affected class through Waddell & Reed, Inc.'s activities not only to distribute
the shares of the affected class but also to provide personal services to
shareholders of that class and thereby, promote the maintenance of their
accounts with the Fund. The Corporation anticipates that shareholders of a
particular class may benefit to the extent that Waddell & Reed's activities are
successful in increasing the assets of a Fund, through increased sales or
reduced redemptions, or a combination of these, and reducing the Fund and class
expenses of a shareholder's share of Fund and class expenses. Increased Fund
assets may also provide greater resources with which to pursue the goal(s) of
the Fund. Further, continuing sales of Fund 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 Corporation 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 a Fund and the shareholders of the affected class. Each Plan was
approved by the Corporation's Board of Directors, including the Directors who
are not interested persons of the Corporation and who have no direct or indirect
financial interest in the operations of each Plan or any agreement referred to
in each Plan (hereafter, the "Plan Directors"). Each Class A Plan was also
approved by the affected shareholders of the Fund.
Among other things, each Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Corporation 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
48
<PAGE>
a meeting called for that purpose, (iii) amounts to be paid by a 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 that 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 custodian for each Fund is UMB Bank, n.a., 928 Grand Boulevard,
Kansas City, Missouri. In general, the custodian is responsible for holding each
Fund's cash and securities. Deloitte & Touche LLP, 1010 Grand Boulevard, Kansas
City, Missouri, the Corporation's independent auditors, audits each Fund's
financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
DETERMINATION OF OFFERING PRICE
The net asset value ("NAV") of each class of the shares of a 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 Funds are sold at their next determined NAV 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 December
31, 1999, which is the most recent balance sheet included in this SAI, was as
follows:
WADDELL & REED ADVISORS ACCUMULATIVE FUND
<TABLE>
<S> <C>
NAV per Class A share (Class A
net assets divided by Class A shares
outstanding) ................................. $9.14
Add: selling commission (5.75% of offering
price) ....................................... .56
-----
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) .............. $9.70
=====
</TABLE>
49
<PAGE>
WADDELL & REED ADVISORS BOND FUND
<TABLE>
<S> <C>
NAV per Class A share (Class A
net assets divided by Class A shares
outstanding) ................................. $5.97
Add: selling commission (5.75% of offering
price) ....................................... .36
-----
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) .............. $6.33
=====
</TABLE>
WADDELL & REED ADVISORS INCOME FUND
<TABLE>
<S> <C>
NAV per Class A share (Class A
net assets divided by Class A shares
outstanding) ................................. $8.13
Add: selling commission (5.75% of offering
price) ....................................... .50
-----
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) .............. $8.63
=====
</TABLE>
WADDELL & REED ADVISORS SCIENCE AND TECHNOLOGY FUND
<TABLE>
<S> <C>
NAV per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................... $18.43
Add: selling commission (5.75% of offering
price) ..................................... 1.12
------
Maximum offering price per Class A share
(Class A NAV divided by 94.25%) ............ $19.55
======
</TABLE>
The offering price of a Class A share is its NAV next calculated
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 NAV next calculated
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. or an authorized third party receives
and accepts your order at its principal business office. You will be sent a
document called 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
Corporation may determine to discontinue offering Corporation shares for
purchase.
50
<PAGE>
The NAV 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 other
securities or commodities exchange on which an option or futures contract 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 NAV will change every business day, since the value of
the assets and the number of shares outstanding change every business day.
The securities in the portfolio of each 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 which is the mean
between the closing bid and asked prices. Other securities which are traded
over-the-counter are priced using the Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks.
Bonds, other than convertible bonds, are valued using a third-party pricing
system. Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Short-term debt securities are valued at amortized
cost, which approximates market. When market quotations are not readily
available, securities and other assets are valued at fair value as determined in
good faith under procedures established by, and under the general supervision
and responsibility of, the Board of Directors.
Options and futures contracts purchased and held by a Fund are valued at
the last sales price on the securities or commodities exchanges on which they
are traded, or, if there are no transactions, at the mean between bid and asked
prices. Ordinarily, the close of the regular session for options trading on
national securities exchanges is 4:10 p.m. Eastern time and the close of the
regular session for commodities exchanges is 4:15 p.m. Eastern time. Futures
contracts will be valued by reference to established futures exchanges. The
value of a futures contract purchased by a Fund will be either the closing price
of that contract or the bid price. Conversely, the value of a futures contract
sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium received
is included in that 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 a Fund wrote is exercised, the proceeds received on the sale of
the related investment are increased by the amount of the premium that the Fund
received. If a Fund exercises a call it purchased, the amount paid to purchase
the
51
<PAGE>
related investment is increased by the amount of the premium paid. If a put
written by a Fund is exercised, the amount that Fund pays to purchase the
related investment is decreased by the amount of the premium it received. If a
Fund exercises a put it purchased, the amount that 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 a Fund expires, it has a gain in the amount of the
premium; if it enters into a closing purchase transaction, it will have a gain
or loss depending on whether the premium was more or less than the cost of the
closing transaction.
Foreign currency exchange rates are generally determined prior to the
close of trading of the regular session of the NYSE. Occasionally events
affecting the value of foreign investments and such exchange rates occur between
the time at which they are determined and the close of the regular session of
trading on the NYSE, which events will not be reflected in a computation of a
Fund's NAV on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period,
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of a Fund conducted on a spot (that is, cash) basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Corporation's Board of Directors.
They are accounted for in the same manner as exchange-listed puts.
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 Waddell & Reed Advisors Funds or W&R Funds, Inc. 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 Waddell & Reed
Advisors Funds and W&R Funds, Inc.."
52
<PAGE>
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 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 Waddell & Reed Advisors Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes Waddell & Reed Advisors Funds Revocable Trust Form of
spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Transfers to Minors Act ("UTMA") account or Uniform Gifts to
Minors Act ("UGMA");
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), or 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).
For the foregoing categories, an individual's domestic partner is treated
as his or her spouse.
Examples:
53
<PAGE>
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 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
54
<PAGE>
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, 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 NAV 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 NAV 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
55
<PAGE>
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(s) 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 ("LOI"). By signing a LOI
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 LOI is accepted by Waddell & Reed, Inc. Each
purchase made from time to time under the LOI 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 LOI 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 LOI, 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 an LOI 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 LOI 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 Waddell & Reed Advisors Funds which charges the
same sales load as the Fund, with a net asset value as of the date of
acceptance of the LOI 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 LOI signed by a purchaser will be returned to the purchaser
after it is accepted by Waddell & Reed, Inc. and
56
<PAGE>
will set forth the dollar amount of Class A shares which must be purchased
within the 13-month period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the LOI only if the contractual plan has
been completed.
The minimum initial investment under an LOI is 5% of the dollar amount
which must be invested under the LOI. An amount equal to 5% of the purchase
required under the LOI will be held "in escrow." If a purchaser does not, during
the period covered by the LOI, invest the amount required to qualify for the
reduced sales charge under the terms of the LOI, 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 an LOI
which is not completed will be collected by redeeming part of the shares
purchased under the LOI 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 LOI, the lower sales charge will apply.
An LOI does not bind the purchaser to buy, or Waddell & Reed, Inc. to
sell, the shares covered by the LOI.
With respect to LOIs for $2,000,000 or purchases otherwise qualifying for
no sales charge under the terms of the LOI, the initial investment must be at
least $200,000.
The value of any shares redeemed during the 13-month period which were
acquired under the LOI will be deducted in computing the aggregate purchases
under the LOI.
LOIs are not available for purchases made under an SEP where the employer
has elected to have all purchases under the SEP grouped.
OTHER FUNDS IN THE WADDELL & REED ADVISORS FUNDS AND W&R FUNDS, INC.
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 Waddell & Reed
Advisors Funds and the W&R Funds, Inc. subject to a sales charge. A purchase of
Class A shares, or Class A shares held, in any of the funds in the Waddell &
Reed Advisors Funds subject to a sales charge will be treated as an investment
in a Fund in determining the applicable sales charge. For these purposes, Class
A shares of Waddell & Reed Advisors Cash Management, Inc. (formerly,
57
<PAGE>
United Cash Management, Inc.) or W&R Funds, Inc. Money Market Fund that were
acquired by exchange of another Waddell & Reed Advisors or W&R Funds, Inc.
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. Holders of an
uncompleted (i) United Income Investment Program, (ii) United Periodic
Investment Plan to Acquire Accumulative Fund Shares of Waddell & Reed Advisors
Funds, Inc., or (iii) United Periodic Investment Plan to Acquire Science Fund
Shares of Waddell & Reed Advisors Funds, Inc. (each a "Plan") on May 30, 1996,
with a face amount of less that $12,000, may purchase Class A shares of the Fund
corresponding to such Plan (i.e., Income Fund, Accumulative Fund, or Science and
Technology Fund, respectively) at NAV, up to the amount representing the unpaid
balance of such Plan, if the purchase order is so designated.
NET ASSET VALUE PURCHASES OF CLASS A SHARES
Class A shares of a Fund may be purchased at NAV by the Directors and
officers of the Fund or of any affiliated entity of Waddell & Reed, Inc.,
employees of Waddell & Reed, Inc. or of any of its 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. "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 of Class A shares in any tax-qualified retirement plan under which the
eligible purchaser is the sole participant may also be made at NAV. Trusts under
which the grantor and the trustee or a co-trustee are each an eligible purchaser
are also eligible for NAV purchases of Class A shares. "Employees" include
retired employees. A "retired employee" is an individual separated from service
from Waddell & Reed, Inc., or from an affiliated company with a vested interest
in any Employee Benefit Plan sponsored by Waddell & Reed, Inc. or any of its
affiliated companies. "Employees" also include 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" include
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 NAV whether or not the custodian himself is an eligible purchaser.
Until March 31, 2001, Class A shares may also be purchased at NAV by
persons who are clients of Legend Equities Corporation ("Legend") if the
purchase is made with the proceeds of the redemption of shares of a mutual fund
which is
58
<PAGE>
not within the Waddell & Reed Advisors Funds or W&R Funds, Inc. and the purchase
is made within 60 days of such redemption.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at NAV.
Any holder of an uncompleted Plan on May 30, 1996, may purchase Class A
shares of the Fund corresponding to such Plan at NAV, up to the amount
representing the unpaid balance of the Plan, if the purchase order is so
designated. In addition, any person who was a holder of a Plan on May 30, 1996
may purchase Class A shares of the Fund corresponding to such Plan at NAV up to
the amount representing partial Plan withdrawals outstanding on May 30, 1996,
provided the purchase order is so designated.
Shares may also be issued at NAV in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund is a party.
REASONS FOR DIFFERENCES IN PUBLIC OFFERING PRICE OF CLASS A SHARES
As described herein and in the Prospectus, there are a number of
instances in which a Fund's Class A shares are sold or issued on a basis other
than at the maximum public offering price, that is, NAV plus the highest sales
charge. Some of these instances 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 an LOI or Rights 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 is elimination of sales
charges on the reinvestment of dividends and distributions), and (iii) they are
designed to avoid an unduly large dollar amount of sales charges 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.
In general, the reasons for the other instances in which there are
reduced or eliminated sales charges for Class A shares are as follows. Exchanges
at NAV are permitted because a sales charge has already been paid on the shares
exchanged. Sales of Class A shares without a sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage responsibility and interest in the Waddell & Reed
Advisors Funds and an identification with its aims and policies. Limited
reinvestments
59
<PAGE>
of redemptions of Class A shares at no sales charge are permitted
to attempt to protect against mistaken or not fully informed redemption
decisions. Class A shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted by the 1940 Act from the otherwise applicable
restrictions as to what charge must be imposed. Reduced or eliminated sales
charges may also be used for certain short-term promotional activities by
Waddell & Reed, Inc. 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 NAV 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 a Fund or of any of the funds in the Waddell & Reed
Advisors Funds or W&R Funds, Inc. 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 B and Class C
shares and certain Class A shares to which the CDSC otherwise applies that are
redeemed under the Service are not subject to a CDSC. Applicable forms to start
the Service are available through Waddell & Reed Services Company.
The maximum amount of the withdrawal for monthly, quarterly, semiannual
and annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50. The Service, and this exclusion from
the deferred sales charge, does not apply to a one-time withdrawal.
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 Waddell & Reed Advisors Funds or W&R Funds, Inc.; 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 current 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
60
<PAGE>
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 the Service.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares of a class you have made
available for the Service are paid in additional shares of that class. All
payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of shares you own will decrease. When all of the
shares in your account are redeemed, you will not receive any further payments.
Thus, the payments are not an annuity, income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. You may
at any time redeem part or all of the shares in your account; if you redeem all
of the shares, the Service is terminated. The Corporation can also terminate the
Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will
be sent to you to assist you in completing your Federal income tax return.
EXCHANGES FOR SHARES OF OTHER FUNDS IN THE WADDELL & REED ADVISORS FUNDS AND W&R
FUNDS, INC.
CLASS A SHARE EXCHANGES
Once a sales charge has been paid on shares of a fund in the Waddell &
Reed Advisors Funds or the W&R Funds, Inc., these shares and any shares added to
them from dividends or distributions paid in shares may be freely exchanged for
Class A shares of another fund in the Waddell & Reed Advisors Funds or the W&R
Funds, Inc. The shares you exchange must be worth at least $100 or you must
already own shares of the fund in the Waddell & Reed Advisors Funds or the W&R
Funds, Inc. into which you want to exchange.
61
<PAGE>
You may exchange Class A shares you own in another fund in the Waddell &
Reed Advisors Funds or the W&R Funds, Inc. for Class A shares of a 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.
Shares of Waddell & Reed Advisors Municipal Bond Fund, Inc., Waddell &
Reed Advisors Government Securities Fund, Inc. and Waddell & Reed Advisors
Municipal High Income Fund, Inc.(formerly, United Municipal Bond Fund, Inc.,
United Government Securities Fund, Inc. and United Municipal High Income Fund,
Inc., respectively), W&R Funds, Inc. Municipal Bond Fund and Limited-Term Bond
Fund shares are the exceptions and special rules apply. Class A shares of any of
these funds may be exchanged for Class A shares of the Funds only if (i) you
received those shares as a result of one or more exchanges of shares on which a
maximum sales charge was originally paid (currently, 5.75%), 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 Waddell & Reed Advisors Cash
Management, Inc. automatically exchanged each month into Class A shares of a
Fund or any other fund in the Waddell & Reed Advisors Funds, provided you
already own Class A shares of the fund. The Class A shares of Waddell & Reed
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 Waddell & Reed
Advisors Funds into which you want to exchange. The minimum value of shares
which you may designate for automatic exchange monthly is $100, which may be
allocated among the Class A shares of different funds in the Waddell & Reed
Advisors Funds so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
CLASS B SHARE EXCHANGES
You may exchange Class B shares of one Fund of the Corporation for Class
B shares of another Fund of the Corporation, or for Class B shares of other
funds in the Waddell & Reed Advisors Funds and/or W&R Funds, Inc., without
charge.
62
<PAGE>
The redemption of a 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 Waddell & Reed
Advisors Cash Management, Inc. automatically exchanged each month into Class B
shares of a Fund or any other fund in the Waddell & Reed Advisors Funds,
provided you already own Class B shares of a fund. The shares of Waddell & Reed
Advisors Cash Management, Inc. which you designate for automatic exchange must
be worth at least $100, which may be allocated among different Funds so long as
each Fund receives a value of at least $25. Minimum initial investment and
minimum balance requirements apply to such automatic exchange service.
CLASS C SHARE EXCHANGES
You may exchange Class C shares of one Fund of the Corporation for Class
C shares of another Fund of the Corporation, or for Class C shares of other
funds in the Waddell & Reed Advisors Funds and/or W&R Funds, Inc., without
charge.
The redemption of a 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 Waddell & Reed
Advisors Cash Management, Inc. automatically exchanged each month into Class C
shares of a Fund or any other fund in the Waddell & Reed Advisors Funds,
provided you already own Class C shares of a fund. The shares of Waddell & Reed
Advisors Cash Management, Inc. which you designate for automatic exchange must
be worth at least $100, which may be allocated among different Funds so long as
each Fund receives a value of at least $25. Minimum initial investment and
minimum balance requirements apply to such automatic exchange service.
CLASS Y SHARE EXCHANGES
Class Y shares of a Fund may be exchanged for Class Y shares of another
Fund or of any other fund in the Waddell & Reed Advisors Funds and/or W&R Funds,
Inc. or for Class A shares of Waddell & Reed Advisors Cash Management, Inc.
63
<PAGE>
GENERAL EXCHANGE INFORMATION
When you exchange shares, the total shares you receive will have the same
aggregate NAV 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 Waddell & Reed Advisors Funds and/or W&R Funds, Inc., 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 a Fund (or shares of certain other
funds in the Waddell & Reed Advisors Funds or W&R Funds, Inc.).
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. 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,
64
<PAGE>
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 (or to any combination of
Roth and traditional IRAs). In addition, for an investor whose adjusted gross
income does not exceed $100,000 (and who is not married 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 $25,500, 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 plan to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar (up to 3%
of an employee's compensation) or may contribute to all eligible employees 2% of
their compensation, whether or
65
<PAGE>
not they defer salary to their retirement plans. SIMPLE plans involve fewer
administrative requirements, generally, than 401(k) or other qualified plans.
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 from receipt of request, unless delayed
because of emergency conditions determined by the SEC, when the NYSE is closed
other than for weekends or holidays, or when trading on the NYSE is restricted.
Payment is made in cash, although under extraordinary conditions redemptions may
be made in portfolio securities. Payment for redemptions of shares of the
Corporation may be made in portfolio securities when the Corporation'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 NAV. There would be brokerage costs to the redeeming shareholder in
selling such securities. The Corporation, however, has elected to be governed by
Rule 18f-1 under the 1940 Act, pursuant to which it is
66
<PAGE>
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
its NAV during any 90-day period for any one shareholder.
REINVESTMENT PRIVILEGE
Each 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 any one or more of the Funds the amount you wish to
reinvest. The amount you return will be reinvested in Class A shares of the Fund
at the NAV next calculated after the Fund receives the returned amount. Your
written request to reinvest and the amount to be reinvested must be received
within forty-five days after your redemption request was received. You can do
this only once as to Class A shares of a Fund, and the Fund must be offering
Class A shares at the time your reinvestment request is received. You do not use
up this privilege by redeeming Class A shares to invest the proceeds at NAV in a
Keogh plan or an IRA.
There is also a reinvestment privilege for Class B and Class C shares
and, where applicable, certain Class A shares, under which you may reinvest all
or part of any amount of the shares you redeemed and have the corresponding
amount of the deferred sales charge, if any, which you paid restored to your
account by adding the amount of that charge to the amount you are reinvesting in
shares of the same class. If Fund shares of that class are then being offered,
you can put all or part of your redemption payment back into such shares at the
NAV next calculated after you have returned the amount. Your written request to
do this must be received within forty-five days after your redemption request
was received. You can do this only once as to Class B, Class C and Class A
shares of a 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 NAV
in a Keogh plan or an IRA.
MANDATORY REDEMPTION OF CERTAIN SMALL ACCOUNTS
Each Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate NAV 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.
67
<PAGE>
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation 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 the past five years of each Director and
officer is stated below. Each of the persons listed through and including Mr.
Vogel is a member of the Corporation's Board of Directors. The other persons are
officers of the Fund but are 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 Waddell & Reed Advisors Funds, Target/United Funds,
Inc. and Waddell & Reed Funds, Inc. Each of the Corporation'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 and Director of Waddell & Reed Financial, Inc.; President,
Chairman of the Board of Directors, Director and Chief Executive Officer of
Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors
and Director of WRIMCO, Waddell & Reed, Inc. and Waddell & Reed Services
Company; formerly, President of each of the funds in the Fund Complex;
formerly, Chairman of the Board of Directors of Waddell & Reed Asset
Management Company, a former affiliate of Waddell & Reed Financial, Inc. Date
of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
68
<PAGE>
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President of 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 of Garney
Companies, Inc., a specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
263 West 3rd Avenue
San Mateo, California 94402
Chairman and Chief Executive Officer of George S. and Delores Dor'e
Eccles Foundation; Director of First Security Corp., a bank holding company, and
Director of Fluor Corp., a company with interests in coal; formerly, President
of Hewlett Foundation. Date of birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, 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 at the University of Oklahoma;
Adjunct Professor of Law at the University of Oklahoma College of Law; Managing
Member, Harroz Investments, L.L.C.; formerly, Vice President for Executive
Affairs of the University of Oklahoma; formerly, 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; Chairman of the Board of Directors, Gilliland & Hayes, P.A., a law
firm; formerly, President of Gilliland & Hayes, P.A.; formerly, Director of
Central Properties, Inc. Date of birth: December 11, 1919.
69
<PAGE>
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.; Executive 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.; Director and Treasurer of Waddell & Reed Services Company;
Chairman of the Board of Directors, Chief Executive Officer, President and
Director of Fiduciary Trust Company of New Hampshire, an affiliate of Waddell
& Reed, Inc.; Director of Legend Group Holdings, LLC, Legend Advisory
Corporation, Legend Equities Corporation, Advisory Services Corporation, The
Legend Group, Inc. and LEC Insurance Agency, Inc., affiliates of Waddell &
Reed Financial, Inc.; formerly, Vice President of each of the funds in the
Fund Complex; formerly, Director and Treasurer of Waddell & Reed Asset
Management Company; formerly, President of Waddell & Reed Services Company.
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, and Director of Waddell & Reed
Financial, Inc.; Executive 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; Chairman of the Board of Directors of Austin, Calvert &
Flavin, Inc., an affiliate of WRIMCO; formerly, President, Chief Executive
Officer, Chief Investment Officer and Director of Waddell & Reed Asset
Management Company. 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 its 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.
70
<PAGE>
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director and Vice President of Network Rehabilitation Services; Board
Member, Member of Executive Committee and Finance Committee of Truman Medical
Center; 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; Director
of Columbian Bank and Trust. Date of birth: April 9, 1953.
ELEANOR B. SCHWARTZ
1213 West 95th Court, Chartwell 4
Kansas City, Missouri 64114
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.
DANIEL C. SCHULTE
Vice President, Assistant Secretary and General Counsel of the Fund
and each of the other funds in the Fund Complex; Vice President, Secretary
and General Counsel of Waddell & Reed Financial, Inc.; Senior Vice President,
Secretary and General Counsel of Waddell & Reed Financial Services Company,
Waddell & Reed, Inc., WRIMCO and Waddell & Reed Services Company; Secretary
and Director of Fiduciary Trust Company of New Hampshire; formerly, Assistant
Secretary of Waddell & Reed Financial, Inc.; formerly, an attorney with
Klenda, Mitchell, Austerman & Zuercher, L.L.C. Date of birth: December 8,
1965.
KRISTEN A. RICHARDS
Vice President, Secretary and Associate General Counsel of the Fund and
each of the other funds in the Fund Complex; Vice President and Associate
General Counsel of WRIMCO; formerly, Assistant Secretary of the Fund and each of
the other funds in the Fund Complex; formerly, Compliance Officer of WRIMCO.
Date of birth: December 2, 1967.
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.
71
<PAGE>
72
<PAGE>
73
<PAGE>
74
<PAGE>
JAMES C. CUSSER
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO. Date of birth: May 30, 1949.
ANTONIO INTAGLIATA
Vice President of the Corporation; Senior Vice President of WRIMCO;
formerly, Senior Vice President of Waddell & Reed, Inc. Date of birth:
February 7, 1938.
JAMES D. WINELAND
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed
Asset Management Company; formerly, Vice President of Waddell & Reed, Inc. Date
of birth: September 25, 1951.
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 Corporation's underwriter, Waddell & Reed, Inc., or of
WRIMCO are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, whereby an incumbent Director who has attained the age of 70 may, or
if elected on or after May 31, 1993, and has attained the age of 75 must, resign
his or her position as Director and, unless he or she elects otherwise, will
serve as Director Emeritus provided the Director has served as a Director of the
Funds for at least five years which need not have been
75
<PAGE>
consecutive. A Director Emeritus receives fees in recognition of his or her past
services whether or not services are rendered in his or her capacity as Director
Emeritus, but he or she has no authority or responsibility with respect to the
management of the Corporation. Messrs. Henry L. Bellmon, Jay B. Dillingham,
Doyle Patterson, Ronald K. Richey and Paul S. Wise retired as Directors of the
Corporation and of each of the funds in the Fund Complex, and each serves as
Director Emeritus.
The funds in the Waddell & Reed Advisors Funds, Target/United Funds, Inc.
and W&R Funds, Inc. pay to each Director, effective October 1, 1999, an annual
base fee of $50,000, plus $3,000 for each meeting of the Board of Directors
attended and effective January 1, 2000, an annual base fee of $52,000 plus
$3,250 for each meeting of the Board of Directors attended, plus reimbursement
of expenses for 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. (Prior to October 1,
1999, the funds in the Waddell & Reed Advisors Funds, Target/United Funds, Inc.
and W&R Funds, Inc. paid to each Director an annual base fee of $48,000 plus
$2,500 for each meeting of the Board of Directors attended.) The fees to the
Directors are divided among the funds in the Waddell & Reed Advisors Funds,
Target/United Funds, Inc. and W&R Funds, Inc. based on the funds' relative size.
During the Corporation's fiscal year ended December 31, 1999, the
Corporation's Directors received the following fees for service as a director:
76
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
-------- ------------ ------------
<S> <C> <C>
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 28,491 59,500
John A. Dillingham 28,491 59,500
David P. Gardner 27,281 57,000
Linda K. Graves 28,491 59,500
Joseph Harroz, Jr. 28,491 59,500
John F. Hayes 28,491 59,500
Glendon E. Johnson 28,733 60,000
William T. Morgan 28,491 59,500
Ronald C. Reimer 28,474 59,500
Frank J. Ross, Jr. 28,491 59,500
Eleanor B. Schwartz 28,733 60,000
Frederick Vogel III 28,733 60,000
</TABLE>
*No pension or retirement benefits have been accrued as a part of Fund expenses.
The officers are paid by WRIMCO or its affiliates.
SHAREHOLDINGS
As of May 31, 2000, all of the Corporation's Directors and officers as a
group owned less than 1% of the outstanding shares of the Corporation. The
following table sets forth information with respect to the Corporation, as of
May 31, 2000, regarding the beneficial ownership of the series, and classes
thereof, of the Corporation's shares.
77
<PAGE>
<TABLE>
<CAPTION>
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
------------------- ---------- ------------ -------
<S> <C> <C> <C>
Fiduciary TR Co NH Cust Bond Fund
IRA Rollover Class C 8,024 5.64%
FBO Melvin E. Argent
1612 Drury Ln
Vista CA 92084-4706
James H. Brennan & Accumulative Fund
Helen P. Brennan Jtn Ros Class C 12,821 8.69%
13 Hilltop Rd
Ewing NJ 08638-1404
C & S Leasing Co., Inc. Accumulative Fund
P. O. Box 1972 Class C 8,700 5.90%
Orangeburg SC 29116-1972
Lucille F. Zuris Tr Bond Fund
U/A 10/26/98 Class C 8,525 5.99%
Lucille F. Zuris Trust
425 Douglas Ave
Kalamazoo MI 49007-3160
Walter Rast Jr (TOD) Bond Fund
1201 Laurel Glen Blvd Class C 11,1375 7.83%
Leander TX 78641-2922
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
------------------- ---------- ------------ -------
<S> <C> <C> <C>
The Northern Trust Income Fund
Company Ttee Class Y 14,338,320 58.93%
FBO USX Corporation
Savings Plan
P. O. Box 92956
Chicago IL 60675-2956
UMBSC & Co Income Fund
FBO Interstate Brands Class Y 3,255,746 13.38%
Unit Elect
PO Box 419260
Kansas City MO 64141-6260
Waddell & Reed Income Fund
Financial, Inc. Class Y 1,495,923 6.15%
401(k) and Thrift Plan
6300 Lamar Avenue Science and Technology Fund
Overland Park KS 66201 Class Y 405,569 24.55%
Accumulative Fund
Class Y 228,990 42.87%
Bond Fund
Class Y 82,552 17.98%
Compass Bank TR Science and Technology Fund
Profit Sharing Plan Class Y 489,689 29.65%
FBO Torchmark Corp
Savings & Investment Accumulative Fund
Plan Class Y 157,955 29.57%
Attn: Wayne Laugevin
15 20th St S Fl 8
Birmingham AL 35233-2000
Fiduciary Trust Co NH TR Accumulative Fund
Corporate Money Pension Class Y 31,714 5.94%
Plan
Okanogan County Hospital Bond Fund
District 3 Class Y 85,398 18.60%
FBO Unallocated Assets
Qualified Plan 1329481
P. O. Box 793
Omak WA 98841-0793
Kenneburt & Co. Science and Technology Fund
P. O. Box 11426 Class Y 482,363 29.20%
Birmingham AL 35202-1426
Bond Fund
Class Y 54,600 11.89%
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
------------------- ---------- ------------ -------
<S> <C> <C> <C>
William L Madison Accumulative Fund
Trustee Class Y 30,583 5.73%
CPSP Johnson Madison
Lmb Co Bond Fund
FBO Unallocated Assets Class Y 29,844 6.50%
Qualified Profit Sharing Plan
2813 5th Ave S
Great Falls MT 59405-3142
Waddell & Reed Accumulative Fund
Investment Management Class Y 69,714 13.05%
DCA Acct
Attn: Ty Towery Bond Fund
P. O. Box 29217 Class Y 55,624 12.12%
Shawnee Mission KS 66201-9217
John L. Green & Bond Fund
Edward F. Brennan Tr Class Y 51,685 11.26%
Midwestern Teamsters
Pension Plan
2160 S Foster Ave
Wheeling IL 60090-6507
</TABLE>
PAYMENTS TO SHAREHOLDERS
GENERAL
There are three sources for the payments a Fund makes to you as a
shareholder of a class of shares of that 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 a Fund holds,
less expenses (which will vary by class). The second source is net realized
capital gains, which are derived from proceeds received from a Fund's sale of
securities at a price higher than the Fund's 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. Payments, if any, from net long-term capital
gains and the remaining foreign currency gains are called distributions.
Each Fund pays distributions from net capital gains (the excess of net
long-term capital gains over net short-term capital loss). A Fund may or may not
have such gains, depending on whether securities are sold and at what price. If
a Fund has net capital gains, it will pay distributions once each year, in the
80
<PAGE>
latter part of the fourth calendar quarter, except to the extent it has net
capital losses from a prior year or years to offset the gains. It is the policy
of each Fund to make annual capital gains distributions to the extent that net
capital gains are realized in excess of available capital loss carryovers.
Income and expenses are earned and incurred separately by each Fund, and
gains and losses on portfolio transactions of each Fund are attributable only to
that Fund. For example, capital losses realized by one Fund would not affect
capital gains realized by another Fund.
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 a 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 a 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 it was 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 NAV without any sales charge. The
NAV used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the Directors. The
record date is the date used to determine which shareholders are entitled to
receive a dividend or distribution; investors who own shares on that date are so
entitled.
Even if you receive dividends and distributions on Class A shares in
cash, you can thereafter reinvest them (or distributions only) in Class A shares
of that Fund at NAV (i.e., no sales charge) next calculated after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
GENERAL
Each Fund (which is treated as a separate entity for these purposes) has
qualified since inception for treatment as a regulated investment company
("RIC") under the Code, so that it is relieved of Federal income tax on that
part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gains and net gains from certain
foreign currency transactions) that it distributes to its
81
<PAGE>
shareholders. To continue to qualify for treatment as a RIC, the Fund must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income ("Distribution Requirement") and must meet
several additional requirements. With respect to each Fund, 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 Requirement"); and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. Government securities or the
securities of other RICs) of any one issuer.
If a 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 gains, 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 qualifying for RIC treatment.
Dividends and distributions declared by a 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 shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as a 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.
Each 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
82
<PAGE>
for that year and capital gain net income for the one-year period ending on
October 31 of that year, plus certain other amounts. For these purposes, each
Fund may defer into the next calendar year net capital losses incurred between
November 1 and the end of the current calendar year. It is the policy of each
Fund to pay sufficient dividends and distributions each year to avoid imposition
of the Excise Tax.
INCOME FROM FOREIGN SECURITIES
Dividends and interest received, and gains realized, by a Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
Each of the Funds may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, 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 it distributes that income to its shareholders.
If a 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.
A 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 may deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market
83
<PAGE>
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 under the election (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain PFICs). 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.
FOREIGN CURRENCY GAINS AND LOSSES
Gains or losses (1) from the disposition of foreign currencies, including
forward currency contracts, (2) on the disposition of each debt security
denominated in a foreign currency that are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of the security
and the date of disposition, and (3) that are attributable to fluctuations in
exchange rates that occur between the time the Fund accrues interest, dividends
or other receivables, or expenses or other liabilities, denominated in a foreign
currency and the time the Fund actually collects the receivables or pays the
liabilities, generally are treated as ordinary income or loss. These gains or
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income, rather than affecting the
amount of its net capital gain.
INCOME FROM OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACTS AND FOREIGN
CURRENCIES
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
the Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures contracts and forward currency contracts derived
by a Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
Any income a Fund earns from writing options is treated as short-term
capital gains. If a Fund enters into a closing purchase transaction, it will
have short-term capital gain or loss based on the difference between the premium
it receives for the option it wrote and the premium it pays for the option it
buys. If an option written by a Fund lapses without being exercised, the premium
it receives also will be a short-term capital gain. If such an option is
exercised and the Fund thus sells the securities subject to the option, the
premium the Fund
84
<PAGE>
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 Funds may invest may be "section 1256 contracts." Section 1256
contracts held by a 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. Section 1256 contracts also may be marked-to-market for purposes of
the Excise Tax and other purposes. The Fund may need to distribute any
mark-to-market gains to its shareholders to satisfy the Distribution Requirement
and/or avoid imposition of the Excise Tax, even though it may not have closed
the transactions and received cash to pay the distributions.
Code Section 1092 (dealing with straddles) may also affect the taxation
of options and futures contracts in which the Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options, futures contracts and forward currency 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.
In addition, these rules may postpone the recognition of loss that would
otherwise be recognized under the mark-to-market rules discussed above. The
regulations under section 1092 also provide certain "wash sale" rules which
apply to transactions where a position is sold at a loss and a new offsetting
position is acquired within a prescribed period and "short sale" rules
applicable to straddles. If a 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 Funds are not entirely clear.
If a 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 position, 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
85
<PAGE>
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 identical property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any transaction
during any taxable year that otherwise would be treated as a constructive sale
if the transaction is closed within 30 days after the end of that year and the
Fund holds the appreciated financial position unhedged for 60 days after that
closing (I.E., at no time during that 60-day period is the Fund's risk of loss
regarding that position reduced by reason of certain specified transactions with
respect to substantially identical or related property, such as having an option
to sell, being contractually obligated to sell, making a short sale, or granting
an option to buy substantially identical stock or securities).
ZERO COUPON AND PAYMENT-IN-KIND SECURITIES
Certain Funds may acquire zero coupon or other securities issued with
OID. As the holder of those securities, a 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,
a Fund must include in its gross income securities it receives as "interest" on
payment-in-kind securities. Because each 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 to avoid imposition of the Excise Tax, a Fund 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
a Fund's cash assets or from the proceeds of sales of portfolio securities, if
necessary. A 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
each Fund. Transactions in securities other than those for which an exchange is
the primary market are generally effected with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained. The individual
who manages a Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the manager will frequently place
concurrent orders for all or most accounts for
86
<PAGE>
which the manager has responsibility or WRIMCO may otherwise combine orders for
a Fund with those of other funds in the Waddell & Reed Advisors Funds,
Target/United Funds, Inc. and W&R Funds, Inc. or other accounts for which it has
investment discretion, including accounts affiliated with WRIMCO. WRIMCO, at its
discretion, may aggregate such orders. 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, for a transaction not involving an initial public
offering ("IPO"), WRIMCO will ordinarily allocate the transaction pro rata based
on the orders placed, subject to certain variances provided for in the written
procedures. For a partially-filled IPO order, subject to certain variances
specified in the written procedures, WRIMCO generally allocates the shares as
follows: the IPO shares are initially allocated pro rata among the included
funds and/or advisory accounts grouped according to investment objective, based
on relative total assets of each group; and the shares are then allocated within
each group pro rata based on relative total assets of the included funds and/or
advisory accounts, except that (a) within a group having a small cap-related
investment objective, shares are allocated on a rotational basis after taking
into account the impact of the anticipated initial gain on the value of the
included fund or advisory account and (b) within a group having a
mid-cap-related investment objective, shares are allocated based on the
portfolio manager's judgment, including but not limited to such factors as the
fund's or advisory account's investments strategies and policies, cash
availability, any minimum investment policy, liquidity, anticipated term of the
investment and current securities positions. In all cases, WRIMCO seeks to
implement its allocation procedures to achieve a fair and equitable allocation
of securities among its fund and other advisory accounts. Sharing in large
transactions could affect the price a Fund pays or receives or the amount it
buys or sells. As well, a better negotiated commission may be available through
combined orders.
To effect the portfolio transactions of a Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to seek "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding but
is expected to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund. Subject to review by the Board of Directors,
such policies include the selection of brokers which provide execution and
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.
87
<PAGE>
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 the commission 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 or other
non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
request of a broker) includes information on particular companies and industries
as well as market, economic or institutional activity areas. It serves to
broaden the scope and supplement the research activities of WRIMCO; serves to
make available additional views for consideration and comparisons; and enables
WRIMCO to obtain market information on the price of securities held in the
Fund's portfolio or being considered for purchase.
The Corporation may also use its brokerage to pay for pricing or
quotation services to value securities. The table below sets forth the brokerage
commissions paid by each of the Funds during the fiscal years ended December 31,
1999, 1998 and 1997. These figures do not include principal transactions or
spreads or concessions on principal transactions, i.e., those in which a Fund
sells securities to a broker-dealer firm or buys from a broker-dealer firm
securities owned by it.
88
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Accumulative
Fund ........................ $12,704,046 $10,437,061 $ 8,215,119
Bond Fund ..................... 0 0 0
Income Fund ................... 6,743,644 5,534,850 4,447,377
Science and
Technology Fund ............. 935,732 777,363 968,118
----------- ---------- ----------
Total ......................... $20,383,422 $16,749,274 $13,630,614
=========== ========== ==========
</TABLE>
The next table shows for each of the Funds' last fiscal year the
transactions, other than principal transactions, which were directed to
broker-dealers who provided research services as well as execution and the
brokerage commissions paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
<TABLE>
<CAPTION>
Amount of Brokerage
Transactions Commissions
-------------- ----------
<S> <C> <C>
Accumulative Fund ....................... $ 9,309,404,676 $10,805,068
Bond Fund ............................... --- ---
Income Fund ............................. 4,662,650,474 5,077,031
Science and Technology Fund ............. 796,709,920 744,798
--------------- -----------
Total .............................. $14,768,765,070 $16,626,897
=============== ===========
</TABLE>
As of December 31, 1999, Waddell & Reed Advisors Accumulative Fund owned
securities of Citigroup Inc. in the amount of $55,562,500. Citigroup Inc. is a
regular broker of the Fund. As of December 31, 1999, Waddell & Reed Advisors
Bond Fund owned securities of Salomon Inc. in the amount of $5,162,700. Salomon
Inc. is a regular broker of the Fund. As of December 31, 1999, Waddell & Reed
Advisors Income Fund owned securities of Citigroup Inc. in the amount of
$127,099,219. Citigroup Inc. is a regular broker of the Fund.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics under Rule 17j-1 of the 1940 Act that permits their respective directors,
officers and employees to invest in securities, including securities that may be
purchased or held by the Fund. The Code of Ethics subjects covered personnel to
certain restrictions that include prohibited activities, pre-clearance
requirements and reporting obligations.
89
<PAGE>
OTHER INFORMATION
THE SHARES OF THE FOUR FUNDS
The shares of each of the four Funds represents an interest in that
Fund's securities and other assets and in its profits or losses. Each fractional
share of a class has the same rights, in proportion, as a full share of that
class.
Each Fund offers four classes of its shares: Class A, Class B, Class C
and Class Y. Each class of a Fund 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 and certain Class A shares are subject to a contingent
deferred sales charge; Class B and Class C are subject to a contingent deferred
sales charge and to ongoing distribution and service fees; Class B shares
converts to Class A shares 8 years after the month in which the shares where
purchased; 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 Funds do not anticipate that there will be any
conflicts between the interests of holders of the different classes of shares of
the same 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 a 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 of the same
Fund, which in turn are expected to be lower than for Class Y shares of that
Fund. Shares are fully paid and nonassessable when purchased.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in
90
<PAGE>
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 a Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of each of the
Funds 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.
Each share of each Fund (regardless of class) is entitled to one vote. On
certain matters such as the election of Directors, all shares of all of the four
Funds vote together as a single class. On other matters affecting a particular
Fund, the shares of that Fund vote together as a separate class, such as with
respect to a change in an investment restriction of a particular Fund, except
that as to matters for which a separate vote of a class is required by the 1940
Act or which affects the interests of one or more particular classes, the
affected shareholders vote as a separate class. In voting on a Management
Agreement, approval by the shareholders of a Fund is effective as to that Fund
whether or not enough votes are received from the shareholders of the other
Funds to approve the Management Agreement for the other Funds.
91
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS
BUSINESS SERVICES - 9.96%
Alcatel (A) ............................................................ 120,000 $ 27,559,728
America Online, Inc.* .................................................. 125,000 9,429,687
BroadVision, Inc.* ..................................................... 125,000 21,257,812
Citrix Systems, Inc.* .................................................. 300,000 36,890,625
Clear Channel Communications, Inc.* .................................... 350,000 31,237,500
Getty Images, Inc.* .................................................... 250,000 12,250,000
Intuit Inc.* ........................................................... 700,000 41,934,375
Netopia, Inc.* ......................................................... 200,000 10,918,750
Phone.com, Inc.* ....................................................... 100,000 11,618,750
Veritas Software Corp.* ................................................ 150,000 21,464,063
Total ............................................................... 224,561,290
CHEMICALS AND ALLIED PRODUCTS - 9.44%
American Home Products Corporation ..................................... 1,200,000 47,325,000
Forest Laboratories, Inc.* ............................................. 1,100,000 67,581,250
Pharmacia & Upjohn, Inc. ............................................... 1,100,000 49,500,000
Schering-Plough Corporation ............................................ 1,000,000 42,187,500
Warner-Lambert Company ................................................. 75,000 6,145,313
Total ............................................................... 212,739,063
COMMUNICATION - 16.74%
AT&T Corp. - Liberty Media Group,
Class A* ............................................................ 700,000 39,725,000
CBS Corporation* ....................................................... 150,000 9,590,625
Deutsche Telekom AG, ADR ............................................... 300,000 21,300,000
EchoStar Communications Corporation,
Class A* ............................................................ 475,000 46,253,125
General Motors Corporation, Class H* ................................... 250,000 24,000,000
MediaOne Group, Inc.* .................................................. 1,000,000 76,812,500
Nextel Communications, Inc.* ........................................... 300,000 30,928,125
Nippon Telegraph and Telephone
Corporation, ADR .................................................... 200,000 17,225,000
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................................................. 400,000 26,262,500
VoiceStream Wireless Corporation (B)* .................................. 600,000 85,256,250
Total ............................................................... 377,353,125
DEPOSITORY INSTITUTIONS - 2.46%
Citigroup Inc. ......................................................... 1,000,000 55,562,500
ELECTRIC, GAS AND SANITARY SERVICES - 0.49%
Columbia Gas Systems, Inc. ............................................. 175,000 11,068,750
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE
.
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT - 17.62%
Broadcom Corporation, Class A* ......................................... 150,000 $ 40,851,563
Intel Corporation ...................................................... 500,000 41,140,625
JDS Uniphase Corporation* .............................................. 900,000 145,181,250
Maxim Integrated Products, Inc.* ....................................... 500,000 23,578,125
Nokia Corporation, Series A, ADR ....................................... 300,000 57,000,000
Nortel Networks Corporation ............................................ 500,000 50,500,000
Rambus Inc. (B)* ....................................................... 250,000 16,851,562
Scientific-Atlanta, Inc. ............................................... 400,000 22,250,000
Total................................................................ 397,353,125
HEALTH SERVICES - 3.93%
Columbia/HCA Healthcare Corporation .................................... 2,000,000 58,625,000
StanCorp Financial Group, Inc. ......................................... 252,700 6,364,881
Tenet Healthcare Corporation* .......................................... 1,000,000 23,500,000
Total ............................................................... 88,489,881
INDUSTRIAL MACHINERY AND EQUIPMENT - 9.60%
Cisco Systems, Inc.* ................................................... 700,000 74,965,625
Juniper Networks, Inc.* ................................................ 70,000 23,775,938
Mannesmann AG, Registered Shares (A) ................................... 200,000 48,249,670
Novellus Systems, Inc.* ................................................ 250,000 30,632,812
Sun Microsystems, Inc.* ................................................ 500,000 38,703,125
Total ............................................................... 216,327,170
INSURANCE CARRIERS - 11.60%
Allmerica Financial Corporation ........................................ 400,000 22,250,000
American General Corporation ........................................... 500,000 37,937,500
Aon Corporation ........................................................ 550,000 22,000,000
Chubb Corporation (The) ................................................ 500,000 28,156,250
Everest Reinsurance Holdings, Inc. ..................................... 500,000 11,156,250
Liberty Corporation (The) .............................................. 350,000 14,765,625
Lincoln National Corporation ........................................... 700,000 28,000,000
Nationwide Financial Services, Class A ................................. 375,000 10,476,563
Oxford Health Plans Inc.* .............................................. 700,000 8,903,125
ReliaStar Financial Corp. .............................................. 700,000 27,431,250
SAFECO Corporation* .................................................... 500,000 12,421,875
St. Paul Companies, Inc. (The) ......................................... 700,000 23,581,250
Torchmark Corporation .................................................. 500,000 14,531,250
Total ............................................................... 261,610,938
MOTION PICTURES - 0.96%
Time Warner Incorporated ............................................... 300,000 21,731,250
NONDEPOSITORY INSTITUTIONS - 1.41%
CIT Group, Inc. (The), Class A ......................................... 1,500,000 31,687,500
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL AND GAS EXTRACTION - 4.27%
Anadarko Petroleum Corporation ......................................... 900,000 $ 30,712,500
Burlington Resources Incorporated ...................................... 400,000 13,225,000
USX Corporation - Marathon Group ....................................... 900,000 22,218,750
Unocal Corporation ..................................................... 900,000 30,206,250
Total ............................................................... 96,362,500
PAPER AND ALLIED PRODUCTS - 0.99%
Consolidated Papers, Inc. .............................................. 700,000 22,268,750
PETROLEUM AND COAL PRODUCTS - 2.57%
Exxon Mobil Corporation ................................................ 500,000 40,281,250
Texaco Inc. ............................................................ 325,000 17,651,563
Total ............................................................... 57,932,813
PRINTING AND PUBLISHING - 0.08%
Viacom Inc., Class A* .................................................. 30,000 1,813,125
WHOLESALE TRADE -- NONDURABLE GOODS - 1.02%
U.S. Foodservice* ...................................................... 1,374,300 23,019,525
TOTAL COMMON STOCKS - 93.14% $2,099,881,305
(Cost: $1,705,049,585)
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<S> <C> <C>
SHORT-TERM SECURITIES
COMMERCIAL PAPER
AUTO REPAIR, SERVICES AND PARKING - 1.06%
PHH Corp.,
7.1%, 1-11-00 ....................................................... $24,000 23,952,667
DEPOSITORY INSTITUTIONS - 1.68%
Deutsche Bank Financial Inc.,
6.75%, 1-6-00 ....................................................... 20,000 19,981,250
Toronto-Dominion Holdings USA Inc.,
6.9%, 1-10-00 ....................................................... 10,000 9,982,750
UBS Finance (DE) Inc.,
4.4%, 1-5-00 ........................................................ 8,000 7,996,089
Total ............................................................... 37,960,089
ELECTRIC, GAS AND SANITARY SERVICES - 0.67%
Michigan Consolidated Gas Co.,
5.0%, 1-6-00 ........................................................ 10,000 9,993,055
Questar Corp.,
6.5%, 1-13-00 ....................................................... 5,000 4,989,167
Total ............................................................... 14,982,222
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
SHORT-TERM SECURITIES (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT - 1.29%
Motorola, Inc.,
5.0%, 1-5-00 ........................................................ $15,000 $ 14,991,667
Sony Capital Corp.,
6.4%, 1-13-00 ....................................................... 14,000 13,970,133
Total ............................................................... 28,961,800
FABRICATED METAL PRODUCTS - 0.10%
Danaher Corporation,
6.49%, Master Note .................................................. 2,123 2,123,000
FOOD AND KINDRED PRODUCTS - 0.16%
General Mills, Inc.,
6.345%, Master Note ................................................. 1,638 1,638,000
Ralston Purina Co.,
6.62%, 1-24-00 ...................................................... 2,000 1,991,541
Total ............................................................... 3,629,541
NONDEPOSITORY INSTITUTIONS - 0.40%
PACCAR Financial Corp.,
5.2757%, Master Note ................................................ 5,499 5,499,000
Textron Financial Corp.,
8.3%, 1-5-00 ........................................................ 3,500 3,496,772
Total ............................................................... 8,995,772
PRINTING AND PUBLISHING - 0.97%
American Greetings Corp.,
6.7%, 1-10-00 ....................................................... 22,000 21,963,150
WHOLESALE TRADE - NONDURABLE GOODS - 0.66%
Enron Corp.,
6.0%, 1-14-00 ....................................................... 15,000 14,967,500
TOTAL COMMERCIAL PAPER - 6.99% 157,535,741
COMMERCIAL PAPER (BACKED BY IRREVOCABLE BANK LETTER OF CREDIT) - 0.33%
ELECTRIC, GAS AND SANITARY SERVICES
AES Hawaii Inc. (Bank of America NT & SA),
6.2%, 1-21-00 ....................................................... 7,500 7,474,167
TOTAL SHORT-TERM SECURITIES - 7.32% $ 165,009,908
(Cost: $165,009,908)
TOTAL INVESTMENT SECURITIES - 100.46% $2,264,891,213
(Cost: $1,870,059,493)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.46%) (10,282,419)
NET ASSETS - 100.00% $2,254,608,794
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
CORPORATE DEBT SECURITIES
CHEMICALS AND ALLIED PRODUCTS - 2.12%
Procter & Gamble Company (The),
8.0%, 9-1-24 ........................................................ $10,000 $ 10,740,800
COMMUNICATION - 3.14%
BellSouth Telecommunications, Inc.,
5.85%, 11-15-45 ..................................................... 3,000 2,982,750
Cox Trust II,
7.0%, 8-16-04 ....................................................... 2,500 2,430,525
Jones Intercable, Inc.,
9.625%, 3-15-02 ..................................................... 2,500 2,598,200
Tele-Communications, Inc.,
8.35%, 2-15-05 ...................................................... 7,500 7,880,550
Total ............................................................... 15,892,025
DEPOSITORY INSTITUTIONS - 10.65%
AmSouth Bancorporation,
6.75%, 11-1-25 ...................................................... 6,500 6,216,275
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-05 ...................................................... 1,500 1,432,500
First Union Corporation:
6.824%, 8-1-26 ...................................................... 7,500 7,365,225
6.55%, 10-15-35 ..................................................... 4,500 4,303,440
Kansallis-Osake-Pankki,
10.0%, 5-1-02 ....................................................... 6,000 6,335,460
National Westminster Bank plc,
7.375%, 10-1-09 ..................................................... 4,250 4,153,227
NationsBank Corporation,
8.57%, 11-15-24 ..................................................... 5,000 5,363,800
SouthTrust Bank of Alabama, National Association:
5.58%, 2-6-06 ....................................................... 7,800 7,704,060
7.69%, 5-15-25 ...................................................... 5,000 5,004,600
Sovereign Bancorp, Inc.,
8.0%, 3-15-03 ....................................................... 2,000 1,900,000
Wachovia Corporation,
6.605%, 10-1-25 ..................................................... 4,250 4,069,035
Total ............................................................... 53,847,622
ELECTRIC, GAS AND SANITARY SERVICES - 6.27%
California Infrastructure and Economic Development
Bank, Special Purpose Trust:
PG&E-1,
6.42%, 9-25-08 ...................................................... 5,000 4,839,600
SCE-1,
6.38%, 9-25-08 ...................................................... 5,000 4,820,300
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-05 ....................................................... 4,000 4,165,120
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
CORPORATE DEBT SECURITIES (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES (CONTINUED)
Entergy Arkansas, Inc.,
7.5%, 8-1-07 ........................................................ $ 3,750 $ 3,800,887
Korea Electric Power Corporation,
6.375%, 12-1-03 ..................................................... 2,500 2,370,975
Niagara Mohawk Power Corporation:
9.5%, 6-1-00 ........................................................ 1,000 1,011,110
7.375%, 7-1-03 ...................................................... 4,159 4,140,406
TXU Eastern Funding Company,
6.45%, 5-15-05 ...................................................... 3,250 3,063,125
Union Electric Co.,
8.25%, 10-15-22 ..................................................... 3,500 3,501,435
Total ............................................................... 31,712,958
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT - 1.80%
Motorola, Inc.,
8.4%, 8-15-31 ....................................................... 8,500 9,100,780
FOOD AND KINDRED PRODUCTS - 3.60%
Anheuser-Busch Companies, Inc.,
7.0%, 9-1-05 ........................................................ 3,000 2,948,580
Coca-Cola Enterprises Inc.:
0.0%, 6-20-20 ....................................................... 36,000 7,315,200
6.7%, 10-15-36 ...................................................... 5,500 5,433,450
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-06 ...................................................... 2,500 2,500,000
Total ............................................................... 18,197,230
GENERAL MERCHANDISE STORES - 1.12%
Fred Meyer, Inc.:
7.15%, 3-1-03 ....................................................... 3,750 3,702,375
7.45%, 3-1-08 ....................................................... 2,000 1,947,600
Total ............................................................... 5,649,975
HEALTH SERVICES - 0.96%
Tenet Healthcare Corporation,
7.875%, 1-15-03 ..................................................... 5,000 4,850,000
HOLDING AND OTHER INVESTMENT OFFICES - 2.40%
Bay Apartment Communities, Inc.,
6.5%, 1-15-05 ....................................................... 3,000 2,775,120
GRUMA, S.A. de C.V.,
7.625%, 10-15-07..................................................... 3,500 3,053,750
NBD Bank, National Association,
8.25%, 11-1-24 ...................................................... 6,000 6,310,980
Total ............................................................... 12,139,850
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
CORPORATE DEBT SECURITIES (CONTINUED)
INDUSTRIAL MACHINERY AND EQUIPMENT - 0.48%
Coltec Industries Inc.,
7.5%, 4-15-08 ....................................................... $ 2,500 $ 2,413,375
INSURANCE CARRIERS - 0.36%
Reliance Group Holdings, Inc.,
9.0%, 11-15-00 ...................................................... 2,000 1,800,000
NONDEPOSITORY INSTITUTIONS - 7.99%
Asset Securitization Corporation,
7.49%, 4-14-29 ...................................................... 6,000 5,972,220
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-10 (C) .................................................. 8,500 7,820,000
Equicon Loan Trust,
7.3%, 2-18-13 ....................................................... 4,571 4,510,087
General Motors Acceptance Corporation,
8.875%, 6-1-10 ...................................................... 5,500 6,022,720
IMC Home Equity Loan Trust,
6.9%, 1-20-22 ....................................................... 4,500 4,445,145
Norse CBO, Ltd. and Norse CBO, Inc.,
6.515%, 8-13-10 (C) ................................................. 3,750 3,503,925
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
8.0%, 10-25-24 ...................................................... 3,263 3,283,600
Westinghouse Electric Corporation,
8.875%, 6-14-14 ..................................................... 4,500 4,837,635
Total ............................................................... 40,395,332
OIL AND GAS EXTRACTION - 2.22%
Anadarko Petroleum Corporation,
7.25%, 3-15-25 ...................................................... 5,000 5,000,900
Mitchell Energy & Development Corp.,
9.25%, 1-15-02 ...................................................... 165 168,820
Oryx Energy Company,
10.0%, 4-1-01 ....................................................... 3,500 3,607,205
Pemex Finance Ltd.,
5.72%, 11-15-03 ..................................................... 2,500 2,431,250
Total ............................................................... 11,208,175
PAPER AND ALLIED PRODUCTS - 2.05%
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-02 ...................................................... 4,500 4,639,185
Champion International Corporation,
6.4%, 2-15-26 ....................................................... 6,100 5,706,611
Total ............................................................... 10,345,796
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
CORPORATE DEBT SECURITIES (CONTINUED)
PETROLEUM AND COAL PRODUCTS - 1.35%
Conoco Inc.,
5.9%, 4-15-04 ....................................................... $ 3,000 $ 2,864,010
YPF Sociedad Anoima,
8.0%, 2-15-04 ....................................................... 4,000 3,960,480
Total ............................................................... 6,824,490
PRINTING AND PUBLISHING - 1.20%
Quebecor Printing Capital Corporation,
6.5%, 8-1-27 ........................................................ 6,500 6,051,500
RAILROAD TRANSPORTATION - 0.98%
CSX Corporation,
6.95%, 5-1-27 ....................................................... 5,000 4,965,700
SECURITY AND COMMODITY BROKERS - 1.02%
Salomon Inc.,
3.65%, 2-14-02 ...................................................... 5,000 5,161,700
STONE, CLAY AND GLASS PRODUCTS - 1.71%
Cemex, S.A. de C.V.,
9.5%, 9-20-01 ....................................................... 3,500 3,578,750
Owens-Illinois, Inc.,
7.15%, 5-15-05....................................................... 3,250 3,004,918
USG Corporation,
9.25%, 9-15-01 ...................................................... 2,000 2,046,400
Total ............................................................... 8,630,068
TRANSPORTATION EQUIPMENT - 0.18%
Federal-Mogul Corporation,
7.75%, 7-1-06 ....................................................... 1,000 925,930
UNITED STATES POSTAL SERVICE - 0.30%
Postal Square Limited Partnership,
6.5%, 6-15-22 ....................................................... 1,684 1,519,232
TOTAL CORPORATE DEBT SECURITIES - 51.90% $262,372,538
(Cost: $271,134,086)
OTHER GOVERNMENT SECURITIES
CANADA - 5.96%
Hydro-Quebec:
8.05%, 7-7-24 ....................................................... 10,000 10,561,400
7.4%, 3-28-25 ....................................................... 5,150 5,539,495
Province de Quebec:
5.67%, 2-27-26 ...................................................... 9,200 9,102,940
6.29%, 3-6-26 ....................................................... 5,000 4,896,150
Total ............................................................... 30,099,985
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
OTHER GOVERNMENT SECURITIES (CONTINUED)
KOREA - 0.50%
Korea Development Bank (The),
7.9%, 2-1-02 ........................................................ $ 2,500 $ 2,505,200
SUPRANATIONAL - 1.07%
Inter-American Development Bank,
8.4%, 9-1-09 ........................................................ 5,000 5,430,950
TOTAL OTHER GOVERNMENT SECURITIES - 7.53% $ 38,036,135
(Cost: $37,513,853)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 2-15-07 ....................................................... 5,041 5,067,420
6.5%, 9-25-18 ....................................................... 2,000 1,921,240
7.0%, 1-15-19 ....................................................... 2,000 1,966,860
7.5%, 4-15-19 ....................................................... 13,408 13,454,283
6.25%, 1-15-21 ...................................................... 12,000 11,632,440
Federal National Mortgage Association:
7.0%, 7-25-06 ....................................................... 8,888 8,871,405
6.09%, 4-1-09 ....................................................... 4,461 4,074,693
0.0%, 2-12-18 ....................................................... 4,500 1,228,410
7.0%, 9-25-20 ....................................................... 2,000 1,973,120
6.5%, 8-25-21 ....................................................... 2,500 2,411,700
7.0%, 8-25-21 ....................................................... 10,000 9,850,000
7.0%, 6-1-24 ........................................................ 5,989 5,790,134
6.0%, 12-1-28 ....................................................... 6,655 6,087,498
Government National Mortgage Association:
7.5%, 7-15-23 ....................................................... 2,830 2,812,399
7.5%, 12-15-23 ...................................................... 3,211 3,191,381
8.0%, 9-15-25 ....................................................... 4,252 4,320,404
7.0%, 7-20-27 ....................................................... 249 239,344
7.0%, 9-20-27 ....................................................... 4,049 3,890,543
7.5%, 7-15-29 ....................................................... 4,588 4,536,174
7.75%, 10-15-31 ..................................................... 1,962 1,965,497
Tennessee Valley Authority,
5.88%, 4-1-36 ....................................................... 3,750 3,513,862
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust:
1997-2 Class C,
7.5%, 8-15-17 ....................................................... 4,000 4,011,240
1998-1 Class 2-B,
7.0%, 6-15-19 ....................................................... 750 744,135
1999-2 Class 1-B,
6.5%, 7-15-19 ....................................................... 5,500 5,343,580
1999-2 Class 3-B,
6.5%, 2-15-20 ....................................................... 4,000 3,806,240
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
UNITED STATES GOVERNMENT SECURITIES (CONTINUED)
United States Treasury:
5.75%, 10-31-00 ..................................................... $ 3,000 $ 2,991,570
6.625%, 3-31-02 ..................................................... 12,000 12,082,440
5.5%, 3-31-03 ....................................................... 5,500 5,363,380
7.5%, 2-15-05 ....................................................... 7,500 7,822,275
6.5%, 8-15-05 ....................................................... 5,750 5,750,000
6.5%, 10-15-06 ...................................................... 14,000 13,962,760
11.25%, 2-15-15 ..................................................... 2,500 3,533,975
6.125%, 11-15-27 .................................................... 20,000 18,612,400
TOTAL UNITED STATES GOVERNMENT SECURITIES - 36.17% $182,822,802
(Cost: $187,419,092)
TOTAL SHORT-TERM SECURITIES - 3.46% $ 17,490,257
(Cost: $17,490,257)
TOTAL INVESTMENT SECURITIES - 99.06% $500,721,732
(Cost: $513,557,288)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.94% 4,772,185
NET ASSETS - 100.00% $505,493,917
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS
AMUSEMENT AND RECREATION SERVICES - 1.43%
Walt Disney Company (The) .............................................. 4,105,000 $ 120,071,250
BUILDING MATERIALS AND GARDEN SUPPLIES - 0.73%
Home Depot, Inc. (The) ................................................. 891,300 61,109,756
BUSINESS SERVICES - 6.49%
America Online, Inc.* .................................................. 1,007,000 75,965,562
Clear Channel Communications, Inc.* .................................... 1,420,000 126,735,000
Microsoft Corporation* ................................................. 2,006,400 234,184,500
Oracle Corporation* .................................................... 963,000 107,886,094
Total ............................................................... 544,771,156
CHEMICALS AND ALLIED PRODUCTS - 16.37%
Air Products and Chemicals, Inc. ....................................... 2,051,700 68,860,181
American Home Products Corporation ..................................... 1,937,900 76,425,931
Biogen, Inc.* .......................................................... 500,000 42,234,375
Bristol-Myers Squibb Company ........................................... 494,400 31,734,300
Dow Chemical Company (The) ............................................. 680,000 90,865,000
du Pont (E.I.) de Nemours and Company .................................. 2,300,000 151,512,500
Forest Laboratories, Inc.* ............................................. 723,400 44,443,888
Johnson & Johnson ...................................................... 944,600 87,965,875
Lilly (Eli) and Company ................................................ 1,637,700 108,907,050
Merck & Co., Inc. ...................................................... 1,723,100 115,555,394
Monsanto Company ....................................................... 2,900,000 103,312,500
Pfizer Inc. ............................................................ 1,802,000 58,452,375
Pharmacia & Upjohn, Inc. ............................................... 943,900 42,475,500
Procter & Gamble Company (The) ......................................... 509,100 55,778,269
Schering-Plough Corporation ............................................ 1,727,000 72,857,812
Warner-Lambert Company ................................................. 2,733,900 224,008,931
Total ............................................................... 1,375,389,881
COMMUNICATION - 9.43%
Cox Communications, Inc., Class A* ..................................... 3,001,800 154,592,700
General Motors Corporation, Class H* ................................... 759,700 72,931,200
MCI WORLDCOM, Inc.* .................................................... 1,555,500 82,490,109
Nippon Telegraph and Telephone
Corporation (A) ..................................................... 4,250 72,823,852
SBC Communications Inc. ................................................ 1,500,000 73,125,000
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................................................. 3,419,000 224,478,719
Vodafone Airtouch Public Limited
Company, ADR ........................................................ 2,250,000 111,375,000
Total ............................................................... 791,816,580
DEPOSITORY INSTITUTIONS - 3.33%
Bank of America Corporation ............................................ 1,412,000 70,864,750
Chase Manhattan Corporation (The) ...................................... 1,050,000 81,571,875
Citigroup Inc. ......................................................... 2,287,500 127,099,219
Total ............................................................... 279,535,844
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRIC, GAS AND SANITARY SERVICES - 0.76%
Duke Energy Corp. ...................................................... 1,275,000 $ 63,909,375
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT - 11.00%
Analog Devices, Inc.* .................................................. 1,575,000 146,475,000
General Electric Company ............................................... 1,657,800 256,544,550
Intel Corporation ...................................................... 2,804,000 230,716,625
Nokia, AB (A) .......................................................... 1,370,000 248,400,181
Rambus Inc.* ........................................................... 623,500 42,027,797
Total ............................................................... 924,164,153
FABRICATED METAL PRODUCTS - 0.77%
Gillette Company (The) ................................................. 1,569,900 64,660,256
FOOD AND KINDRED PRODUCTS - 0.53%
PepsiCo, Inc. .......................................................... 1,268,300 44,707,575
FOOD STORES - 1.42%
Kroger Co. (The)* ...................................................... 6,339,000 119,648,625
FURNITURE AND HOME FURNISHINGS STORES - 1.55%
Circuit City Stores, Inc. - Circuit
City Group .......................................................... 2,883,000 129,915,188
GENERAL MERCHANDISE STORES - 2.38%
Dayton Hudson Corporation .............................................. 882,600 64,815,938
Wal-Mart Stores, Inc. .................................................. 1,950,000 134,793,750
Total ............................................................... 199,609,688
HOLDING AND OTHER INVESTMENT OFFICES - 1.58%
ABB Ltd. [Switzerland] (A)* ............................................ 1,086,070 132,767,643
INDUSTRIAL MACHINERY AND EQUIPMENT - 8.04%
Baker Hughes Incorporated .............................................. 1,858,000 39,134,125
Cisco Systems, Inc.* ................................................... 1,629,000 174,455,719
Deere & Company ........................................................ 1,116,000 48,406,500
Dell Computer Corporation* ............................................. 1,969,000 100,357,469
EMC Corporation* ....................................................... 1,404,000 153,387,000
International Business Machines
Corporation ......................................................... 1,200,000 129,600,000
Sun Microsystems, Inc.* ................................................ 389,000 30,111,031
Total ............................................................... 675,451,844
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
INSTRUMENTS AND RELATED PRODUCTS - 2.70%
Guidant Corporation* ................................................... 2,400,000 $ 112,800,000
Medtronic, Inc. ........................................................ 1,944,000 70,834,500
Raytheon Company, Class A .............................................. 1,747,181 43,351,929
Total ............................................................... 226,986,429
INSURANCE CARRIERS - 3.15%
American International Group, Inc. 1,146,187 123,931,469
Aon Corporation ........................................................ 1,065,000 42,600,000
Chubb Corporation (The) ................................................ 1,742,600 98,130,163
Total ............................................................... 264,661,632
MOTION PICTURES - 1.48%
Time Warner Incorporated ............................................... 1,711,900 124,005,756
NONDEPOSITORY INSTITUTIONS - 4.02%
Associates First Capital Corporation,
Class A ............................................................. 3,365,870 92,351,058
Fannie Mae ............................................................. 2,304,000 143,856,000
Freddie Mac ............................................................ 2,154,800 101,410,275
Total ............................................................... 337,617,333
OIL AND GAS EXTRACTION - 4.06%
Anadarko Petroleum Corporation ......................................... 1,333,000 45,488,625
Burlington Resources Incorporated ...................................... 3,700,000 122,331,250
Schlumberger Limited ................................................... 2,256,000 126,900,000
Transocean Sedco Forex Inc. ............................................ 436,762 14,713,406
USX Corporation - Marathon Group ....................................... 1,290,000 31,846,875
Total ............................................................... 341,280,156
PETROLEUM AND COAL PRODUCTS - 3.18%
Chevron Corporation .................................................... 450,000 38,981,250
Exxon Mobil Corporation ................................................ 1,672,720 134,758,505
Royal Dutch Petroleum Company, NY Shares ...................... 1,544,000 93,315,500
Total ............................................................... 267,055,255
PRIMARY METAL INDUSTRIES - 0.80%
Alcoa Incorporated ..................................................... 806,200 66,914,600
SECURITY AND COMMODITY BROKERS - 0.43%
Charles Schwab Corporation (The) ....................................... 943,000 36,187,625
TRANSPORTATION BY AIR - 0.64%
AMR Corporation* ....................................................... 800,000 53,600,000
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION EQUIPMENT - 3.44%
Boeing Company (The) ................................................... 892,500 $ 37,094,531
DaimlerChrysler AG ..................................................... 713,907 55,863,223
Ford Motor Company ..................................................... 2,784,100 148,775,344
Lockheed Martin Corporation ............................................ 2,151,100 47,055,312
Total ............................................................... 288,788,410
TRUCKING AND WAREHOUSING - 0.25%
United Parcel Service, Inc. ............................................ 304,400 21,003,600
WHOLESALE TRADE - NONDURABLE GOODS - 3.37%
Cardinal Health, Inc. .................................................. 2,450,600 117,322,475
Enron Corp. ............................................................ 1,081,000 47,969,375
Safeway Inc.* .......................................................... 3,310,000 117,711,875
Total ............................................................... 283,003,725
TOTAL COMMON STOCKS - 93.33% $7,838,633,335
(Cost: $4,607,214,767)
PREFERRED STOCK - 0.41%
COMMUNICATION
Cox Communications, Inc., 7.0% Convertible....................... 505,800 $ 34,394,400
(Cost: $25,290,000)
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS
<S> <C> <C>
UNITED STATES GOVERNMENT SECURITY - 0.44%
United States Treasury,
6.75%, 4-30-00 ...................................................... $37,000 $ 37,115,440
(Cost: $37,061,401)
SHORT-TERM SECURITIES
COMMERCIAL PAPER
AUTO REPAIR, SERVICES AND PARKING - 0.12%
Hertz Corporation (The),
5.675%, 1-10-00 ..................................................... 10,000 9,985,813
CHEMICALS AND ALLIED PRODUCTS - 0.53%
Air Products and Chemicals, Inc.:
6.7%, 1-14-00 ....................................................... 20,000 19,951,611
6.8%, 1-19-00 ....................................................... 25,000 24,915,000
Total ............................................................... 44,866,611
COMMUNICATION - 0.36%
Dominion Resources Inc.:
6.36%, 1-20-00 ......................................................... 10,000 9,966,433
6.75%, 1-20-00 ......................................................... 20,000 19,928,751
Total .................................................................. 29,895,184
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
SHORT-TERM SECURITIES (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
DEPOSITORY INSTITUTIONS - 0.66%
UBS Finance (DE) Inc.,
4.4%, 1-5-00 ........................................................ $ 7,500 $ 7,496,333
Wells Fargo & Company,
6.32%, 1-20-00 ...................................................... 47,900 47,740,227
Total ............................................................... 55,236,560
ELECTRIC, GAS AND SANITARY SERVICES - 1.04%
Carolina Power & Light Co.,
6.5%, 1-20-00 ....................................................... 39,142 39,007,721
Detriot Edison Co.,
6.75%, 1-13-00 ...................................................... 15,000 14,966,250
Public Service Electric & Gas Co.,
6.75%, 1-13-00 ...................................................... 2,000 1,995,500
Tampa Electric Co.,
6.5%, 1-19-00 ....................................................... 10,700 10,665,225
Western Resources, Inc.,
6.85%, 1-27-00 ...................................................... 20,850 20,746,851
Total ............................................................... 87,381,547
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT - 0.13%
Sony Capital Corp.,
6.4%, 1-13-00 ....................................................... 11,000 10,976,533
FABRICATED METAL PRODUCTS - 0.00%
Danaher Corporation,
6.49%, Master Note .................................................. 336 336,000
FOOD AND KINDRED PRODUCTS - 0.14%
Conagra Inc.,
6.05%, 1-7-00 ....................................................... 6,725 6,718,219
General Mills, Inc.,
6.345%, Master Note ................................................. 147 147,000
Ralston Purina Co.,
6.62%, 1-24-00 ...................................................... 5,000 4,978,853
Total ............................................................... 11,844,072
FOOD STORES - 0.12%
Albertson's Inc.,
5.94%, 1-19-00 ...................................................... 10,000 9,970,300
INDUSTRIAL MACHINERY AND EQUIPMENT - 0.41%
Deere & Company:
6.41%, 1-25-00 ...................................................... 25,000 24,893,167
6.34%, 1-27-00 ...................................................... 10,000 9,954,211
Total ............................................................... 34,847,378
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
SHORT-TERM SECURITIES (CONTINUED)
COMMERCIAL PAPER (CONTINUED)
INSTRUMENTS AND RELATED PRODUCTS - 0.44%
Snap-On Inc.,
6.375%, 1-14-00 ..................................................... $37,000 $ 36,914,823
INSURANCE CARRIERS - 0.42%
SAFECO Credit Co. Inc.:
6.8%, 1-11-00 ....................................................... 12,000 11,977,333
6.9%, 1-11-00 ....................................................... 12,975 12,950,132
6.53%, 1-13-00 ...................................................... 9,991 9,969,253
Total ............................................................... 34,896,718
NONDEPOSITORY INSTITUTIONS - 0.16%
Associates First Capital B.V. (Associates
First Capital Corporation):
5.95%, 1-10-00 ...................................................... 6,000 5,991,075
6.0%, 1-10-00 ....................................................... 2,500 2,496,250
Paccar Financial Corp.,
5.2757%, Master Note ................................................ 1,909 1,909,000
Textron Financial Corp.,
8.3%, 1-5-00 ........................................................ 3,500 3,496,772
Total ............................................................... 13,893,097
PAPER AND ALLIED PRODUCTS - 0.18%
Westvaco Corp.,
6.3%, 1-27-00 ....................................................... 15,000 14,931,750
PERSONAL SERVICES - 0.18%
Block Financial Corp.,
6.18%, 1-31-00 ...................................................... 15,000 14,922,750
PETROLEUM AND COAL PRODUCTS - 0.36%
Kerr-McGee Credit LLC,
6.85%, 1-27-00 ...................................................... 30,000 29,851,583
TOTAL COMMERCIAL PAPER - 5.25% 440,750,719
COMMERCIAL PAPER (BACKED BY IRREVOCABLE BANK LETTER OF CREDIT)
ELECTRIC, GAS AND SANITARY SERVICES - 0.09%
AES Hawaii Inc. (Bank of America NT & SA),
6.2%, 1-21-00 ....................................................... 7,500 7,474,167
FOREIGN GOVERNMENT - 0.19%
United Mexican States (Barclays Bank PLC),
6.08%, 2-1-00 ....................................................... 16,000 15,916,231
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
<S> <C> <C>
SHORT-TERM SECURITIES (CONTINUED)
COMMERCIAL PAPER (BACKED BY IRREVOCABLE BANK
LETTER OF CREDIT) (CONTINUED)
OIL AND GAS EXTRACTION - 0.17%
Louis Dreyfus Corp. (Dresdner Bank AG),
6.5%, 1-18-00 ....................................................... $15,000 $ 14,953,958
TOTAL COMMERCIAL PAPER (BACKED BY IRREVOCABLE BANK
LETTER OF CREDIT) - 0.45% 38,344,356
MUNICIPAL OBLIGATIONS
CALIFORNIA - 0.31%
California Pollution Control Financing
Authority, Environmental Improvement
Revenue Bonds (Shell Martinez Refining
Company Project), Series 1996 (Taxable),
6.55%, 1-20-00 ...................................................... 26,450 26,450,000
LOUISIANA - 0.10%
Industrial District No. 3 of the Parish of West
Baton Rouge, State of Louisiana, Variable Rate
Demand Revenue Bonds, Series 1995 (Taxable),
(The Dow Chemical Company Project),
6.25%, 1-26-00 ...................................................... 8,000 8,000,000
TOTAL MUNICIPAL OBLIGATIONS - 0.41% 34,450,000
TOTAL SHORT-TERM SECURITIES - 6.11% $ 513,545,075
(Cost: $513,545,075)
TOTAL INVESTMENT SECURITIES - 100.29% $8,423,688,250
(Cost: $5,183,111,243)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.29%) (24,553,768)
NET ASSETS - 100.00% $8,399,134,482
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS
BUILDING MATERIALS AND GARDEN SUPPLIES - 0.95%
Home Depot, Inc. (The) ................................................. 525,000 $ 35,995,313
BUSINESS SERVICES - 44.40%
Acxiom Corporation* .................................................... 600,000 14,418,750
America Online, Inc.* .................................................. 1,600,000 120,700,000
BroadVision, Inc.* ..................................................... 375,000 63,773,438
Citrix Systems, Inc.* .................................................. 1,000,000 122,968,750
Clarent Corporation* ................................................... 200,000 15,537,500
Clear Channel Communications, Inc.* .................................... 547,300 48,846,525
DoubleClick Inc.* ...................................................... 373,800 94,676,531
eBay Inc.* ............................................................. 300,000 37,565,625
Getty Images, Inc.* .................................................... 648,200 31,761,800
HNC Software Inc.* ..................................................... 600,000 63,581,250
Inktomi Corporation* ................................................... 940,000 83,366,250
Intuit Inc.* ........................................................... 1,526,400 91,440,900
Microsoft Corporation* ................................................. 700,000 81,703,125
Netopia, Inc.* ......................................................... 500,000 27,296,875
Oracle Corporation* .................................................... 500,000 56,015,625
Phone.com, Inc.* ....................................................... 400,000 46,475,000
Sapient Corporation* ................................................... 105,000 14,795,156
TMP Worldwide Inc.* .................................................... 500,000 70,843,750
Transaction Systems Architects, Inc.,
Class A* ............................................................ 600,000 16,818,750
USWeb Corporation* ..................................................... 600,000 26,681,250
Veritas Software Corp.* ................................................ 1,500,000 214,640,625
Vignette Corporation* .................................................. 500,000 81,484,375
Yahoo! Inc.* ........................................................... 600,000 259,631,250
Total ............................................................... 1,685,023,100
CHEMICALS AND ALLIED PRODUCTS - 5.67%
Biogen, Inc.* .......................................................... 700,000 59,128,125
Bristol-Myers Squibb Company ........................................... 400,000 25,675,000
Johnson & Johnson ...................................................... 400,000 37,250,000
Pfizer Inc. ............................................................ 700,000 22,706,250
Schering-Plough Corporation ............................................ 600,000 25,312,500
Warner-Lambert Company ................................................. 550,000 45,065,625
Total ............................................................... 215,137,500
COMMUNICATION - 9.68%
AT&T Corp. - Liberty Media Group,
Class A* ............................................................ 700,000 39,725,000
COLT Telecom Group plc, ADR* ........................................... 400,000 81,600,000
Cox Communications, Inc., Class A* ..................................... 820,000 42,230,000
EchoStar Communications Corporation,
Class A* ............................................................ 1,200,000 116,850,000
Global TeleSystems Group, Inc.* ........................................ 434,000 15,027,250
Nextel Communications, Inc.* ........................................... 456,500 47,062,297
Vodafone Airtouch Public Limited
Company, ADR ........................................................ 500,000 24,750,000
Total ............................................................... 367,244,547
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS (CONTINUED)
DEPOSITORY INSTITUTIONS - 0.91%
Concord EFS, Inc.* ..................................................... 1,350,000 $ 34,720,313
ELECTRONIC AND OTHER ELECTRIC EQUIPMENT - 18.41%
Analog Devices, Inc.* .................................................. 1,000,000 93,000,000
Broadcom Corporation, Class A* ......................................... 450,000 122,554,687
Gemstar International Group Limited* ................................... 1,400,000 99,662,500
General Electric Company ............................................... 325,000 50,293,750
Intel Corporation ...................................................... 785,000 64,590,781
JDS Uniphase Corporation* .............................................. 413,000 66,622,062
Level 3 Communications, Inc.* .......................................... 300,000 24,543,750
Nokia Corporation, Series A, ADR ....................................... 380,000 72,200,000
Nortel Networks Corporation ............................................ 360,000 36,360,000
Rambus Inc.* ........................................................... 500,000 33,703,125
STMicroelectronics N.V., NY Shares ..................................... 232,500 35,209,219
Total ............................................................... 698,739,874
ENGINEERING AND MANAGEMENT SERVICES - 2.81%
Incyte Pharmaceuticals, Inc.* .......................................... 998,400 59,061,600
Paychex, Inc. .......................................................... 900,000 35,971,875
Quintiles Transnational Corp.* ......................................... 626,000 11,678,813
Total ............................................................... 106,712,288
GENERAL MERCHANDISE STORES - 0.64%
Dayton Hudson Corporation .............................................. 330,000 24,234,375
INDUSTRIAL MACHINERY AND EQUIPMENT - 8.81%
Apple Computer, Inc.* .................................................. 617,000 63,416,031
Applied Materials, Inc.* ............................................... 400,000 50,662,500
Cisco Systems, Inc.* ................................................... 1,289,100 138,054,553
Extreme Networks, Inc.* ................................................ 300,000 25,087,500
Sun Microsystems, Inc.* ................................................ 500,000 38,703,125
VA Linux Systems, Inc.* ................................................ 90,000 18,624,375
Total ............................................................... 334,548,084
INSTRUMENTS AND RELATED PRODUCTS - 2.25%
Medtronic, Inc. ........................................................ 800,000 29,150,000
Teradyne, Inc.* ........................................................ 850,000 56,100,000
Total ............................................................... 85,250,000
MISCELLANEOUS RETAIL - 1.20%
Amazon.com, Inc.* ...................................................... 600,000 45,693,750
MOTION PICTURES - 0.76%
Time Warner Incorporated ............................................... 400,000 28,975,000
TOTAL COMMON STOCKS - 96.49% $3,662,274,144
(Cost: $1,261,015,901)
</TABLE>
SEE NOTES TO SCHEDULES OF INVESTMENTS ON PAGE .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1999
<TABLE>
<CAPTION>
VALUE
<S> <C>
TOTAL SHORT-TERM SECURITIES - 3.65% $ 138,331,307
(Cost: $138,331,307)
TOTAL INVESTMENT SECURITIES - 100.14% $3,800,605,451
(Cost: $1,399,347,208)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.14%) (5,151,237)
NET ASSETS - 100.00% $3,795,454,214
</TABLE>
NOTES TO SCHEDULES OF INVESTMENTS
*No dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) See Note 7 to financial statements.
(C) Security was purchased pursuant to Rule 144A under the Securities Act
of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1999, the
value of these securities amounted to $11,323,925 or 2.24% of net
assets for United Bond Fund.
See Note 1 to financial statements for security valuation and other
significant accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation
and depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
UNITED
(IN THOUSANDS, EXCEPT UNITED UNITED UNITED SCIENCE AND
FOR PER SHARE AMOUNTS) ACCUMULATIVE BOND INCOME TECHNOLOGY
FUND FUND FUND FUND
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investment securities -- at value
(Notes 1 and 3) ................. $2,264,891 $500,722 $8,423,688 $3,800,605
Cash ............................... 25 --- --- 13
Receivables:
Investment securities sold ...... --- --- 17,114 ---
Dividends and interest .......... 1,090 7,446 6,565 300
Fund shares sold ................ 1,292 403 5,251 5,971
Prepaid insurance premium .......... 36 15 65 17
---------- -------- ---------- ----------
Total assets .................. 2,267,334 508,586 8,452,683 3,806,906
LIABILITIES ---------- -------- ---------- ----------
Payable for investment
securities purchased ............ --- --- --- 204
Payable to Fund shareholders ....... 11,932 2,792 50,197 10,074
Accrued service fee (Note 2)........ 390 101 1,467 459
Accrued transfer agency and
dividend disbursing (Note 2) .... 237 81 983 435
Accrued distribution fee (Note 2)... 35 5 100 100
Due to custodian ................... --- 55 283 ---
Accrued management fee (Note 2)..... 41 7 130 83
Accrued shareholder servicing --
Class Y (Note 2) ................ 1 --- 43 4
Accrued accounting
services fee (Note 2) ........... 8 5 8 8
Other .............................. 81 46 338 85
---------- -------- ---------- ----------
Total liabilities.............. 12,725 3,092 53,549 11,452
---------- -------- ---------- ----------
Total net assets ........... $2,254,609 $505,494 $8,399,134 $3,795,454
NET ASSETS ========== ======== ========== ==========
$1.00 par value capital stock:
Capital stock ................... $ 246,577 $ 84,710 $1,033,049 $ 205,880
Additional paid-in capital....... 1,531,351 452,467 3,761,018 1,156,099
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income ......... 2,558 237 4,374 ---
Accumulated undistributed net
realized gain (loss) on
investment transactions........ 79,304 (19,084) 360,167 32,223
Net unrealized appreciation
(depreciation) of
investments ................... 394,819 (12,836) 3,240,526 2,401,252
---------- -------- ---------- ----------
Net assets applicable to
outstanding units
of capital ................. $2,254,609 $505,494 $8,399,134 $3,795,454
========== ======== ========== ==========
Capital shares outstanding:
Class A ............................ 245,724 83,921 996,484 203,116
Class B ............................ 288 290 1,612 944
Class C ............................ 38 48 169 155
Class Y ............................ 527 451 34,784 1,665
Capital shares authorized ............. 500,000 300,000 2,000,000 400,000
Net asset value per share
(net assets divided by
shares outstanding):
Class A ............................ $9.14 $5.97 $8.13 $18.43
Class B ............................ $9.12 $5.97 $8.13 $18.37
Class C ............................ $9.12 $5.96 $8.13 $18.38
Class Y ............................ $9.14 $5.97 $8.13 $18.65
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS) UNITED
UNITED UNITED UNITED SCIENCE AND
ACCUMULATIVE BOND INCOME TECHNOLOGY
FUND FUND FUND FUND
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME (LOSS)
Income (Note 1B):
Interest and
amortization .................. $ 4,861 $35,757 $ 80,752 $ 4,290
Dividends ...................... 20,388 --- 69,751 3,730
-------- ------- ---------- ----------
Total income .................. 25,249 35,757 150,503 8,020
-------- ------- ---------- ----------
Expenses (Note 2):
Investment
management fee................. 11,970 2,525 44,403 16,102
Service fees:
Class A ....................... 4,353 1,246 16,986 4,574
Class B ....................... 1 1 4 5
Class C ....................... --- --- --- 1
Transfer agency and dividend disbursing:
Class A ....................... 2,242 1,008 9,910 3,770
Class B ....................... 2 1 8 13
Class C ....................... --- --- 1 2
Distribution fees:
Class A ....................... 241 76 947 424
Class B ....................... 2 2 11 11
Class C ....................... --- --- 1 2
Custodian fees .................. 66 17 576 70
Shareholder servicing
-- Class Y..................... 7 4 528 21
Accounting services fee.......... 100 61 100 100
Legal fees ...................... 20 5 74 18
Audit fees ...................... 18 16 27 19
Other ........................... 251 131 915 367
-------- ------- --------- ----------
Total expenses ................ 19,273 5,093 74,491 25,499
-------- ------- --------- ----------
Net investment
income (loss) ........... 5,976 30,664 76,012 (17,479)
-------- ------- --------- ----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (NOTES 1 AND 3)
Realized net gain (loss)
on securities ................... 265,505 (593) 836,278 288,499
Realized net gain (loss) on foreign
currency transactions ........... (98) --- (336) 36
-------- ---------- ---------- ----------
Realized net gain (loss)
on investments ................ 265,407 (593) 835,942 288,535
Unrealized appreciation (depreciation)
in value of investments
during the period................ 201,521 (36,307) 317,336 1,604,183
-------- ---------- ---------- ----------
Net gain (loss) on
investments ................ 466,928 (36,900) 1,153,278 1,892,718
-------- ---------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations .............. $472,904 $(6,236) $1,229,290 $1,875,239
======== ======== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
UNITED
(IN THOUSANDS) UNITED UNITED UNITED SCIENCE AND
ACCUMULATIVE BOND INCOME TECHNOLOGY
FUND FUND FUND FUND
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) .... $ 5,976 $ 30,664 $ 76,012 $ (17,479)
Realized net gain (loss)
on investments ................ 265,407 (593) 835,942 288,535
Unrealized appreciation
(depreciation) ................ 201,521 (36,307) 317,336 1,604,183
---------- -------- ---------- ----------
Net increase (decrease) in net
assets resulting
from operations............. 472,904 (6,236) 1,229,290 1,875,239
---------- -------- ---------- ----------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ....................... (5,519) (30,472) (77,099) ---
Class B ....................... --- (9) --- ---
Class C ....................... --- (1) --- ---
Class Y ....................... (20) (148) (4,135) ---
Realized net gains on investment transactions:
Class A ....................... (250,533) --- (486,908) (280,167)
Class B ....................... (223) --- (607) (988)
Class C ....................... (34) --- (66) (171)
Class Y ....................... (530) --- (16,884) (2,276)
---------- -------- ---------- ----------
(256,859) (30,630) (585,699) (283,602)
---------- -------- ---------- ----------
Capital share transactions (Note 5) 170,527 (14,788) (11,758) 529,334
---------- -------- ---------- ----------
Total increase (decrease) 386,572 (51,654) 631,833 2,120,971
NET ASSETS
Beginning of period ................ 1,868,037 557,148 7,767,301 1,674,483
---------- -------- ---------- ----------
End of period $2,254,609 $505,494 $8,399,134 $3,795,454
========== ======== ========== ==========
Undistributed net investment
income ........................ $2,558 $237 $4,374 $---
====== ==== ====== ====
</TABLE>
*SEE "FINANCIAL HIGHLIGHTS" ON PAGES - .
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITED
(IN THOUSANDS) UNITED UNITED UNITED SCIENCE AND
ACCUMULATIVE BOND INCOME TECHNOLOGY
FUND FUND FUND FUND
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss) .... $ 19,519 $ 31,745 $ 82,228 $ (4,737)
Realized net gain on investments 259,891 4,756 1,363,007 139,225
Unrealized appreciation ......... 75,732 1,500 102,526 492,528
-------- ---------- ---------- ----------
Net increase in net assets
resulting from operations... 355,142 38,001 1,547,761 627,016
-------- ---------- ---------- ----------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ....................... (20,979) (31,553) (69,402) ---
Class Y ....................... (50) (359) (4,557) ---
Realized net gains on investment transactions:
Class A ....................... (214,379) --- (1,392,072) (108,718)
Class Y ....................... (421) --- (76,922) (380)
-------- ---------- ---------- ----------
(235,829) (31,912) (1,542,953) (109,098)
-------- ---------- ---------- ----------
Capital share
transactions (Note 5)............ 149,682 22,363 1,267,504 89,771
-------- ---------- ---------- ----------
Total increase .................. 268,995 28,452 1,272,312 607,689
NET ASSETS
Beginning of period ................ 1,599,042 528,696 6,494,989 1,066,794
---------- -------- ---------- ----------
End of period ...................... $1,868,037 $557,148 $7,767,301 $1,674,483
========== ======== ========== ==========
Undistributed net investment
income ........................ $2,219 $203 $9,932 $---
====== ==== ====== ====
</TABLE>
*SEE "FINANCIAL HIGHLIGHTS" ON PAGES - .
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
CLASS A SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............. $8.28 $7.77 $7.75 $7.78 $6.58
---- ---- ---- ---- ----
Income from investment operations:
Net investment income ........... 0.03 0.10 0.10 0.11 0.11
Net realized and unrealized
gain on investments .......... 2.01 1.60 2.14 0.82 2.12
---- ---- ---- ---- ----
Total from investment operations ... 2.04 1.70 2.24 0.93 2.23
---- ---- ---- ---- ----
Less distributions:
From net investment income ...... (0.03) (0.11) (0.09) (0.11) (0.11)
From capital gains .............. (1.15) (1.08) (2.13) (0.85) (0.92)
---- ---- ---- ---- ----
Total distributions ................ (1.18) (1.19) (2.22) (0.96) (1.03)
---- ---- ---- ---- ----
Net asset value, end of period ..... $9.14 $8.28 $7.77 $7.75 $7.78
==== ==== ==== ==== ====
Total return* ...................... 25.72% 22.62% 29.58% 12.18% 34.21%
Net assets, end of period (in
millions) ....................... $2,247 $1,864 $1,595 $1,285 $1,206
Ratio of expenses to average
net assets ...................... 0.98% 0.88% 0.82% 0.83% 0.80%
Ratio of net investment income to
average net assets .............. 0.30% 1.12% 1.16% 1.34% 1.42%
Portfolio turnover rate ............ 372.35% 373.78% 313.99% 240.37% 229.03%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
CLASS B SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
10/4/99*
THROUGH
12/31/99
--------
<S> <C>
Net asset value, beginning of period ........................ $8.43
----
Income from investment operations:
Net investment loss ...................................... (0.01)
Net realized and unrealized gain on investments .......... 1.85
----
Total from investment operations ............................ 1.84
----
Less distributions:
From net investment income ............................... (0.00)
From capital gains ....................................... (1.15)
----
Total distributions ......................................... (1.15)
----
Net asset value, end of period .............................. $9.12
====
Total return ................................................ 22.89%
Net assets, end of period (in millions) ..................... $3
Ratio of expenses to average net assets ..................... 2.24%**
Ratio of net investment loss to average net assets .......... -1.40%**
Portfolio turnover rate ..................................... 372.35%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
CLASS C SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
10/6/99*
THROUGH
12/31/99
--------
<S> <C>
Net asset value, beginning of period .................. $8.53
----
Income from investment operations:
Net investment loss ................................ (0.01)
Net realized and unrealized gain on investments .... 1.75
----
Total from investment operations ...................... 1.74
----
Less distributions:
From net investment income ......................... (0.00)
From capital gains ................................. (1.15)
----
Total distributions ................................... (1.15)
----
Net asset value, end of period ........................ $9.12
====
Total return .......................................... 21.45%
Net assets, end of period (in thousands) .............. $347
Ratio of expenses to average net assets ............... 2.28%**
Ratio of net investment loss to average net assets .... -1.35%**
Portfolio turnover rate ............................... 372.35%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
CLASS Y SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FOR THE
FOR THE FISCAL YEAR PERIOD
ENDED DECEMBER 31, FROM
--------------------------------------------- 7/11/95* TO
1999 1998 1997 1996 12/31/95
----- ----- ----- ---- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $8.28 $7.77 $7.75 $7.78 $7.84
----- ---- ---- ---- ----
Income from investment operations:
Net investment income ........................ 0.04 0.12 0.11 0.12 0.05
Net realized and unrealized gain
on investments ............................ 2.01 1.59 2.14 0.82 0.87
----- ---- ---- ---- ----
Total from investment operations ................ 2.05 1.71 2.25 0.94 0.92
----- ---- ---- ---- ----
Less distributions:
From net investment income ................... (0.04) (0.12) (0.10) (0.12) (0.06)
From capital gains ........................... (1.15) (1.08) (2.13) (0.85) (0.92)
----- ---- ---- ---- ----
Total distributions ............................. (1.19) (1.20) (2.23) (0.97) (0.98)
----- ---- ---- ---- ----
Net asset value, end of period .................. $9.14 $8.28 $7.77 $7.75 $7.78
===== ==== ==== ==== =====
Total return .................................... 25.95% 22.79% 29.67% 12.27% 11.92%
Net assets, end of period (in millions) ......... $5 $4 $4 $3 $1
Ratio of expenses to average net assets ......... 0.80% 0.75% 0.75% 0.74% 0.76%**
Ratio of net investment income to average
net assets ................................... 0.49% 1.21% 1.22% 1.45% 1.24%**
Portfolio turnover rate ......................... 372.35% 373.78% 313.99% 240.37% 229.03%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
CLASS A SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $6.39 $6.32 $6.14 $6.34 $5.62
---- ---- ---- ---- ----
Income from investment operations:
Net investment income ......................... 0.35 0.38 0.39 0.39 0.40
Net realized and unrealized gain (loss)
on investments ............................. (0.42) 0.07 0.19 (0.20) 0.72
---- ---- ---- ---- ----
Total from investment operations ................. (0.07) 0.45 0.58 0.19 1.12
---- ---- ---- ---- ----
Less distributions from net investment income .... (0.35) (0.38) (0.40) (0.39) (0.40)
---- ---- ---- ---- ----
Net asset value, end of period ................... $5.97 $6.39 $6.32 $6.14 $6.34
===== ===== ===== ===== =====
Total return* .................................... -1.08% 7.27% 9.77% 3.20% 20.50%
Net assets, end of period (in millions) .......... $501 $551 $524 $519 $563
Ratio of expenses to average net assets .......... 0.95% 0.84% 0.77% 0.77% 0.74%
Ratio of net investment income to average
net assets .................................... 5.72% 5.88% 6.34% 6.34% 6.54%
Portfolio turnover rate .......................... 34.12% 33.87% 35.08% 55.74% 66.38%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
CLASS B SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
9/9/99*
THROUGH
12/31/99
--------
<S> <C>
Net asset value, beginning of period .................. $6.05
----
Income from investment operations:
Net investment income .............................. 0.10
Net realized and unrealized loss on investments .... (0.08)
----
Total from investment operations ...................... 0.02
----
Less distributions from net investment income ......... (0.10)
From capital gains ................................. (0.00)
----
Total distributions ................................... (0.10)
----
Net asset value, end of period ........................ $5.97
====
Total return .......................................... 0.30%
Net assets, end of period (in millions) ............... $2
Ratio of expenses to average net assets ............... 1.91%**
Ratio of net investment income to average net assets .. 4.93%**
Portfolio turnover rate ............................... 34.12%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
CLASS C SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
9/9/99*
THROUGH
12/31/99
--------
<S> <C>
Net asset value, beginning of period ........................ $6.05
----
Income from investment operations:
Net investment income .................................... 0.10
Net realized and unrealized loss on investments .......... (0.09)
----
Total from investment operations ............................ 0.01
----
Less distributions from net investment income ............... (0.10)
----
Net asset value, end of period .............................. $5.96
====
Total return ................................................ 0.13%
Net assets, end of period (in thousands) .................... $289
Ratio of expenses to average net assets ..................... 1.98%**
Ratio of net investment income to average net assets ........ 4.87%**
Portfolio turnover rate ..................................... 34.12%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
CLASS Y SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
ENDED DECEMBER 31, PERIOD FROM
-------------------------------------------- 6/19/95* TO
1999 1998 1997 1996 12/31/95
----- ----- ----- ---- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $6.39 $6.32 $6.14 $6.34 $6.11
---- ---- ---- ---- ----
Income from investment operations:
Net investment income .............................. 0.40 0.39 0.42 0.40 0.21
Net realized and unrealized gain (loss)
on investments .................................. (0.45) 0.07 0.17 (0.20) 0.22
---- ---- ---- ---- ----
Total from investment operations ...................... (0.05) 0.46 0.59 0.20 0.43
---- ---- ---- ---- ----
Less distributions from net investment income ......... (0.37) (0.39) (0.41) (0.40) (0.20)
---- ---- ---- ---- ----
Net asset value, end of period ........................ $5.97 $6.39 $6.32 $6.14 $6.34
==== ==== ==== ==== ====
Total return .......................................... -0.81% 7.54% 9.91% 3.35% 7.20%
Net assets, end of period (in millions) ............... $2 $6 $5 $12 $3
Ratio of expenses to average net assets ............... 0.69% 0.61% 0.64% 0.62% 0.63%**
Ratio of net investment income to average
net assets ......................................... 6.00% 6.10% 6.48% 6.52% 6.41%**
Portfolio turnover rate ............................... 34.12% 33.87% 35.08% 55.74% 66.38%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
CLASS A SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:*
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $7.52 $7.59 $6.58 $5.79 $4.67
---- ---- ----- ----- -----
Income from investment operations:
Net investment income ........................... 0.08 0.20 0.06 0.07 0.07
Net realized and unrealized gain on
investments .................................. 1.13 1.66 1.73 1.10 1.30
---- ----- ----- ----- -----
Total from investment operations ................... 1.21 1.86 1.79 1.17 1.37
---- ----- ----- ----- -----
Less distributions:
From net investment income ...................... (0.08) (0.19) (0.06) (0.06) (0.07)
From capital gains .............................. (0.52) (1.74) (0.72) (0.32) (0.18)
---- ----- ----- ----- -----
Total distributions ................................ (0.60) (1.93) (0.78) (0.38) (0.25)
---- ----- ----- ----- -----
Net asset value, end of period ..................... $8.13 $7.52 $7.59 $6.58 $5.79
====== ====== ====== ====== ======
Total return** ..................................... 16.41% 24.02% 27.34% 20.36% 29.60%
Net assets, end of period (in millions) ............ $8,102 $7,368 $6,196 $4,851 $3,976
Ratio of expenses to average net assets ............ 0.94% 0.89% 0.84% 0.86% 0.83%
Ratio of net investment income to
average net assets .............................. 0.94% 1.11% 0.74% 1.03% 1.31%
Portfolio turnover rate ............................ 53.79% 49.29% 33.59% 22.24% 17.59%
</TABLE>
*Per-share amounts have been adjusted retroactively to reflect the 400%
stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
CLASS B SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
10/4/99*
THROUGH
12/31/99
--------
<S> <C>
Net asset value, beginning of period ......................... $7.77
-----
Income from investment operations:
Net investment loss ....................................... (0.00)
Net realized and unrealized gain on investments ........... 0.88
-----
Total from investment operations ............................. 0.88
-----
Less distributions:
From net investment income ................................ (0.00)
From capital gains ........................................ (0.52)
-----
Total distributions .......................................... (0.52)
-----
Net asset value, end of period ............................... $8.13
=====
Total return ................................................. 11.53%
Net assets, end of period (in millions) ...................... $13
Ratio of expenses to average net assets ...................... 2.18%**
Ratio of net investment loss to average net assets ........... -0.59**
Portfolio turnover rate ...................................... 53.79%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
CLASS C SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
10/4/99*
THROUGH
12/31/99
--------
<S> <C>
Net asset value, beginning of period .................. $7.77
-----
Income from investment operations:
Net investment loss ................................ (0.00)
Net realized and unrealized gain on investments .... 0.88
-----
Total from investment operations ...................... 0.88
-----
Less distributions:
From net investment income ......................... (0.00)
From capital gains ................................. (0.52)
-----
Total distributions ................................... (0.52)
-----
Net asset value, end of period ........................ $8.13
=====
Total return .......................................... 11.53%
Net assets, end of period (in millions) ............... $1
Ratio of expenses to average net assets ............... 2.23%**
Ratio of net investment loss to average net assets .... -0.63%**
Portfolio turnover rate ............................... 53.79%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
CLASS Y SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:*
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
ENDED DECEMBER 31, PERIOD FROM
-------------------------------------------- 6/19/95** TO
1999 1998 1997 1996 12/31/95
----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $7.52 $7.59 $6.58 $5.79 $5.55
----- ----- ----- ----- -----
Income from investment operations:
Net investment income .............................. 0.10 0.24 0.07 0.07 0.04
Net realized and unrealized gain on investments ... 1.13 1.66 1.73 1.11 0.42
----- ----- ----- ----- -----
Total from investment operations ...................... 1.23 1.90 1.80 1.18 0.46
----- ----- ----- ----- -----
Less distributions:
From net investment income ......................... (0.10) (0.23) (0.07) (0.07) (0.04)
From capital gains ................................. (0.52) (1.74) (0.72) (0.32) (0.18)
----- ----- ----- ----- -----
Total distributions ................................... (0.62) (1.97) (0.79) (0.39) (0.22)
----- ----- ----- ----- -----
Net asset value, end of period ........................ $8.13 $7.52 $7.59 $6.58 $5.79
===== ===== ===== ===== =====
Total return .......................................... 16.67% 24.27% 27.49% 20.53% 8.45%
Net assets, end of period (in millions) ............... $283 $399 $299 $151 $107
Ratio of expenses to average net assets ............... 0.73% 0.71% 0.72% 0.73% 0.74%***
Ratio of net investment income to average net assets .. 1.18% 1.29% 0.85% 1.17% 1.36%***
Portfolio turnover rate ............................... 53.79% 49.29% 33.59% 22.24% 17.59%***
</TABLE>
*Per-share amounts have been adjusted retroactively to reflect the 400%
stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
CLASS A SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:*
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 9.91 $6.71 $7.78 $7.63 $5.07
----- ---- ----- ----- -----
Income from investment operations:
Net investment loss ................................ (0.09) (0.03) (0.01) (0.02) (0.00)
Net realized and unrealized gain on investments .... 10.12 3.93 0.46 0.66 2.80
----- ---- ----- ----- -----
Total from investment operations ...................... 10.03 3.90 0.45 0.64 2.80
----- ---- ----- ----- -----
Less distributions from capital gains ................. (1.51) (0.70) (1.52) (0.49) (0.24)
----- ---- ----- ----- -----
Net asset value, end of period ........................ $18.43 $9.91 $6.71 $7.78 $7.63
====== ===== ====== ====== ======
Total return** ........................................ 102.93% 59.31% 7.22% 8.35% 55.37%
Net assets, end of period (in millions) ............... $3,744 $1,668 $1,063 $981 $821
Ratio of expenses to average net assets ............... 1.16% 1.05% 1.02% 0.98% 0.93%
Ratio of net investment loss to average net assets .... -0.79% -0.37% -0.18% -0.33% -0.07%
Portfolio turnover rate ............................... 40.35% 55.70% 87.68% 33.90% 32.89%
</TABLE>
*Per-share amounts have been adjusted retroactively to reflect the 200%
stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
CLASS B SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
10/4/99*
THROUGH
12/31/99
-------
<S> <C>
Net asset value, beginning of period .................. $12.64
-----
Income from investment operations:
Net investment loss ................................ (0.04)
Net realized and unrealized gain on investments .... 7.28
-----
Total from investment operations ...................... 7.24
-----
Less distributions from capital gains ................. (1.51)
-----
Net asset value, end of period ........................ $18.37
=====
Total return .......................................... 58.62%
Net assets, end of period (in millions) ............... $17
Ratio of expenses to average net assets ............... 2.64%**
Ratio of net investment loss to average net assets .... -2.35%**
Portfolio turnover rate ............................... 40.35%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
CLASS C SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
10/4/99*
THROUGH
12/31/99
-------
<S> <C>
Net asset value, beginning of period ...................... $12.64
-----
Income from investment operations:
Net investment loss .................................... (0.04)
Net realized and unrealized gain on investments ........ 7.29
-----
Total from investment operations .......................... 7.25
-----
Less distributions from from capital gains ................ (1.51)
-----
Net asset value, end of period ............................ $18.38
=====
Total return .............................................. 58.70%
Net assets, end of period (in millions) ................... $3
Ratio of expenses to average net assets ................... 2.42%**
Ratio of net investment loss to average net assets ........ -2.19%**
Portfolio turnover rate ................................... 40.35%**
</TABLE>
*Commencement of operations.
**Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
CLASS Y SHARES
FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT EACH PERIOD:*
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE
ENDED DECEMBER 31, PERIOD FROM
--------------------------------- 2/27/96** TO
1999 1998 1997 12/31/96
----- ----- ----- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 9.98 $6.74 $7.79 $8.02
----- ---- ----- -----
Income from investment operations:
Net investment loss ....................... (0.04) (0.01) (0.00) (0.01)
Net realized and unrealized gain on
investments ............................ 10.22 3.95 0.47 0.27
----- ---- ----- -----
Total from investment operations ............. 10.18 3.94 0.47 0.26
----- ---- ----- -----
Less distributions from capital gains ........ (1.51) (0.70) (1.52) (0.49)
----- ---- ----- -----
Net asset value, end of period ............... $18.65 $9.98 $6.74 $7.79
===== ==== ===== =====
Total return ................................. 103.72% 59.71% 7.43% 3.25%
Net assets, end of period (in millions) ...... $31 $6 $4 $3
Ratio of expenses to average net assets ...... 0.95% 0.79% 0.85% 0.80%***
Ratio of net investment loss to average
net assets ...................... -0.59% -0.12% -0.01% -0.12%***
Portfolio turnover rate ...................... 40.35% 55.70% 87.68% 33.90%***
</TABLE>
* Per-share amounts have been adjusted retroactively to reflect the 200%
stock dividend effected June 26, 1998.
** Commencement of operations.
*** Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
United Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The Corporation issues four series of capital shares;
each series represents ownership of a separate mutual fund. The assets
belonging to each Fund are held separately by the Custodian. The capital
shares of each Fund represent a pro rata beneficial interest in the
principal, net income (loss) and realized and unrealized capital gains or
losses of its respective investments and other assets. The following is a
summary of significant accounting policies consistently followed by the
Corporation in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at
the latest sale price thereof on the last business day of the fiscal
period as reported by the principal securities exchange on which the
issue is traded or, if no sale is reported for a stock, the average
of the latest bid and asked prices. Bonds, other than convertible
bonds, are valued using a pricing system provided by a pricing
service or dealer in bonds. Convertible bonds are valued using this
pricing system only on days when there is no sale reported. Stocks
which are traded over-the-counter are priced using the Nasdaq Stock
Market, which provides information on bid and asked prices quoted by
major dealers in such stocks. Securities for which quotations are
not readily available are valued as determined in good faith in
accordance with procedures established by and under the general
supervision of the Corporation's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Securities gains and losses are calculated
on the identified cost basis. Original issue discount (as defined in
the Internal Revenue Code), premiums on the purchase of bonds and
post-1984 market discount are amortized for both financial and tax
reporting purposes. Dividend income is recorded on the ex-dividend
date except that certain dividends from foreign securities are
recorded as soon as the Corporation is informed of the ex-dividend
date. Interest income is recorded on the accrual basis. See Note 3
-- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars
daily. Purchases and sales of investment securities and accruals of
income and expenses are translated at the rate of exchange
prevailing on the date of the transaction. For assets and
liabilities other than investments in securities, net realized and
unrealized gains and losses from foreign currency translations arise
from changes in currency exchange rates. The Corporation combines
fluctuations from currency exchange rates and fluctuations in market
value when computing net realized and unrealized gain or loss from
investments.
D. Federal income taxes -- It is the Corporation's policy to distribute
all of its taxable income and capital gains to its shareholders and
otherwise qualify as a regulated investment company under Subchapter
M
<PAGE>
of the Internal Revenue Code. In addition, the Corporation intends to
pay distributions as required to avoid imposition of excise tax.
Accordingly, provision has not been made for Federal income taxes.
See Note 4 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by each Fund on the business day following
record date. Net investment income distributions and capital gains
distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for
items such as deferral of wash sales and post-October losses,
foreign currency transactions, net operating losses and expiring
capital loss carryovers. At December 31, 1999, United Science and
Technology Fund reclassified $17,443,356 between accumulated
undistributed net investment income and accumulated undistributed
net realized gain on investment transactions. Net investment
income, net realized gains and net assets were not affected by this
change.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS
The Corporation pays a fee for investment management services. The
fee is computed daily based on the net asset value at the close of business.
The fee is payable by each Fund at the following annual rates:
<TABLE>
<CAPTION>
Annual
Fund Net Asset Breakpoints Rate
--------------------------------------------------------------------------------------------
<S> <C> <C>
United Accumulative Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
United Bond Fund Up to $500 Million .525%
Over $500 Million up to $1 Billion .500%
Over $1 Billion up to $1.5 Billion .450%
Over $1.5 Billion .400%
United Income Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion up to $6 Billion .550%
Over $6 Billion .500%
United Science and
Technology Fund Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
</TABLE>
Prior to June 30, 1999, the fee consisted of two elements: (i) a "Specific"
fee computed on net asset value as of the close of business each day at the
annual rate of .15% of net assets for United Accumulative Fund and United
Income Fund, .03% of net assets for United Bond Fund, and .20% for United
Science and Technology Fund; and (ii) a "Group" fee computed each day on
<PAGE>
the combined net asset values of all of the funds in the United Group of
mutual funds at annual rates of .51% of the first $750 million of combined
net assets, .49% on that amount between $750 million and $1.5 billion, .47%
between $1.5 billion and $2.25 billion, .45% between $2.25 billion and $3
billion, .43% between $3 billion and $3.75 billion, .40% between $3.75
billion and $7.5 billion, .38% between $7.5 billion and $12 billion, and .36%
of that amount over $12 billion. The Corporation accrues and pays this fee
daily.
Pursuant to assignment of the Investment Management Agreement
between the Corporation and Waddell & Reed, Inc. ("W&R"), Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of W&R,
serves as the Corporation's investment manager.
The Corporation has an Accounting Services Agreement with Waddell &
Reed Services Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the four Funds pays WARSCO a monthly
fee of one-twelfth of the annual fee shown in the following table.
ACCOUNTING SERVICES FEE
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
<S> <C>
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
</TABLE>
For Class A, Class B and Class C shares, the Corporation pays WARSCO
a per account charge for transfer agency and dividend disbursement services
of $1.3125 for each shareholder account which was in existence at any time
during the prior month, plus $0.30 for each account on which a dividend or
distribution of cash or shares had a record date in that month. With respect
to Class Y shares, the Corporation pays WARSCO a monthly fee at an annual
rate of .15% of the average daily net assets of the class for the preceding
month. The Corporation also reimburses W&R and WARSCO for certain
out-of-pocket costs.
As principal underwriter for the Corporation's shares, W&R received
gross sales commissions for Class A shares (which are not an expense of the
Corporation) of $35,273,006. With respect to Class A, Class B and Class C
shares, W&R paid sales commissions of $21,190,954 and all expenses in
connection with the sale of the Corporation's shares, except for registration
fees and related expenses.
A contingent deferred sales charge ("CDSC") may be assessed against a
shareholder's redemption amount of Class B and Class C shares and is paid to
W&R. The purpose of the deferred sales charge is to compensate W&R for the costs
incurred by W&R in connection with the sale of a fund's shares. With respect to
Class B shares, the amount of the CDSC will be the following percent of the
total amount invested during a calendar year to
<PAGE>
acquire the shares or the value of the shares redeemed, whichever is less.
Redemption at any time during the first calendar year of investment, 5%; the
second calendar year, 4%; the third calendar year, 3%; the fourth calendar
year, 3%; the fifth calendar year, 2%; the sixth calendar year, 1% and
thereafter, 0%. If Class C shares are sold within 12 months of buying these
shares, a 1% CDSC will be imposed. The deferred sales charge will not be
imposed on shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares
purchased during the deferred sales charge period. During the period ended
December 31, 1999, W&R received the following amounts in deferred sales
charges from Class B and Class C shares.
<TABLE>
<CAPTION>
Class B Class C
<S> <C> <C>
United Accumulative Fund $ 96 $---
United Bond Fund 1 65
United Income Fund 437 58
United Science and
Technology Fund 391 32
</TABLE>
Under a Distribution and Service Plan for Class A shares adopted by
the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Fund may pay monthly a distribution and/or service fee to W&R in an amount
not to exceed .25% of the Fund's average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the
distribution of the Class A shares and/or provision of personal services to
Fund shareholders and/or maintenance of shareholder accounts.
Under the Distribution and Service Plan adopted by the Corporation
for Class B shares and Class C shares, respectively, each Fund may pay
Waddell & Reed, Inc. a service fee not to exceed .25% and a distribution fee
not to exceed .75% of a Fund's average annual net assets attributable to that
class, paid monthly, to compensate Waddell & Reed, Inc. for its services in
connection with the distribution of shares of that class and/or the service
and/or maintenance of shareholder accounts of that class. The Class B Plan
and the Class C Plan each permit Waddell & Reed, Inc. to receive
compensation, through the distribution fee 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 reimbursement under
the Class A Plan.
The Corporation paid Directors' fees of $459,244, which are included
in other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding
company, and a direct subsidiary of Waddell & Reed Financial Services, Inc.,
a holding company.
NOTE 3 -- INVESTMENT SECURITIES TRANSACTIONS
Investment securities transactions for the period ended December 31,
1999 are summarized as follows:
<PAGE>
<TABLE>
<CAPTION>
United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Purchases of investment securities,
excluding short-term and U.S.
Government securities $7,056,318,925 $73,318,852 $3,544,216,574 $1,091,254,903
Purchases of U.S. Government obligations --- 100,085,983 560,658,182 ---
Purchases of short-term securities 4,497,576,410 1,193,555,386 7,816,842,397 3,065,336,811
Proceeds from maturities and sales of
investment securities, excluding
short-term and U.S. Government
securities 7,025,010,786 110,107,548 3,050,312,467 867,068,931
Proceeds from maturities and sales of
U.S. Government obligations 199,577,344 82,351,376 1,602,793,476 ---
Proceeds from maturities and sales
of short-term securities 4,408,528,474 1,189,229,929 7,842,462,287 3,054,306,348
</TABLE>
For Federal income tax purposes, cost of investments owned at December
31, 1999 and the related appreciation (depreciation) were as follows:
<TABLE>
<CAPTION>
Aggregate
Appreciation
Cost Appreciation Depreciation (Depreciation)
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
United Accumulative Fund $1,873,721,507 $ 468,359,591 $(77,189,885) $391,169,706
United Bond Fund 513,653,172 2,903,670 (15,835,110) (12,931,440)
United Income Fund 5,183,111,243 3,500,668,908 (260,091,901) 3,240,577,007
United Science and Technology Fund 1,399,347,723 2,435,883,110 (34,625,382) 2,401,257,728
</TABLE>
NOTE 4 -- FEDERAL INCOME TAX MATTERS
The Corporation's income and expenses attributed to each Fund and
the gains and losses on security transactions of each Fund have been
attributed to that Fund for Federal income tax purposes as well as for
accounting purposes. For Federal income tax purposes, United Accumulative
Fund, United Income Fund and United Science and Technology Fund realized
capital gain net income of $268,545,845, $836,278,477 and $271,055,351,
respectively, during the year ended December 31, 1999, a portion of which was
paid to shareholders during the period ended December 31, 1999. Remaining
capital gain net income will be distributed to each Fund's shareholders. For
Federal income tax purposes, United Bond Fund realized capital gain net
income of $159,085 during the year ended December 31, 1999, which included
the effect of certain losses deferred into the next fiscal year (see
discussion below). This capital gain net income was entirely offset by
utilization of capital loss carryovers. Remaining capital loss carryovers of
United Bond Fund aggregated $18,314,931 as of December 31, 1999, and are
available to offset future realized capital gain net income for Federal
income tax purposes but, if not utilized, will expire as follows: $18,234,028
at December 31, 2002 and $80,903 at December 31, 2003.
<PAGE>
Internal Revenue Code regulations permits each Fund to defer into
its next fiscal year net capital losses or net long-term capital losses
incurred between each November 1 and the end of its fiscal year
("post-October losses"). From November 1, 1999 through December 31, 1999,
United Bond Fund incurred net capital losses of $655,692, which have been
deferred to the fiscal year ending December 31, 2000.
NOTE 5 -- MULTICLASS OPERATIONS
Each Fund is authorized to offer four classes of shares, Class A,
Class B, Class C and Class Y, each of which have equal rights as to assets
and voting privileges. Class Y shares are not subject to a sales charge on
purchases, are not subject to a Rule 12b-1 Distribution and Service Plan and
are subject to a separate transfer agency and dividend disbursement services
fee structure. A comprehensive discussion of the terms under which shares of
each class are offered is contained in the Prospectus and the Statement of
Additional Information for the Fund.
Income, non-class specific expenses, and realized and unrealized
gains and losses are allocated daily to each class of shares based on the
value of their relative net assets as of the beginning of each day adjusted
for the prior day's capital share activity.
Transactions in capital stock for the period ended December 31, 1999
are summarized below. Dollar amounts are in thousands.
<PAGE>
<TABLE>
<CAPTION>
United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares issued from sale of shares:
Class A ............................... 20,269,569 74,230,647 95,817,631 70,704,260
Class B ............................... 274,559 332,561 1,568,086 888,155
Class C ............................... 33,975 61,935 161,689 145,074
Class Y ............................... 304,162 356,828 6,514,737 1,483,445
Shares issued from reinvestment of
dividends and/or capital gains
distribution:
Class A ............................... 28,018,888 4,401,669 67,006,166 16,066,243
Class B ............................... 26,403 1,572 77,440 59,765
Class C ............................... 4,051 195 8,454 10,356
Class Y ............................... 65,137 23,012 2,656,148 94,104
Shares redeemed:
Class A ............................... (27,718,702) (80,926,223) (146,623,896) (52,059,525)
Class B ............................... (12,853) (44,450) (33,784) (4,204)
Class C ............................... (5) (13,625) (938) (556)
Class Y ............................... (291,514) (917,224) (27,430,321) (504,503)
---------- ----------- ---------- ----------
Increase (decrease) in outstanding
capital shares ........................ 20,973,670 (2,493,103) (278,588) 36,882,614
========== =========== ========== ==========
Value issued from sale of shares:
Class A ............................... $176,177 $455,677 $ 746,043 $884,275
Class B ............................... 2,464 2,000 12,526 13,812
Class C ............................... 309 372 1,289 2,282
Class Y ............................... 2,560 2,207 50,345 18,437
Value issued from reinvestment of
dividends and/or capital gains
distribution:
Class A ............................... 236,622 27,368 524,162 266,218
Class B ............................... 223 9 606 988
Class C ............................... 34 1 66 171
Class Y ............................... 550 141 20,760 1,577
Value redeemed:
Class A ............................... (245,823) (496,408) (1,151,669) (652,677)
Class B ............................... (122) (266) (277) (72)
Class C ............................... (---)* (81) (8) (10)
Class Y ............................... (2,467) (5,808) (215,601) (5,667)
-------- -------- --------- --------
Increase (decrease) in outstanding
capital ............................... $170,527 $(14,788) $ (11,758) $529,334
======== ======== ========= ========
</TABLE>
*Amount not shown due to rounding.
<PAGE>
Transactions in capital stock for the fiscal year ended December 31,
1998 are summarized below. Dollar amounts are in thousands.
<TABLE>
<CAPTION>
United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund* Fund*
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares issued from sale of shares:
Class A ............................. 15,967,129 31,835,303 100,626,223 77,529,963
Class Y ............................. 103,049 216,958 10,384,489 130,439
Shares issued from reinvestment of
dividends and/or capital gains
distribution:
Class A ............................. 27,472,978 4,341,736 185,178,374 11,704,260
Class Y ............................. 59,740 56,607 11,152,791 42,644
Shares redeemed:
Class A ............................. (23,654,895) (32,844,203) (121,882,974) (79,203,331)
Class Y ............................. (175,077) (95,711) (7,947,287) (223,072)
---------- ---------- ---------- ----------
Increase in
outstanding capital
shares .............................. 19,772,924 3,510,690 177,511,616 9,980,903
========== ========== =========== ==========
Value issued from sale of shares:
Class A ............................. $136,894 $202,677 $ 849,389 $618,721
Class Y ............................. 876 1,379 85,082 1,031
Value issued from reinvestment of
dividends and/or capital gains
distribution:
Class A ............................. 216,773 27,530 1,351,806 103,357
Class Y ............................. 472 359 81,473 379
Value redeemed:
Class A ............................. (203,897) (208,970) (1,035,016) (631,968)
Class Y ............................. (1,436) (612) (65,230) (1,749)
-------- -------- ---------- --------
Increase in outstanding capital ........ $149,682 $ 22,363 $1,267,504 $ 89,771
======== ======== ========== ========
</TABLE>
*Share transactions prior to June 27, 1998 have been adjusted to effect the
stock dividend of June 26, 1998.
NOTE 6 -- STOCK DIVIDEND
The Corporation's Board of Directors approved on February 11, 1998 a
stock dividend of 400% on United Income Fund and 200% on United Science and
Technology Fund effected on June 26, 1998. Authorized shares of United Income
Fund were accordingly increased by 1,400,000,000 and United Accumulative Fund
and United Bond Fund each reallocated 100,000,000 shares to United Science
and Technology Fund.
NOTE 7 -- SECURITIES LOANED
On December 31, 1999, securities with a market value of $64,899,219
(which are included in the accompanying schedule of investments) had been
loaned under agreements whereby the Accumulative Fund held as collateral
securities with a market value of $64,408,907 and had required additional
collateral of $1,880,000, in accordance with the agreement. The additional
collateral was received on January 3, 2000. The Fund derives income from its
securities lending activities. These agreements may be terminated by the
borrower or the Fund upon proper notice. In the event the borrower fails to
deliver the securities within five business days, the Fund has the right to
use the collateral to purchase similar or other securities.
<PAGE>
During the period ended December 31, 1999, Accumulative Fund and United
Income Fund derived approximately $83,573 and $888,184, respectively, of
income, net of related expenses, from its securities lending activities.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of United Accumulative Fund, United
Bond Fund, United Income Fund, and United Science and Technology Fund
(collectively the "Funds") comprising United Funds, Inc. as of December 31,
1999, and the related statements of operations for the fiscal year then
ended, the statements of changes in net assets for each of the two fiscal
years in the period then ended, and the financial highlights for each of the
five fiscal years in the period then ended. These financial statements and
the financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1999, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
each of the respective Funds comprising United Funds, Inc. as of December 31,
1999, the results of their operations for the fiscal year then ended, the
changes in their net assets for each of the two fiscal years in the period
then ended, and the financial highlights for each of the five fiscal years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
-------------------------
Deloitte & Touche LLP
Kansas City, Missouri
February 4, 2000
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: United Funds, Inc.
(a) Articles of Incorporation, as amended, filed by EDGAR on April 18,
1995 as EX-99.B1-charter to the Post-Effective Amendment No. 117
to the Registration Statement on Form N-1A*
Articles Supplementary as proposed, filed by EDGAR on April 18,
1995 as EX-99.B1-ufartsup to the Post-Effective Amendment No. 117
to the Registration Statement on Form N-1A*
Articles Supplementary filed by EDGAR on September 16, 1999 as
EX-99.B(a)ufartsup to the Post-Effective Amendment No. 124 to the
Registration Statement on Form N-1A*
Articles Supplementary filed by EDGAR on April 27, 2000 as
EX-99.B(a)ufartsup to 1940 Act Amendment No. 32 to the
Registration Statement on Form N-1A*
Articles Supplementary attached hereto as EX-99.B(a)ufartsup
(b) Bylaws, as amended, filed by EDGAR on March 26, 1997 as
EX-99.B2-ufbylaw to Post-Effective Amendment No. 119 to the
Registration Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 1, 1999 as
EX-99.B2-ufamend to Post-Effective Amendment No. 123 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement filed by EDGAR on September 30,
1994 as EX-99.B5-UFIMA to Post-Effective Amendment No. 116 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreements filed by EDGAR
on March 28, 1996 as EX-99.B5-ufassign to the Post-Effective
Amendment No. 118 to the Registration Statement on Form N-1A*
Fee Schedule (Exhibit A) to the Investment Management Agreement,
as amended, filed by EDGAR on September 16, 1999 as
EX-99.B(d)ufimafee to the Post-Effective Amendment No. 124 to the
Registration Statement on Form N-1A*
(e) Underwriting Agreement, dated February 8, 1995, filed by EDGAR on
April 18, 1995 as EX-99.B6-ufua to the Post-Effective Amendment
No. 117 to the Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on January 29,
1999 as EX-99.B8-ufca to Post-Effective Amendment No. 122 to the
Registration Statement on Form N-1A*
<PAGE>
Custodian Agreement, as amended, filed by EDGAR on April 27, 2000
as EX-99.B(h)ufca to 1940 Act Amendment No. 32 to the Registration
Statement on Form N-1A*
(h) Shareholder Servicing Agreement, filed by EDGAR on January 29,
1999 as EX-99.B9-ufssa to Post-Effective Amendment No. 122 to the
Registration Statement on Form N-1A*
Fund Class A application, as amended, filed by EDGAR on May 30,
1997 as EX-99.B9-ufappca to Post-Effective Amendment No. 120 to
the Registration Statement on Form N-1A*
Fund Class Y application filed by EDGAR on April 18, 1995 as
EX-99.B9-ufappcy to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Fund NAV application filed by EDGAR on April 18, 1995 as
EX-99.B9-ufappnav to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Accounting Services Agreement filed by EDGAR on April 18, 1995 as
EX-99.B9-ufasa to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Service Agreement filed by EDGAR on August 11, 1993 as Exhibit
(b)(15) to Post-Effective Amendment No. 114 to the Registration
Statement on Form N-1A*
Amendment to Service Agreement filed by EDGAR on April 18, 1995 as
EX-99.B9-ufsaa to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Class Y Letter of Understanding filed by EDGAR on March 28, 1996
as EX-99.B9-uflou to the Post-Effective Amendment No. 118 to the
Registration Statement on Form N-1A*
Compensation Table (Exhibit B) to the Shareholder Servicing
Agreement, as amended, filed by EDGAR on September 16, 1999 as
EX-99.B(h)ufssacom to the Post-Effective Amendment No. 124 to the
Registration Statement on Form N-1A*
Fidelity Bond Coverage (Exhibit C) to the Shareholder Servicing
Agreement, as amended, filed by EDGAR on September 16, 1999 as
EX-99.B(h)ufssafid to the Post-Effective Amendment No. 124 to the
Registration Statement on Form N-1A*
Fund Class A, B and C application (Non-Retirement Plan), as
amended, filed by EDGAR on September 16, 1999 as
EX-99.B(h)ufappnon to the Post-Effective Amendment No. 124 to the
Registration Statement on Form N-1A*
Fund Class A, B and C application (Retirement Plan), as amended,
filed by EDGAR on September 16, 1999 as EX-99.B(h)ufappabc to the
Post-Effective Amendment No. 124 to the Registration Statement on
Form N-1A*
Fund Class Y application filed by EDGAR on April 18, 1995 as
EX-99.B(h)ufappcy to Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
<PAGE>
Fund NAV application, as amended, filed by EDGAR on April 27, 2000
as EX-99.B(h)ufappnav to 1940 Act Amendment No. 32 to the
Registration Statement on Form N-1A*
Fund Application (Non-Retirement Plan), as amended, attached
hereto as EX-99.B(h)ufappnon
Fund Application (Retirement Plan), as amended, attached hereto as
EX-99.B(h)ufappabc
Fund Application (Institutional), attached hereto as
EX-99.B(h)ufappnav
Fund Application (Legend Non-Retirement), attached hereto as
EX-99.B(h)ufapplegnon
Fund Application (Legend Retirement), attached hereto as
EX-99.B(h)ufapplegappabc
(i) Opinion and Consent of Counsel attached hereto as
EX-99.B(i)uflegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B(j)ufconsnt
(k) Not applicable
(l) Not applicable
(m) Distribution and Service Plan, as amended, filed by EDGAR on
January 29, 1999 as EX-99.B15-ufd&spca to Post-Effective Amendment
No. 122 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class B shares filed by EDGAR on
September 16, 1999 as EX-99.B(m)ufdspb to the Post-Effective
Amendment No. 124 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class C shares filed by EDGAR on
September 16, 1999 as EX-99.B(m)ufdspc to the Post-Effective
Amendment No. 124 to the Registration Statement on Form N-1A*
(n) Not applicable
(o) Multiple Class Plan, as amended, attached hereto as
EX-99.B(o)ufmcp
(p) Code of Ethics filed by EDGAR on April 27, 2000 as
EX-99.B(p)ufcode to 1940 Act Amendment No. 32 to the Registration
Statement on Form N-1A*
24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
25. INDEMNIFICATION
Reference is made to Article SEVENTH paragraph 6(b) through 6(f) of the
Articles of Incorporation, as amended, filed April 18, 1995 as
EX-99.B1-charter to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*; and to Article IV of the
Underwriting Agreement filed April 18, 1995 as EX-99.B6-ufua to
Post-Effective Amendment No. 117 to the Registration Statement on Form
N-1A*, both of which provide indemnification. Also refer to Section 2-418
of the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
<PAGE>
Registrant undertakes to carry out all indemnification provisions of its
Articles of Incorporation, Bylaws, and the above-described contracts in
accordance with the Investment Company Act Release No. 11330
(September 4, 1980) and successor releases.
Insofar as indemnification for liability arising under the 1933 Act, as
amended, may be provided to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment of the Registrant of expenses incurred or paid by a director,
officer of controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer,
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is
to provide investment management services to the Registrant. Waddell &
Reed, Inc. assigned its investment management duties under this agreement
to Waddell & Reed Investment Management Company on January 8, 1992.
Waddell & Reed Investment Management Company is not engaged in any
business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment 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, P.O. Box 29217, Shawnee Mission, Kansas
66201-9217.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
<PAGE>
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 International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
United Small Cap Fund, Inc.
United Tax-Managed Equity Fund, Inc.
Waddell & Reed Funds, Inc.
Advantage I
Advantage II
Advantage Plus
Advantage Gold
(b) The information contained in the underwriter's application on Form
BD, as filed on June 16, 2000 SEC No. 8-27030 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 Post-Effective Amendment and as listed in response to Items 23(h)
and 23(m) hereof.
30. UNDERTAKING
Not applicable
---------------------------------
*Incorporated herein by reference
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED
ASSET STRATEGY FUND, INC., UNITED CASH MANAGEMENT, INC., UNITED CONTINENTAL
INCOME FUND, INC., UNITED FUNDS, INC., UNITED GOVERNMENT SECURITIES FUND, INC.,
UNITED HIGH INCOME FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED
INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC., UNITED
MUNICIPAL HIGH INCOME FUND, INC., UNITED NEW CONCEPTS FUND, INC., UNITED
RETIREMENT SHARES, INC., UNITED SMALL CAP FUND, INC., UNITED TAX-MANAGED EQUITY
FUND, INC., UNITED VANGUARD 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, DANIEL C. SCHULTE 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: February 9, 2000 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
<TABLE>
<S> <C> <C>
/s/Keith A. Tucker Chairman of the Board February 9, 2000
------------------- -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal February 9, 2000
-------------------- Financial Officer and -----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and February 9, 2000
-------------------- Director -----------------
Henry J. Herrmann
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Theodore W. Howard Vice President, Treasurer February 9, 2000
-------------------- and Principal Accounting -----------------
Theodore W. Howard Officer
/s/James M. Concannon Director February 9, 2000
-------------------- -----------------
James M. Concannon
/s/John A. Dillingham Director February 9, 2000
-------------------- -----------------
John A. Dillingham
/s/David P. Gardner Director February 9, 2000
------------------- -----------------
David P. Gardner
/s/Linda K. Graves Director February 9, 2000
-------------------- -----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director February 9, 2000
-------------------- -----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director February 9, 2000
-------------------- -----------------
John F. Hayes
/s/Glendon E. Johnson Director February 9, 2000
-------------------- -----------------
Glendon E. Johnson
/s/William T. Morgan Director February 9, 2000
-------------------- -----------------
William T. Morgan
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Ronald C. Reimer Director February 9, 2000
-------------------- -----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr. Director February 9, 2000
-------------------- -----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director February 9, 2000
-------------------- -----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director February 9, 2000
-------------------- -----------------
Frederick Vogel III
Attest:
/s/Kristen A. Richards
--------------------------------
Kristen A. Richards
Secretary
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(b) of the Securities Act of 1933, and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 28th day of June, 2000.
UNITED FUNDS, 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> <C>
/s/Keith A. Tucker* Chairman of the Board June 28, 2000
---------------------- ------------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal June 28, 2000
---------------------- Financial Officer and ------------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and June 28, 2000
---------------------- Director ------------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer June 28, 2000
---------------------- and Principal Accounting ------------------
Theodore W. Howard Officer
/s/James M. Concannon* Director June 28, 2000
------------------ ------------------
James M. Concannon
/s/John A. Dillingham* Director June 28, 2000
------------------ ------------------
John A. Dillingham
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/David P. Gardner* Director June 28, 2000
------------------ ------------------
David P. Gardner
/s/Linda K. Graves* Director June 28, 2000
------------------ ------------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director June 28, 2000
------------------ ------------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director June 28, 2000
------------------- ------------------
John F. Hayes
/s/Glendon E. Johnson* Director June 28, 2000
------------------- ------------------
Glendon E. Johnson
/s/William T. Morgan* Director June 28, 2000
------------------- ------------------
William T. Morgan
/s/Ronald C. Reimer* Director June 28, 2000
------------------ ------------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director June 28, 2000
------------------ ------------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director June 28, 2000
------------------- ------------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 28, 2000
------------------- ------------------
Frederick Vogel III
*By /s/Kristen A. Richards
-------------------------
Kristen A. Richards
Attorney-in-Fact
</TABLE>
<PAGE>
ATTEST:/s/Daniel C. Schulte
---------------------------
Daniel C. Schulte
Assistant Secretary
