UNITED GOVERNMENT SECURITIES FUND INC, 497, 1994-07-01

UNITED GOVERNMENT SECURITIES FUND INC
497, 1994-07-01

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UNITED GOVERNMENT SECURITIES FUND, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

(913) 236-2000

- -----------------------------------------------------------------

June 30, 1994

PROSPECTUS

- -----------------------------------------------------------------

United Government Securities Fund, Inc. (the "Fund") is a management
investment company which seeks to provide as high a current income as is
consistent with safety of principal. It attempts to achieve this goal by
investing in a portfolio of debt securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Neither the United States, nor
any agency of the United States, has guaranteed, sponsored or approved the Fund
or its shares.

This Prospectus contains concise information about the Fund of which you
should be aware before investing. Additional information has been filed with
the Securities and Exchange Commission and is contained in a Statement of
Additional Information (the "SAI"), dated June 30, 1994. You may obtain a copy
of the SAI free of charge by request to the Fund or its Underwriter, Waddell &
Reed, Inc., at the address or telephone number shown below. The SAI is
incorporated by reference into this Prospectus and you will not be aware of all
facts unless you read both this Prospectus and the SAI.

Retain This Prospectus For Future Reference

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
Summary of Expenses

Shareholder Transaction Expenses
- --------------------------------

Maximum Sales Load Imposed on Purchases 4.25%
(as a percentage of offering price)

Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)

Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) None

Redemption Fees (as a percentage
of amount redeemed, if applicable) None

Exchange Fee None

Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)

Management Fees 0.42%

12b-1 Fees* 0.25%

Other Expenses 0.28%
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)

Total Fund Operating Expenses** 0.95%

Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each
time period: $52 $71 $93 $154

The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.

*Expense information reflects the 12b-1 service fee which became effective
October 1, 1993, which fee will not exceed .25% of the Fund's average annual
net assets. It is possible that long-term shareholders of the Fund may bear
12b-1 fees which are more than the economic equivalent of the maximum front-
end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc. See "Management and Services" for further
information about 12b-1 service fees.

**Expense information has been restated to reflect the current maximum 12b-1
service fee which became effective October 1, 1993.

<PAGE>

UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS*
(Audited)
The following information has been audited by Price Waterhouse, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse.
For A Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended March 31,
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $5.44 $5.01 $4.85 $4.76 $4.71 $4.91 $5.70 $6.17 $5.13 $5.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .30 .33 .37 .39 .41 .39 .40 .46 .54 .56
Net realized and
unrealized gain
(loss) on
investments (0.21) .43 .16 .09 .05 (0.20) (0.60) .04 1.08 .13
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... .09 .76 .53 .48 .46 .19 (0.20) .50 1.62 .69
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends declared
from net investment
income ..... (0.30) (0.33) (0.37) (0.39) (0.41) (0.39) (0.40) (0.46) (0.54) (0.56)
Distribution from
capital gains 0.00 0.00 0.00 0.00 0.00 0.00 (0.19) (0.51) (0.04) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.30) (0.33) (0.37) (0.39) (0.41) (0.39) (0.59) (0.97) (0.58) (0.56)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $5.23 $5.44 $5.01 $4.85 $4.76 $4.71 $4.91 $5.70 $6.17 $5.13
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** .. 1.56% 15.62% 11.22% 10.68% 10.06% 4.12% -3.05% 9.36% 33.86% 14.24%
Net assets, end
of period (000
omitted) ....$176,649 $177,167 $138,753 $118,703 $104,045 $112,684 $146,993 $191,434 $123,600 $46,493
Ratio of expenses
to average net
assets ....... 0.75% 0.71% 0.75% 0.80% 0.78% 0.76% 0.77% 0.72% 0.87% 0.76%***
Ratio of net investment
income to average
net assets ... 5.50% 6.29% 7.40% 8.27% 8.55% 8.15% 8.12% 8.15% 9.70% 11.62%
Portfolio turnover
rate**** ..... 122.62% 81.41% 124.51% 187.55% 257.18% 205.79% 234.57% 240.25% 380.21% ---

*Per-share and share amounts have been adjusted retroactively to reflect the
1-for-5 reduction in shares effected April 10, 1984.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***For the period from June 7, 1984 through March 31, 1985, Waddell & Reed,
Inc., the then investment manager, agreed to a voluntary assumption of Fund
expenses. The ratio of expenses to average net assets shown in the table
would have been 1.11% without this assumption of expenses.
****This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the lesser of its purchases or sales
in the period, excluding short-term securities. For periods ended prior to
April 1, 1985, U.S. Government Securities were excluded from the calculation
and therefore the portfolio turnover rate was not applicable.

Information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge by
request to the Fund at the address or phone number shown on the cover of this
Prospectus.

</TABLE>
<PAGE>

What is United Government Securities Fund, Inc.?

United Government Securities Fund, Inc. is a corporation organized under
Maryland law on March 26, 1982. It is an open-end diversified management
investment company commonly called a "mutual fund." The Fund has a Board of
Directors which has overall responsibility for the management of its affairs.
For the names of the Directors and other information about them, see the SAI.
The Fund has only one class of shares. Each share has the same rights to
dividends and to vote. Shares are fully paid and nonassessable when bought.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval, will be presented to shareholders at an annual or special
meeting called by the Board of Directors for such purpose.

Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
shareholders for the purpose of electing directors until such time as less than
a majority of directors holding office have been elected by shareholders, at
which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended, applies to the Fund, the directors are required
to call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of the Fund's outstanding shares.

Performance Information

From time to time the Fund or Waddell & Reed, Inc. may include performance
data in advertisements or in information furnished to present or prospective
shareholders. Fund performance may be shown by presenting one or more
performance measurements, including yield, total return and performance
rankings.

The Fund's yield is based on a 30-day period ending on a specific date and
is computed by dividing the Fund's net investment income per share earned during
the period by the Fund's maximum offering price per share on the last day of the
period.

The Fund's total return is its overall change in value for the period shown
including the effect of reinvesting dividends and distributions and any change
in the net asset value per share. A cumulative total return reflects the Fund's
change in value over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the cumulative total return for a stated period if the Fund's performance had
been constant during each year of that period. Average annual total returns are
not actual year-by-year results and investors should realize that total returns
will fluctuate.

Standardized total return figures reflect payment of the maximum sales
charge. The Fund may also provide non-standardized performance information
which does not reflect deduction of such sales charge or which is for periods
other than those required to be presented or which differs otherwise from
standardized performance information. See the SAI for yield and total return
and methods of computation.

From time to time in advertisements and information furnished to present or
prospective shareholders the Fund may discuss its performance rankings as
published by recognized independent mutual fund statistical services such as
Lipper Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. The Fund may also compare its performance to
that of other selected mutual funds or selected recognized market indicators
such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average. Performance information may be quoted numerically or presented in a
table, graph or other illustration.

All performance information which the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.

Goal and Investment Policies of the Fund

The goal of the Fund is to seek as high a current income as is consistent
with safety of principal. The Fund seeks this goal by investing in a portfolio
of debt securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government Securities"). There is no assurance that
the Fund will achieve its goal. This goal and the type of securities the Fund
may invest in are matters of fundamental policy which may not be changed without
a shareholder vote.

The value of the U.S. Government Securities in which the Fund may invest
will fluctuate depending in large part on changes in prevailing interest rates.
If these rates go up after the Fund buys a security, its value may go down; if
these rates go down, its value may go up. Changes in value and yield based on
changes in prevailing interest rates may have different effects on short-term
debt obligations than on long-term obligations. Long-term obligations (which
often have higher yields) may fluctuate in value more than short-term ones. The
Fund has no policy limiting the maturity of the U.S. Government Securities in
which it may invest.

Securities issued or guaranteed by the U.S. Government include a variety of
Treasury securities that differ only in their interest rates, maturities and
dates of issuance. More information about the characteristics of Treasury
securities and the U.S. Government agencies which issue or guarantee such
securities is contained in the SAI.

U.S. Government Securities, other than U.S. Treasury securities, and
obligations of U.S. Government agencies and instrumentalities may or may not be
supported by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the Treasury; others by discretionary
authority of the U.S. Government to purchase the agencies' obligations; while
still others, such as the Student Loan Marketing Association, 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, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitment.
The Fund will invest in securities of such an instrumentality only when Waddell
& Reed Investment Management Company (the "Manager"), the Fund's Manager, is
satisfied that the credit risk with respect to any such instrumentality is
acceptable.

Among the U.S. Government Securities that the Fund may purchase are
"mortgage-backed securities" of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). There is no
percentage limitation on its purchase of these securities. These mortgage-
backed securities include "pass-through" securities, participation certificates
and collateralized mortgage obligations ("CMOs"). The yield characteristics of
mortgage-backed securities, including CMOs, in which the Fund may invest differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed and
asset-backed securities and that principal may be prepaid at any time because
the underlying mortgage loans or other assets generally may be prepaid at any
time. As a result, if the Fund purchases these securities at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity while
a prepayment rate that is slower than expected will have the opposite effect of
increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase, while
slower than expected prepayments will reduce, yield to maturity. Accelerated
prepayments on securities purchased by the Fund at a premium also impose a risk
of loss of principal because the premium may not have been fully amortized at
the time the principal is repaid in full. Timely payment of principal and
interest on Ginnie Mae (but not Freddie Mac or Fannie Mae) pass-throughs is
guaranteed by the full faith and credit of the United States. This is not a
guarantee against market decline of the value of these securities or shares of
the Fund. It is possible that the availability and the marketability (i.e.,
liquidity) of these securities could be adversely affected by actions of the
U.S. Government to tighten the availability of its credit. See the SAI for
additional information about the characteristics of U.S. Government Securities.

The Fund may also invest in deposits in banks (represented by certificates
of deposit or other evidence of deposit of varying maturities issued by such
banks) to the extent that the principal of such deposits is insured by the
Federal Deposit Insurance Corporation ("FDIC") ("Insured Deposits"). Such
insurance (and accordingly, the Fund's investment) is currently limited to
$100,000 per bank; interest earned above that amount is not insured. Insured
Deposits are not considered to be U.S. Government Securities for purposes of the
foregoing policies. Insured Deposits have limited marketability.

For the purpose of increasing income, the Fund may purchase securities
subject to repurchase agreements (which can be considered as collateralized
loans by the Fund). The majority of the repurchase transactions in which the
Fund would engage run from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund's risk
is limited to the ability of the vendor to pay the agreed-upon sum upon the
delivery date. The Fund's investments in Insured Deposits, unless payable at
principal amount plus accrued interest on demand or within seven days of demand,
and repurchase agreements not terminable within seven days are subject to a
combined limitation of 10% of net assets.

The Fund may also lend its securities for the purpose of realizing income.
The Fund will not loan more than 30% of its assets at any one time. The
percentage limit and the requirement that such loans be on a collateralized
basis in accordance with certain regulatory requirements are fundamental
policies which can only be changed by shareholder vote. There are certain risks
associated with lending securities in that the Fund may experience delay in
recovering the collateral or even loss of the collateral. See the SAI for more
information about these risks.

The Fund may borrow money from banks for temporary or emergency purposes in
an amount up to 10% of its total assets.

The Fund may purchase U.S. Government Securities on a when-issued or
delayed delivery basis or sell them on a delayed delivery basis in order to
secure what is considered to be an advantageous price and yield at the time of
entering into the transaction. From the time of entering into the transaction
until the transaction is completed, the U.S. Government Securities so purchased
or sold are subject to market fluctuation. See the SAI for further information
about these instruments.

The Fund may buy and write (sell) put and call options on U.S. Government
Securities subject to certain limitations which are set forth in the SAI. Calls
written by the Fund must be covered (i.e., the Fund must own the securities
which are subject to the call or have the right to acquire them without
additional payment) except in the case of calls on futures contracts relating to
U.S. Government Securities, which may be uncovered. The Fund may write options
on securities for the purpose of increasing its income by receiving premiums
paid by the purchaser of the options. It may purchase puts to hedge against
major price declines in the value of its portfolio securities or purchase calls
to take advantage of an expected rise in the market value of securities which
the Fund does not hold in its portfolio.

The Fund may purchase puts on related investments it owns ("protective
puts") or on related investments it does not own ("nonprotective puts"). Buying
a protective put permits the Fund to protect itself during the put period
against a decline in the value of the related investments below the exercise
price by selling them through the exercise of the put. Buying a nonprotective
put permits the Fund, if the market price of the related investments is below
the put price during the put period, either to resell the put or to buy the
related investments and sell them at the exercise price. Options offer large
amounts of leverage which will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment.

The Fund may also buy and sell interest rate futures contracts relating to
U.S. Government Securities and options on such interest rate futures contracts
for the purpose of hedging the value of its securities portfolio against future
changes in interest rates. At the present time, the debt securities to which
interest rate futures relate are long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. It is a fundamental policy that
the Fund's use of options and futures contracts is limited to those relating to
U.S. Government Securities.

The primary risks associated with the use of options and futures are: (i)
loss of the increase in the value of the securities owned by the Fund if a call
option sold by the Fund is exercised thereby requiring the Fund to deliver the
securities at a price which is lower than the market value of the securities;
(ii) incurring higher costs to purchase securities which are subject to a put
option sold by the Fund if the put is exercised and the option is higher than
the market value of the security; (iii) loss of premiums paid by the Fund on
options it purchases; (iv) imperfect correlation between the change in the
market value of the U.S. Government Securities held in the Fund's portfolio and
the prices of futures and options thereon relating to U.S. Government Securities
purchased or sold by the Fund; (v) incorrect forecasts by the Manager concerning
interest rates which may result in the hedge being ineffective; and (vi)
possible lack of a liquid secondary market for any option or futures contract;
the resulting inability to close an option or futures position could have an
adverse impact on the Fund's ability to hedge or increase income. For a hedge
to be completely effective, the price change of the hedging instrument should
equal the price change of the security being hedged. Such equal price changes
are not always possible because the investment underlying the hedging instrument
may not be the same investment that is being hedged. See the SAI for further
information about these instruments and their risks. Because the Fund may write
uncovered calls on futures, there is the additional risk that if an uncovered
call the Fund wrote was exercised, to meet the exercise, the Fund would have to
purchase the future at whatever the market price might be at the time of the
exercise.

There can be no assurance that the Fund will achieve its goals; some market
risks are inherent in all securities to varying degrees.

The Fund may have a high portfolio turnover. See the Financial Highlights
table for past turnover. Option transactions may increase the turnover rate.
This results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences. See the SAI for additional
information.

Management and Services

Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds
since 1940 or the inception of the investment company, whichever was later, and
to TMK/United Funds, Inc. since its inception. On January 8, 1992, subject to
the authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
its investment management duties (and assigned its professional staff for
investment management services) to Waddell & Reed Investment Management Company,
a wholly-owned subsidiary of Waddell & Reed, Inc. The Manager has also served
as investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. since each commenced operations in February 1993.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. Waddell & Reed, Inc. is an indirect
subsidiary of Torchmark Corporation, a holding company, and United Investors
Management Company, a holding company, and a direct subsidiary of Waddell &
Reed Financial Services, Inc., a holding company.

Subject to authority of the Fund's Board of Directors, the Manager provides
investment advice and supervises investments for which it is paid a fee
consisting of a pro rata participation based on the relative net asset size of
the Fund in a "Group" fee computed each day on the combined net asset values of
all of the funds in the United Group at the annual rates shown in the following
table. The fee is accrued and paid daily. Prior to the above-described
assignment to the Manager on January 8, 1992, the fees were paid to Waddell &
Reed, Inc.

Group Fee Rate

Group Net Asset Level Annual Group
(all dollars in millions) Fee Rate for Each Level
------------------------- -----------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%

Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc., acts
as transfer agent ("Shareholder Servicing Agent") for the Fund and processes the
payments of dividends. See the SAI for the fees paid for these services.
Inquiries concerning shareholder accounts should be sent to that company at the
address shown on the inside back cover of this Prospectus or to the Fund at the
address shown on the front cover of this Prospectus.

Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays the Accounting Services Agent a monthly fee of one-twelfth of the
annual fee shown in the following table.

Accounting Services Fee

Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------

From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000

Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to Waddell &
Reed, Inc., the principal underwriter for the Fund, in an amount not to exceed
.25% of the Fund's average annual net assets. The fee is to be paid to
reimburse Waddell & Reed, Inc. for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts. In particular, the Service Plan and a related Service
Agreement between the Fund and Waddell & Reed, Inc. contemplate that these
expenditures may include costs and expenses incurred by Waddell & Reed, Inc. and
its affiliates in compensating, training and supporting registered sales
representatives, sales managers and/or other appropriate personnel in providing
personal services to Fund shareholders and/or maintaining shareholder accounts;
increasing services provided to Fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
services to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers who may regularly sell Fund shares for providing
shareholder services and/or maintaining shareholder accounts. See the SAI for
additional information and terms of the Service Plan.

The combined net asset values of all of the funds in the United Group was
approximately $10.9 billion as of March 31, 1994. Management fees for the
fiscal year ended March 31, 1994 were 0.42 percent of the Fund's average net
assets. The Fund's total expenses for that year were 0.75 percent of its
average net assets.

The Manager places transactions for the Fund's portfolio and in doing so
may consider sales of shares of the Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions. See the SAI for
further information.

John E. Sundeen, Jr. is primarily responsible for the day-to-day management
of the portfolio of the Fund. Mr. Sundeen is Vice President of the Manager and
Vice President of the Fund. He is also Vice President of other investment
companies for which the Manager serves as investment manager. Mr. Sundeen has
held his Fund responsibilities since February 1991 and has been an employee of
Waddell & Reed, Inc. and its successor, the Manager, since June 1983. He has
served as the portfolio manager of other investment companies managed by Waddell
& Reed, Inc. or its successor since January 1991. He has been Vice President of
Waddell & Reed Asset Management Company, an affiliate of the Manager, since
August 1992. Other members of the Manager's investment management department
provide input on market outlook, economic conditions, investment research and
other considerations relating to the Fund's investments.

Dividends, Distributions and Taxes

Dividends are declared daily from net investment income, which includes
accrued interest, earned discount and other income earned on portfolio
securities less expenses. Ordinarily, dividends are paid on the 27th day of
each month or on the last business day prior to the 27th if the 27th falls on a
weekend or holiday. When shares are redeemed, any declared but unpaid dividends
on those shares will be paid with the next regular dividend payment and not at
the time of redemption. The Fund also distributes substantially all of its net
capital gains (the excess of net long-term capital gains over net short-term
capital losses) and net short-term capital gains, if any, after deducting any
available capital loss carryovers, with its regular dividend at the end of the
calendar year. The Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on certain undistributed income and capital
gains.

You have the option to receive dividends and distributions in cash, to
reinvest them without charge or to receive dividends in cash and reinvest
distributions, as you may instruct. In the absence of instructions, dividends
and distributions will be reinvested.

The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986 so that it will be
relieved of Federal income tax on that part of its investment company taxable
income (consisting generally of net investment income and net short-term capital
gains) and net capital gains that are distributed to its shareholders.

Dividends from the Fund's investment company taxable income are taxable to
you as ordinary income, to the extent of the Fund's earnings and profits,
whether received in cash or reinvested in additional Fund shares. Distributions
of the Fund's realized net capital gains, when designated as such, are taxable
to you as long-term capital gains, whether received in cash or reinvested in
additional Fund shares and regardless of the length of time you have owned your
shares. No part of the dividends paid by the Fund will be eligible for the
dividends-received deduction allowed to corporations. The Fund notifies you
after each calendar year-end as to the amounts of dividends and distributions
paid (or deemed paid) to you for that year.

The Fund is required to withhold 31% of all dividends, distributions and
redemption proceeds payable to individuals and certain other noncorporate
shareholders who do not furnish the Fund with a correct taxpayer identification
number. Withholding at that rate from dividends and distributions also is
required for such shareholders who otherwise are subject to backup withholding.

Redemption of Fund shares will result in taxable gain or loss to you,
depending on whether the redemption proceeds are more or less than your adjusted
basis for the redeemed shares (which normally includes any sales charge paid).
An exchange of Fund shares for shares of any other fund in the United Group
generally will have similar tax consequences. However, special rules apply when
you dispose of Fund shares through a redemption or exchange within 90 days after
your purchase thereof and subsequently reacquire Fund shares or acquire shares
of another fund in the United Group without paying a sales charge due to the
thirty-day reinvestment privilege or exchange privilege. In these cases, any
gain on the disposition of the Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares at a loss, part or all of that
loss will not be deductible and will increase the basis of the newly purchased
shares.

The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax advisor.

Purchase of Shares

You may purchase shares through Waddell & Reed, Inc. and its sales
representatives. To open an account you must complete an application. Orders
are accepted only at the home office of Waddell & Reed, Inc. (see inside back
cover of this Prospectus for address), and it need not accept any orders. The
offering price of a share is its net asset value next determined following
acceptance plus the sales charge shown in the table below. This net asset value
per share is the value of the Fund's assets, less liabilities, divided by the
number of shares outstanding. Net asset value is determined once each day as of
the later of the close of the regular session of the New York Stock Exchange or
the close of the regular session of any domestic securities exchange or
commodities exchange on which an option or future held by the Fund is traded on
each day the New York Stock Exchange is open. The Fund's portfolio securities
are valued according to prices quoted by a dealer in U.S. Government Securities
which offers a pricing service or, if not available, at their fair value in the
manner determined in good faith by the Board of Directors. Short-term U.S.
Government Securities are valued at amortized cost which approximates market
value. Other assets are valued at their fair value.

Sales Charge
Sales Charge as Approximate
as Percent of Percent of
Size of Purchase Offering Price Amount Invested

Under $100,000 ...................... 4.25% 4.44%
$ 100,000 to less than $ 300,000 .. 3.25 3.36
300,000 to less than 500,000 .. 2.50 2.56
500,000 to less than 1,000,000 .. 1.75 1.78
1,000,000 to less than 2,000,000 .. 1.00 1.01
2,000,000 and over ................. 0.00 0.00

Ordinarily, the minimum initial investment is $500. A $50 minimum initial
investment pertains to sales to certain retirement plan accounts. A $100
minimum initial investment pertains to certain exchanges of shares from other
funds in the United Group.

A shareholder may arrange with Waddell & Reed, Inc. to purchase shares by
having regular monthly withdrawals of $25 or more made from a checking account
or by having regular monthly exchanges of shares with a value of $25 or more
made from United Cash Management, Inc., subject to certain conditions explained
in the SAI.

Lower sales charges are available by combining additional purchases of the
Fund, United Municipal Bond Fund, Inc. and United Municipal High Income Fund,
Inc. with the net asset value of shares already held ("rights of accumulation")
and by grouping all purchases made during a thirteen-month period ("Statement of
Intention"). Purchases by certain related persons may be grouped. Shares of
the Fund held for at least six months may be exchanged for shares of another
fund in the United Group (listed on back cover of this Prospectus) unless the
exchange is for shares of United Municipal High Income Fund, Inc. or United
Municipal Bond Fund, Inc., or unless the Fund shares were acquired by
reinvestment of a dividend or distribution, in which cases there is no holding
period. There are no sales charges on such exchanges. Subject to certain
conditions, automatic monthly exchanges of shares of United Cash Management,
Inc. and exchanges of shares of certain other funds in the United Group may be
made into any other fund in the United Group. These exchange privileges may be
eliminated or modified at any time, upon notice in certain instances.
Information as to rights of accumulation, Statements of Intention, grouping by
related persons, exchange privileges, Flexible Withdrawal Service, Individual
Retirement Accounts, Section 403(b) plans, Keogh, 401(k), 457 plans and other
qualified employee benefit plans is contained in the SAI. Applicable forms are
available from Waddell & Reed, Inc.'s sales representatives.

Fund shares may be purchased at net asset value by the Directors and
officers of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, sales representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and sales representative. Purchases in certain
retirement plans and certain trusts for these persons may also be made at net
asset value. Purchases in a 401(k) plan having 100 or more eligible employees
may be made at net asset value. Shares may also be issued at net asset value in
a merger, acquisition or exchange offer made pursuant to a plan of
reorganization to which the Fund is a party. See the SAI for additional
information.

Redemption

You have the right to sell your shares back to the Fund (redeem) at any
time. Redemptions are at the net asset value next determined after receipt of
your request for redemption in good order at the Fund's address shown on the
front cover of this Prospectus.

A written request must be sent to the address on the front cover of this
Prospectus, stating how many shares or the amount in dollars you wish to redeem.
The written request must be in good order which requires that if more than one
person owns the shares, each owner must sign the written request. If you hold a
certificate, it must be properly endorsed and sent to the Fund. The Fund
reserves the right to require a signature guarantee by a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent if the request for redemption is made by a corporation,
partnership or fiduciary, or if the redemption request is made by, or if
redemption proceeds are payable to, someone other than the owner of record.
Payment is made within seven days unless delayed because of emergency conditions
determined by the Securities and Exchange Commission, when the New York Stock
Exchange is closed (other than on weekends and holidays), or when trading on the
Exchange is restricted. Payment is made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.

If you recently purchased the shares by check, the payment of redemption
proceeds on these shares may be delayed. You may arrange for the bank upon
which the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption proceeds on
these shares will be delayed until the earlier of 10 days or when the Fund has
been able to verify that your purchase check has cleared and been honored.

You may reinvest in the Fund all or part of the amount you redeemed without
charge by sending to the Fund the amount you wish to reinvest. The reinvested
amounts must be received within thirty days after the date of your redemption.
You may do this only once as to Fund shares.

The Fund reserves the right to redeem at net asset value all shares owned
by a particular shareholder in the Fund having an aggregate net asset value less
than $500. The Fund will give the shareholder notice of intention to redeem and
a 60-day opportunity to purchase a sufficient number of additional shares to
bring the net asset value of his or her shares in the Fund to $500. See the SAI
for further information.

Under the terms of the 401(k) plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in connection with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in shares of any of the funds in the
United Group in which the plan may invest.

Information concerning the establishment of automatic payments from an
account is available from sales representatives of Waddell & Reed, Inc.

Check Writing Privilege

The Shareholder Servicing Agent (see inside back cover of this Prospectus)
will, upon request, provide you with forms of checks drawn on United Missouri
Bank of Kansas City, n.a. (the "Bank") if you own shares not represented by
certificates. These checks may be made payable by you to the order of anyone in
any amount of not less than $250. If you wish to avail yourself of this check
writing redemption procedure, you should notify the Shareholder Servicing Agent
or so indicate on your application form. There is an initial charge of $10 for
establishing this check writing privilege, but there are no additional charges
for the maintenance of the privilege or for processing checks. This privilege
is not available for retirement plan accounts. Contact the Shareholder
Servicing Agent for further information.

When a check is presented to the Bank for payment, the Bank will request
that the Fund redeem a sufficient number of full and fractional shares in your
account to cover the amount of the check. You will continue to receive
dividends on those shares equaling the amount being redeemed until such time as
the check is presented to the Bank for payment. No "stop-payment" order can be
placed against these checks. Note that checks may be dishonored if shares were
recently purchased as discussed under "Redemption" above or if the net asset
value per share has declined so that there are insufficient shares to be
redeemed to cover the amount of the check. See the SAI for additional
information.

As with any redemption of shares, redemption by check writing will, for
Federal income tax purposes, result in a capital gain or loss on shares
redeemed.

<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1994

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 225 $ 238,748
7.5%, 9-1-2007 ........................ 307 315,888
7.0%, 1-15-2021 ....................... 5,000 4,923,400
6.0%, 12-1-2023 ....................... 10,066 9,052,779
6.0%, 1-1-2024 ........................ 5,045 4,536,911
Total ................................. 19,067,726

Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,936 5,148,890
7.2%, 1-10-2002 ....................... 5,000 4,984,350
7.55%, 4-22-2002 ...................... 10,000 10,356,200
7.5%, 4-25-2002 ....................... 3,388 3,423,777
7.0%, 11-25-2003 ...................... 6,720 6,560,400
7.5%, 12-25-2006 ...................... 5,000 5,006,250
6.0%, 6-25-2007 ....................... 5,000 4,557,800
8.0%, 5-25-2019 ....................... 7,000 6,975,920
7.0%, 1-1-2024 ........................ 10,000 9,587,500
Total ................................. 56,601,087

Government National Mortgage Association:
9.5%, 5-20-2014 ....................... 46 48,008
8.5%, 5-15-2023 ....................... 2,204 2,265,099
7.5%, 6-15-2023 ....................... 915 899,485
7.0%, 7-15-2023 ....................... 9,584 9,138,062
7.5%, 7-15-2023 ....................... 3,781 3,715,524
7.5%, 9-15-2023 ....................... 4,971 4,885,720
7.5%, 2-15-2024 ....................... 5,095 5,006,971
9.75%, 11-15-2028 ..................... 2,982 3,212,028
10.5%, 3-15-2029 ...................... 1,043 1,157,999
Total ................................. 30,328,896

United States Treasury:
0.0%, 6-2-94 .......................... 25,000 24,858,250
4.75%, 2-15-97 ........................ 4,000 3,908,120
7.25%, 5-15-2016 ...................... 15,000 14,990,550
Total.................................. 43,756,920

See "Notes to Schedule of Investments" on page 15.

<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1994

Principal
Amount in
Thousands Value

UNITED STATES GOVERNMENT SECURITIES (Continued)
Miscellaneous United States Government
Backed Securities:
Agency for International Development for
the State of Israel,
8.5%, 4-1-2006 ...................... $ 4,960 $ 5,386,560
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... 4,112 4,460,178
Resolution Funding Corporation,
8.625%, 1-15-2021 ................... 5,000 5,760,950
Synthetic Off-the-Run Treasuries,
Series 1994-2,
6.0%, 2-15-2009 ..................... 6,200 5,518,000
Total ............................... 21,125,688

TOTAL UNITED STATES GOVERNMENT
SECURITIES - 96.73% $170,880,317
(Cost: $173,652,865)

SHORT-TERM SECURITIES - 8.00%
J. P. Morgan Securities, 3.55% Repurchase
Agreement dated 3-31-94, to be repurchased
at $14,130,572 on 4-1-94*.............. 14,125 $ 14,125,000
(Cost: $14,125,000)

TOTAL INVESTMENT SECURITIES - 104.73% $185,005,317
(Cost: $187,777,865)

LIABILITIES, NET OF CASH AND OTHER ASSETS - (4.73%) (8,356,355)

NET ASSETS -- 100.00% $176,648,962

Notes to Schedule of Investments
*Collateralized by $14,572,000 U.S. Treasury Notes, 5.5% due 9-30-97; market
value and accrued interest aggregates $14,417,173.

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 GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1994

Assets
Investment securities - at value
(Notes 1 and 3) ................................. $185,005,317
Cash ............................................ 8,886
Receivables:
Interest ........................................ 1,762,483
Fund shares sold ................................ 717,734
Investment securities sold ...................... 14,161
Prepaid insurance premium ........................ 11,434
------------
Total assets .................................. 187,520,015
------------
Liabilities
Payable for investment securities purchased ...... 9,839,340
Payable for Fund shares redeemed ................. 768,208
Dividends payable ................................ 179,353
Accrued service fee .............................. 37,744
Accrued transfer agency and dividend disbursing .. 27,355
Accrued accounting services fee .................. 3,333
Other ............................................ 15,720
------------
Total liabilities ............................. 10,871,053
------------
Total net assets.............................. $176,648,962
============
Net Assets
$0.01 par value capital stock, authorized --
3,000,000,000; shares outstanding -- 33,799,287
Capital stock ................................... $ 337,993
Additional paid-in capital ...................... 189,026,438
Accumulated undistributed income (loss):
Accumulated undistributed net realized loss on
investment transactions ....................... (9,942,921)
Net unrealized depreciation in value of
investments at end of period ................... (2,772,548)
------------
Net assets applicable to outstanding units
of capital ................................... $176,648,962
============

Net asset value per share (net assets divided by
shares outstanding) .............................. $5.23
Sales load (offering price x 4.25%) ................ .23
-----
Offering price per share (net asset value divided
by 95.75%) ........................................ $5.46
=====

See notes to financial statements.

On sales of $100,000 or more the sales load is reduced
as set forth on page 11.

<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year ended MARCH 31, 1994

Investment Income
Interest ......................................... $11,634,782
-----------
Expenses (Note 2):
Investment management fee ....................... 777,354
Transfer agency and dividend disbursing ......... 349,317
Service fee ..................................... 94,417
Accounting services fee ......................... 40,000
Audit fees ...................................... 19,127
Custodian fees .................................. 17,833
Legal fees ...................................... 4,274
Other ........................................... 88,114
-----------
Total expenses ................................ 1,390,436
-----------
Net investment income ........................ 10,244,346
-----------

Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 7,421,700
Realized net loss on options ..................... (393,738)
-----------
Net realized gain on investments................. 7,027,962
-----------
Unrealized depreciation in value of securities during
the period ...................................... (14,724,649)
Unrealized appreciation in value of purchased put
options during the period........................ 307,800
-----------
Net unrealized depreciation in value of investments
during the period ............................. (14,416,849)
-----------
Net loss on investments ....................... (7,388,887)
-----------
Net increase in net assets resulting from
operations ................................. $ 2,855,459
===========

See notes to financial statements.

<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS

For the fiscal year ended
March 31,
-------------------------
1994 1993
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ...............$ 10,244,346 $ 10,037,126
Realized net gain on investments .... 7,027,962 3,206,653
Unrealized appreciation (depreciation)(14,416,849) 9,535,562
------------ ------------
Net increase in net assets
resulting from operations ........ 2,855,459 22,779,341
------------ ------------
Dividends to shareholders from
net investment income* .............. (10,244,346) (10,037,126)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(7,320,481 and 9,034,345
shares, respectively) ............. 40,234,132 47,565,874
Proceeds from reinvestment of
dividends (1,684,385 and 1,695,678
shares, respectively) ............. 9,234,100 8,931,273
Payments for shares redeemed
(7,773,993 and 5,851,485
shares, respectively) ............. (42,597,526) (30,825,025)
------------ ------------
Net increase in net assets
resulting from capital
share transactions ............... 6,870,706 25,672,122
------------ ------------
Total increase (decrease) ........ (518,181) 38,414,337
Net Assets
Beginning of period .................. 177,167,143 138,752,806
------------ ------------
End of period ........................$176,648,962 $177,167,143
============ ============

Undistributed net investment
income ............................$ --- $ ---
============ ============

*See "Financial Highlights" on page 19.

See notes to financial statements.

<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS*
For a Share of Capital Stock Outstanding
Throughout Each Period:

<TABLE>
<CAPTION>
For the fiscal year ended March 31,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $5.44 $5.01 $4.85 $4.76 $4.71 $4.91 $5.70 $6.17 $5.13 $5.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .30 .33 .37 .39 .41 .39 .40 .46 .54 .56
Net realized and
unrealized gain
(loss) on
investments (0.21) .43 .16 .09 .05 (0.20) (0.60) .04 1.08 .13
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... .09 .76 .53 .48 .46 .19 (0.20) .50 1.62 .69
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends declared
from net investment
income ..... (0.30) (0.33) (0.37) (0.39) (0.41) (0.39) (0.40) (0.46) (0.54) (0.56)
Distribution from
capital gains 0.00 0.00 0.00 0.00 0.00 0.00 (0.19) (0.51) (0.04) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.30) (0.33) (0.37) (0.39) (0.41) (0.39) (0.59) (0.97) (0.58) (0.56)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $5.23 $5.44 $5.01 $4.85 $4.76 $4.71 $4.91 $5.70 $6.17 $5.13
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** .. 1.56% 15.62% 11.22% 10.68% 10.06% 4.12% -3.05% 9.36% 33.86% 14.24%
Net assets, end
of period (000
omitted) ....$176,649 $177,167 $138,753 $118,703 $104,045 $112,684 $146,993 $191,434 $123,600 $46,493
Ratio of expenses
to average net
assets ....... 0.75% 0.71% 0.75% 0.80% 0.78% 0.76% 0.77% 0.72% 0.87% 0.76%***
Ratio of net investment
income to average
net assets ... 5.50% 6.29% 7.40% 8.27% 8.55% 8.15% 8.12% 8.15% 9.70% 11.62%
Portfolio turnover
rate**** ..... 122.62% 81.41% 124.51% 187.55% 257.18% 205.79% 234.57% 240.25% 380.21% ---

</TABLE>
See notes to financial statements.

<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994

NOTE 1 -- Significant Accounting Policies

United Government Securities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.

A. Security valuation -- The Fund invests in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and in options
and futures contracts on those securities. Government debt securities are
valued using a pricing system provided by a major dealer in bonds. Other
securities are 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, the average of the
latest bid and asked prices. 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. Interest income is recorded on the accrual basis
and includes differences between cost and face amount on principal
reductions of securities. See Note 3 -- Investment Security Transactions.

C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.

D. Dividends and distributions -- All of the Fund's net investment income is
declared and recorded by the Fund as dividends payable on each day to
shareholders of record at the time of the previous determination of net
asset value. During the period ended March 31, 1994, the Fund adopted
Statement of Position 93-2 Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. Accordingly, permanent book and tax
basis differences relating to future shareholder distributions have been
reclassified to additional paid-in capital. As of April 1, 1993, the
cumulative effect of such differences totaling $2,700 was reclassified from
accumulated undistributed net realized gain on investment transactions to
additional paid-in capital. Net investment income, net realized gains and
net assets were not affected by this change.

E. Repurchase Agreements -- Repurchase agreements are collateralized by the
value of the resold securities which, during the entire period of the
agreement, remains at least equal to the value of the loan, including
accrued interest thereon. The collateral for the repurchase agreement is
held by the Fund's custodian bank.

F. Options - See Note 5 - Options

NOTE 2 -- Investment Management and Payments to Affiliated Persons

The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of a "Group" fee computed each day on the combined net asset values of
all of the funds in the United Group of mutual funds (approximately $10.9
billion of combined net assets at March 31, 1994) at annual rates of .51% of the
first $750 million of combined net assets, .49% on that amount between $750
million and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45%
between $2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion,
.40% between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.

Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.

The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.

Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000

The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month and $0.75 for each
shareholder check which was processed, plus $0.30 for each account on which a
dividend or distribution of cash or shares was paid in that month. The Fund
also reimburses W&R and WARSCO for certain out-of-pocket costs.

As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$1,325,275, out of which W&R paid sales commissions of $761,558 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.

On September 28, 1993, shareholders of the Fund approved the adoption of a
12b-1 Service Plan with a maximum fee of .25%. The Plan went into effect
October 1, 1993.

The Fund paid Directors' fees of $7,082.

W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.

NOTE 3 -- Investment Security Transactions

Purchases of U.S. Government securities aggregated $234,162,947 while
proceeds from maturities and sales aggregated $214,387,407. Purchases of short-
term securities aggregated $2,787,155,563 while proceeds from maturities and
sales aggregated $2,780,655,190. Proceeds from sales of other securities
aggregated $14,239,498. There was a net gain of $5,710,186 on the sale of U.S.
Government securities.

For Federal income tax purposes, cost of investments owned at March 31,
1994 was $187,846,615, resulting in net unrealized depreciation of $2,841,298,
of which $3,084,748 related to appreciated securities and $5,926,046 related to
depreciated securities.

NOTE 4 -- Federal Income Tax Matters

For Federal income tax purposes, the Fund realized capital gain net income
of $7,096,712 during the year ended March 31, 1994, which was entirely offset by
the utilization of capital loss carryovers. Remaining prior year capital loss
carryovers aggregated $9,878,774 and are available to offset future realized
capital gain net income for Federal income tax purposes through March 31, 1996;
$2,484,922 of this amount is available through March 31, 1997; and $759,434 of
this amount is available through March 31, 1998.

NOTE 5 -- Options

Options purchased by the Fund are accounted for in the same manner as
marketable portfolio securities. The cost of portfolio securities acquired
through the exercise of call options is increased by the premium paid to
purchase the call. The proceeds from securities sold through the exercise of
put options are decreased by the premium paid to purchase the put.

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
United Government Securities Fund, Inc.

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Government Securities Fund,
Inc. (the "Fund") at March 31, 1994, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1994 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.

PRICE WATERHOUSE
Kansas City, Missouri
April 29, 1994

<PAGE>
United Government Securities Fund, Inc.

Custodian Underwriter
United Missouri Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas 66201-9217
Kirkpatrick & Lockhart (913) 236-2000
1800 M Street, N. W.
Washington, D. C. Shareholder Servicing Agent
Waddell & Reed Services Company
Independent Accountants 6300 Lamar Avenue
Price Waterhouse P. O. Box 29217
Kansas City, Missouri Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Investment Manager
Waddell & Reed Investment Accounting Services Agent
Management Company Waddell & Reed Services Company
6300 Lamar Avenue 6300 Lamar Avenue
P. O. Box 29217 P. O. Box 29217
Shawnee Mission, Kansas 66201-9217 Shawnee Mission, Kansas 66201-9217
(913) 236-2000 (913) 236-2000

<PAGE>
United Government Securities Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217

PROSPECTUS
June 30, 1994

The United Group of Mutual Funds
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.

TABLE OF CONTENTS
Summary of Expenses .. 2
Financial Highlights . 3
What is United Government
Securities Fund, Inc.? 4
Performance Information 4
Goal and Investment Policies
of the Fund ....... 5
Management and Services 8
Dividends, Distributions
and Taxes ......... 10
Purchase of Shares ... 11
Redemption ........... 12
Check Writing Privilege 13
Financial Statements . 14

NUP1011(6-94)
printed on recycled paper

<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.

6300 Lamar Avenue

P. O. Box 29217

Shawnee Mission, Kansas 66201-9217

(913) 236-2000

June 30, 1994

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus (the
"Prospectus") of United Government Securities Fund, Inc. (the "Fund") dated June
30, 1994, which may be obtained from the Fund or its Underwriter, Waddell &
Reed, Inc., at the address or telephone number shown above.

TABLE OF CONTENTS

Performance Information ............................ 2

Investment Objective and Policies .................. 4

Investment Management and Other Services ........... 16

Purchase, Redemption and Pricing of Shares ......... 20

Directors and Officers ............................. 33

Payments to Shareholders ........................... 37

Taxes .............................................. 38

Portfolio Transactions and Brokerage ............... 40

Other Information .................................. 42

<PAGE>
PERFORMANCE INFORMATION

Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return, yield information and/or performance
rankings in advertisements and sales materials.

Total Return

An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Standardized total return information is calculated by assuming an initial
$1,000 investment from which the maximum sales load of 4.25% is deducted. All
dividends and distributions are assumed to be reinvested at net asset value as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions. The formula used to calculate the total
return is

n
P(1 + T) = ERV

Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.

Non-standardized performance information may also be presented and it may
not reflect the sales charge. For example, the Fund may also compute total
return without deduction of the sales load in which case the same formula noted
above will be used but the entire amount of the $1,000 initial payment will be
assumed to have been invested. If the sales charge were reflected, it would
reduce the performance quoted.

The average annual total return quotations as of March 31, 1994, which is
the most recent balance sheet included in the Prospectus, for the periods shown
were as follows:

With Without
Sales LoadSales Load
Deducted Deducted

One-year period from April 1, 1993 to
March 31, 1994: -2.76% 1.56%

Five-year period from April 1, 1989 to
March 31, 1994: 8.78% 9.73%

Period from April 10, 1984* to
March 31, 1994: 9.85% 10.33%

*Prior to April 10, 1984 the Fund was a money market fund.

The Fund may also quote unaveraged or cumulative total returns which
reflect the change in value of an investment 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

A yield quoted for the Fund is computed by dividing the net investment
income per share earned during the period for which the yield is shown by the
maximum offering price per share on the last day of that period according to the
following formula:

6
Yield = 2((((a - b)/cd)+1) -1)

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.

The yield computed according to the formula for the 30-day or one month
period ended on March 31, 1994, the date of the most recent balance sheet
included in the Prospectus, is 5.50%.

Changes in yields primarily reflect different interest rates received by
the Fund as its portfolio securities change. Yield is also affected by
portfolio quality, portfolio maturity, type of securities held and operating
expenses.

Performance Rankings

Waddell & Reed, Inc., or the Fund, also may from time to time publish in
advertisements and sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune, or
Morningstar Mutual Fund Values. The Fund may also compare its performance to
that of other selected mutual funds or selected recognized market indicators
such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average. Performance information may be quoted numerically or presented in a
table, graph or other illustration.

All performance information which the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or
less than their original cost.

<PAGE>
INVESTMENT OBJECTIVE AND POLICIES

The investment objective and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.

The Fund invests in debt securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities").
These include Treasury Bills which mature within one year of the date they are
issued, Treasury Notes which have maturities of one to ten years and Treasury
Bonds which generally have maturities of more than 10 years. All such Treasury
securities are backed by the full faith and credit of the United States.

U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association ("Fannie Mae"), 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 not by the Treasury. If the securities
are not backed by the full faith and credit of the United States, the owner of
the securities must look principally to the agency issuing the obligation for
repayment and may not be able to assert a claim against the United States in the
event that the agency or instrumentality does not meet its commitment. The Fund
will invest in securities of agencies and instrumentalities only if Waddell &
Reed Investment Management Company (the "Manager"), the Fund's investment
manager, is satisfied that the credit risk involved is acceptable.

Among the U.S. Government Securities that the Fund will purchase are
"mortgage-backed securities" of Ginnie Mae, Freddie Mac and Fannie Mae. These
mortgage-backed securities include "pass-through" securities and "participation
certificates"; both are similar, representing pools of mortgages that are
assembled, with interests sold in the pool; the assembly is made by an "issuer,"
such as a mortgage banker, commercial bank or savings and loan association,
which assembles the mortgages in the pool and passes through payments of
principal and interest for a fee payable to it. Payments of principal and
interest by individual mortgagors are "passed through" to the holders of the
interests in the pool. Thus, the monthly or other regular payments on pass-
through securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments. Other types of mortgage-backed securities include "collateralized
mortgage obligations," which are similar to conventional bonds (in that they
have more regular principal and interest payments than pass-through securities
and participation certificates) and are secured by groups of individual
mortgages or real estate mortgage investment conduits which are a type of
collateralized mortgage obligation with a taxation and accounting structure
which differs from that of collateralized mortgage obligations. 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 paragraph could be adversely affected by actions of the U.S. Government
to tighten the availability of its credit.

The Fund may also invest in deposits in banks (represented by certificates
of deposit or other evidence of deposit issued by such banks of varying
maturities) to the extent that the principal of such deposits is insured by the
Federal Deposit Insurance Corporation ("FDIC"); such deposits are referred to as
"Insured Deposits." Such insurance (and accordingly, the Fund's investment) is
currently limited to $100,000 per bank; any interest above that amount is not
insured. 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.

Lending Securities

The Fund may lend its securities. If the Fund does this, the borrower pays
the Fund an amount equal to the dividends or interest on the securities that the
Fund would have received if it had not loaned the securities. The Fund also
receives additional compensation as discussed below.

Any securities loans which the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can be changed only by shareholder vote. Under the present Guidelines,
the collateral must be liquid and consist of one or more of cash, letters of
credit or U.S. Government Securities at least equal in value to the market value
of the securities loaned on each day the loan is outstanding. If the market
value of the loaned securities exceeds the value of the collateral, the borrower
must add more collateral so that it at least equals the market value of the
securities loaned. If the market value of the securities decreases, the
borrower is entitled to 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 to receive interest
on the investment of the cash collateral or to receive interest on the U.S.
Government Securities used as collateral. Part of the interest received in
either case may be shared with the borrower.

The letters of credit which the Fund may accept as collateral are
agreements by banks (other than the borrowers of Fund 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. The terms of any
such letters and the creditworthiness of the banks providing them (which might
include the Fund's custodian bank) must be satisfactory to the Fund.

The Manager, subject to the direction and control of the Board of
Directors, has adopted additional rules concerning lending of securities which
may be changed without shareholder vote. At present, under these rules, the
Fund will lend securities only to creditworthy broker-dealers and financial
institutions. The Fund will make loans only under rules of the New York Stock
Exchange, which presently require the borrower to give the securities back to
the Fund within five business days after the Fund gives notice to do so. If the
Fund loses its voting rights on securities loaned, it will have the securities
returned to it in time to vote them if a material event affecting the investment
is to be voted on. The Fund may pay reasonable finders', administrative and
custodian fees in connection with loans of securities.

Some, but not all, of the Fund's rules are necessary to meet requirements
of certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules which may be changed without shareholder vote as to
(i) whom securities may be loaned; (ii) the investment of cash collateral; or
(iii) voting rights.

There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.

Repurchase Agreements

The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction which will cause more than 10%
of its net assets to be invested in illiquid securities, which include
repurchase agreements not terminable within seven days. A repurchase
transaction occurs when, at the time the Fund purchases securities, it also
agrees to resell them to the vendor (normally a commercial bank or broker-
dealer), and must deliver those securities and/or securities substituted for
them under the repurchase agreement to the vendor on an agreed-upon date in the
future. In this section such securities, including any securities so
substituted, are referred to as the "Resold Securities." The resale price is in
excess of the purchase price in that it reflects an agreed-upon market interest
rate effective for the period of time during which the Fund's money is invested
in the Resold Securities. The majority of the repurchase transactions in which
the Fund would engage run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the purchase. The Fund's
risk is limited to the ability of the vendor to pay the agreed-upon sum upon the
delivery date. In the event of bankruptcy or other default by the vendor, there
may be possible delays or expenses in liquidating the Resold Securities, decline
in their value or loss of interest. Upon default, the Resold Securities
constitute collateral security for the repurchase obligation. The return on
such collateral may be more or less than that from the repurchase agreement.
The Fund's repurchase agreements will be structured so as to fully collateralize
the loans, i.e., the value of the Resold Securities, which will be held by the
Fund's custodian bank is and, during the entire term of the agreement, remains
at least equal to the value of the loan, including the accrued interest earned
thereon. Repurchase agreements are entered into only with those issues approved
on the basis of criteria established by the Board of Directors.

Illiquid Investments

The Fund has an operating policy, which may be changed without shareholder
approval, which provides that due to their possible limited liquidity, the Fund
may not make certain illiquid investments if as a result more than 10% of its
net assets would consist of such investments. The investments which are
included in this 10% limit are: (i) repurchase agreements not terminable within
seven days; (ii) securities for which market quotations are not readily
available; (iii) Insured Deposits unless they are payable at principal amount
plus accrued interest on demand or within seven days after demand; and (iv)
unlisted options and their underlying collateral.

Put and Call Options

The Fund may write (i.e., sell) call options ("calls") but only if (i) the
investment to which the call related (the "related investments") are either U.S.
Government Securities or futures contracts (see "Futures Contracts" below)
relating to U.S. Government Securities ("Government Securities Futures"); (ii)
the calls are either (a) listed on a domestic securities or commodities exchange
or quoted on the automatic quotation system of the National Association of
Securities Dealers, Inc. (NASDAQ) or (b) the related investments are U.S.
Government Securities; and (iii) either (a) the calls are covered, i.e., the
Fund owns the related investments (or other investments acceptable for escrow
arrangements) while the call is outstanding or (b) the related investments are
U.S. Government Securities Futures.

The Fund may purchase calls but only if (i) the related investments are
either U.S. Government Securities or Government Securities Futures; and (ii) the
calls are either (a) listed on a domestic securities or commodities exchange or
quoted on NASDAQ or (b) the related investments are U.S. Government Securities.

The Fund may purchase put options ("puts") but only if (i) the investments
to which the put relates (the "related investments") are U.S. Government
Securities or Government Securities Futures; and (ii) either (a) the puts are
listed on a domestic securities or commodities exchange or quoted on NASDAQ or
(b) are "optional delivery standby commitments" (see below) or (c) the related
investments are U.S. Government Securities. The Fund may purchase puts as to
related investments it owns ("protective puts") or as to related investments it
does not own ("nonprotective puts"). Optional delivery standby commitments are
entered into by sellers (other than broker-dealers) of U.S. Government
Securities as an inducement to the Fund to purchase such securities and give the
Fund the right to sell them back to the seller on specified terms. They are
thus a form of "protective puts." However, unlike exchange listed puts, the
Fund must rely on the creditworthiness of the seller, which is evaluated by the
Manager, should the Fund exercise its right to make the delivery and sale.
These investments and exchange listed puts are accounted for in the same manner.
These investments will be valued at fair value in good faith as determined under
procedures established by and under the general supervision and responsibility
of the Fund's Board of Directors.

The Fund may write (i.e., sell) puts but only if (i) the related
investments are U.S. Government Securities or Government Securities Futures; and
(ii) the puts are listed on a domestic securities or commodities exchange or
quoted on NASDAQ.

The above limitations on the puts and calls the Fund may write or purchase
are fundamental policies, i.e., rules which may not be changed unless
shareholders vote to change them. The Fund has no fundamental policy as to
percentage limitations on its use of options.

The Fund has undertaken with a state securities commission that it will not
engage in options trading on NASDAQ listed securities. In order to comply with
certain state regulations, the Fund has adopted an operating policy which
provides that the aggregate premiums paid for all such options held by the Fund
at any one time, adjusted for the portion of the premium attributable to the
difference between the option strike price and the market value of the
underlying security or futures contract at the time of purchase, may not exceed
20% of the Fund's total net assets.

The Fund may write options on securities for the purpose of increasing its
income by receiving premiums from the purchases of the options. The Fund may
purchase puts on securities to protect against major price declines in the value
of its portfolio securities. The Fund may purchase calls on securities to take
advantage of an expected rise in the market value of securities it does not hold
in its portfolio or in a "closing purchase transaction" as discussed below.

When the Fund writes a call, it receives a premium and agrees to sell the
related investments to a purchaser of a call during the call period (usually not
more than 9 months) at a fixed exercise price (which may differ from the market
price of the related investments) regardless of market price changes during the
call period. If the call is exercised, the Fund foregoes any gain from an
increase in the market price over the exercise price.

To terminate its obligation on a call which it has written, the Fund may
purchase a call in a "closing purchase transaction." A profit or loss may be
realized depending on the amount of options transaction costs and whether the
premium previously received is more or less than the price of the call
purchased. A profit may also be realized if the call lapses unexercised,
because the Fund retains the related investments (except in the case of
uncovered calls) and the premium received.

When the Fund buys a call, it pays a premium and has the right to buy the
related investments from a seller of a call during the call period at a fixed
exercise price. The Fund benefits only if the market price of the related
investments is above the call price during the call period and the call is
either exercised or sold at a profit. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration date
and the Fund will lose its premium payment and the right to purchase the related
investments.

When the Fund buys a put, it pays a premium and has the right to sell the
related investments to a seller of a put during the put period at a fixed
exercise price. Buying a protective put (as defined above) permits the Fund to
protect itself during the put period against a decline in the value of the
related investments below the exercise price by selling them through the
exercise of the put. Buying a nonprotective put (as defined above) permits the
Fund, if the market price of the related investments is below the put price
during the put period, either to resell the put or to buy the related
investments and sell them at the exercise price. If the market price of the
related investments is above the exercise price and as a result, the put is not
exercised or resold (whether or not at a profit), the put will become worthless
at its expiration date.

When the Fund writes a put, it receives a premium and agrees to purchase
the related investments from a purchaser of a put during the put period at a
fixed exercise price (which may differ from the market price of the related
investments) regardless of market price changes during the put period. If the
put is exercised, the Fund must purchase the related investments at the exercise
price, regardless of how much the market price of the related investments has
declined below the exercise price. The Fund's cost of purchasing the
investments will be adjusted by the amount of the premium it has received.

To terminate its obligation on a put which it has written, the Fund may
purchase a put in a "closing purchase transaction." As discussed above, the
Fund may also purchase puts other than as part of such closing transactions. A
profit or loss may be realized depending on the amount of option transaction
costs and whether the premium previously received is more or less than the cost
of the put purchased. A profit will also be realized if the put lapses
unexercised because the Fund retains the premium received.

When the Fund writes a put it will, until it enters into a closing purchase
transaction as to that put, segregate and maintain designated cash or readily
marketable assets adequate to purchase the related investments should the put be
exercised.

An option position on a listed option may be closed out only on an exchange
which provides a secondary market for options of the same series, and there is
no assurance that a liquid secondary market will exist for any particular
option. On options on U.S. Government Securities which are not listed on an
exchange, the Fund must rely on the creditworthiness of the party with whom it
has entered into the options transaction. The Manager will evaluate the
creditworthiness of all such parties and intends to enter into unlisted option
transactions only with major dealers in such unlisted options. The market for
these options may be less active than the market for exchange-listed options.
The Manager will evaluate the ability to enter into closing purchase
transactions on unlisted options prior to investing in them.

The Fund's put and call activities may affect its turnover rate and
brokerage commission payments. The exercise of calls or puts written by the
Fund may cause it to sell or purchase related investments, thus adversely
increasing its turnover rate in a manner beyond its control. The exercise of
puts may also cause the sale of related investments, also increasing turnover;
although such exercise is within the Fund's control, holding a protective put
might cause the Fund to sell the related investments for reasons which would not
exist in the absence of the put. Holding a nonprotective put might cause the
purchase of the related investments to permit the Fund to exercise the put. The
Fund will pay a brokerage commission each time it buys or sells a put or call or
buys or sells an underlying investment in connection with the exercise of a put
or call. Such commissions may be higher than those which would apply to direct
purchases or sales.

The Fund's Custodian bank, or a securities depository acting for it, will
act as the Fund's escrow agent as to the related investments on which the Fund
has written calls, or as to other assets acceptable for such escrow, so that
pursuant to the rules of the Option Clearing Corporation and certain exchanges,
no margin deposit will be required of the Fund on such calls. Until the related
investments or other investments held in escrow are released from escrow, they
cannot be sold by the Fund; this release will take place on the expiration of
the call or the Fund's entering into a closing purchase transaction.

Option premiums paid to control an amount of related investments are small
in relation to the market value of related investments and consequently, put and
call options offer large amounts of leverage. The leverage offered by trading
in debt options will result in the Fund's net asset value being more sensitive
to changes in the value of the related investment. Markets for options on debt
instruments and options on futures contracts are in their initial stages so it
is not possible to predict the amount of trading interest which may exist in
debt options or whether viable exchange markets will develop or continue over
time.

As indicated under "Taxes", to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986 (the "Code"), the
Fund must derive less than 30% of its gross income each taxable year from the
disposition of certain investments held for less than three months. Due to this
limitation, the Fund will limit the extent to which it engages in the following
activities, but will not be precluded from them: (i) selling investments,
including Government Securities Futures (as defined in the next paragraph), held
for less than three months, whether or not they were purchased on the exercise
of a call held by the Fund or a put written by the Fund; (ii) writing calls on
investments held less than three months; (iii) writing or purchasing puts or
calls which expire in less than three months; (iv) effecting closing
transactions with respect to puts or calls written or purchased less than three
months previously; and (v) exercising puts or calls held by the Fund for less
than three months.

Futures Contracts

The Fund may engage in buying and selling interest rate futures contracts,
but only those relating to U.S. Government Securities ("Government Securities
Futures") and options thereon. This limitation of the Fund's engaging in
interest rate futures contracts to those relating to U.S. Government Securities
is a fundamental policy which may only be changed by shareholders. The Fund has
no other fundamental policies as to its use of futures contracts and thus no
fundamental policy as to a percentage limit thereon; however, see below for
limitations relating to the Commodity Futures Trading Commission ("CFTC").

At the present time, the U.S. Government Securities to which Government
Securities Futures relate are long-term U.S. Treasury Bonds, Treasury Notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities and three-month U.S. Treasury Bills. See "Investment Objective and
Policies" for further information as to these securities.

The Fund will not use Government Securities Futures or puts and calls
related thereto for speculation but only to attempt to hedge against future
changes in interest rates which might otherwise adversely affect the value of
the U.S. Government Securities held in the Fund's portfolio. Such adverse
effect could occur because either (i) the value of the Fund's U.S. Government
Securities declines due to a rise in interest rates; or (ii) the Fund's U.S.
Government Securities or cash are not fully included in, i.e., do not
participate in, an increase in value in long-term U.S. Government Securities due
to a decline in interest rates at times when the Fund is not fully invested in
long-term U.S. Government Securities.

The "sale" of a Government Securities Future by the Fund means the
acquisition by the Fund of an obligation to deliver the related U.S. Government
Securities (i.e., those called for by the contract) at a specified price on a
specified date. The "purchase" of a Government Securities Future by the Fund
means the acquisition by the Fund of an obligation to acquire the related U.S.
Government Securities at a specified price on a specified date.

Unlike when the Fund purchases or sells a U.S. Government Security, no
price is paid or received by the Fund upon the purchase or sale of a Government
Securities Future. Initially, the Fund will be required to deposit with the
futures commission merchant (the "broker") an amount of cash of U.S. Treasury
Bills equal to a varying specified percentage of the contract amount. This
amount is known as initial margin. Cash held in the margin account is not
income producing. Subsequent payments, called variation margin, to and from the
broker, will be made on a daily basis as the price of the underlying U.S.
Government Securities fluctuates making the Government Securities Future more or
less valuable, a process known as marking-to-market. Margin deposits are also
required in connection with the sale by the Fund of puts or calls on Government
Securities Futures. Changes in variation margin are recorded by the Fund as
unrealized gains or losses. Initial margin payments will be deposited in the
Fund's custodian bank in an account registered in the broker's name; access to
the assets in that account may be made by the broker only under specified
conditions. At any time prior to expiration of the Government Securities
Future, the Fund may elect to close the position by taking an opposite position
which will operate to terminate the Fund's position on the Government Securities
Future. A final determination of variation margin is then made. Additional
cash is required to be paid by or released to the Fund and the Fund realized a
loss or a gain. Although Government Securities Futures by their terms call for
the actual delivery or acquisition of the related U.S. Government Securities, in
most cases the contractual obligation is so fulfilled without having to make or
take delivery of the related U.S. Government Securities. The Fund does not
intend to make or take delivery of these securities. All transactions in the
futures markets, including transactions in Government Securities Futures, are
made, offset or fulfilled through a clearing house associated with the exchange
on which the contracts are traded. Although the Fund intends to buy and sell
Government Securities Futures only on exchanges where there appears to be an
active secondary market, there is no assurance that a liquid secondary market
will exist for any particular Government Securities Future at any particular
time. In such event, it may not be possible to close a future position.

One risk in employing Government Securities Futures to attempt to protect
against the price volatility of the U.S. Government Securities held in the
Fund's portfolio is the prospect that the prices of Government Securities
Futures will correlate imperfectly with the behavior of the cash (i.e., market
value) prices of the Fund's U.S. Government Securities. For a hedge to be
completely effective, the price change of the hedging instrument should equal
the price change of the security being hedged. Such equal price changes are not
always possible because the investment underlying the hedging instrument may not
be the same investment that is being hedged. The Manager will attempt to create
a closely correlated hedge but hedging activity may not be completely successful
in eliminating market value fluctuation. The ordinary spreads between prices in
the cash and futures markets, due to differences in the nature of those markets,
are subject to distortions. A discussion of some factors which may create such
distortions follows. 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 future 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 trends by the Manager may still not result
in a successful transaction.

Another risk is that the Manager would be incorrect in its expectations as
to the extent of various interest rate movements or the time span within which
the movements take place. For example, if the Fund sold a Government Securities
Future in anticipation of an increase in interest rates, and then interest rates
went down instead, the Fund would lose money on the sale.

The Fund will deposit in a segregated account with its custodian bank high
quality debt obligations maturing in one year or less, or cash, in an amount
equal to the fluctuating market value of long futures contracts it has purchased
less any margin deposited on its long position. It may hold cash or acquire
such debt obligations for the purpose of making these deposits.

The use of futures and options thereon to attempt to protect against the
market risk of a decline in the value of portfolio securities is referred to as
having a "short futures position." The use of futures and options thereon to
attempt to protect against the market risk that portfolio securities are not
fully included in an increase in value is referred to as having a "long futures
position." The Fund must operate within certain restrictions as to its long and
short positions in futures and options thereon under a rule (the "CFTC Rule")
adopted by the CFTC under the Commodity Exchange Act (the "CEA") to be eligible
for the exclusion provided by the CFTC Rule from registration by the Fund with
the CFTC as a "commodity pool operator" (as defined under the CEA), and must
represent to the CFTC that it will operate within such restrictions. Under
these restrictions the Fund will not, as to any positions, whether long, short
or a combination thereof, enter into futures and options thereon for which the
aggregate initial margins and premiums exceed 5% of the fair market value of the
Fund's assets after taking into account unrealized profits and losses on options
it has entered into; in the case of an option that is "in-the-money" (as defined
under the CEA) the "in-the-money" amount may be excluded in computing such 5%.
(In general a call option on a future is "in-the-money" if the value of the
future exceeds the strike, i.e., exercise, price of the call; a put option on a
future is "in-the-money" if the value of the future which is the subject of the
put is exceeded by the strike price of the put.) Under the restrictions, the
Fund also must, as to its short positions, use futures and options thereon
solely for bona fide hedging purposes within the meaning and intent of the
applicable provisions under the CEA; see the third paragraph under "Futures
Contacts" as to the meaning of "hedging" in the case of the Fund. As to its
long positions which are used as part of the Fund's portfolio strategy and are
incidental to the Fund's activities in the underlying cash market, the
"underlying commodity value" (see below) of the Fund's futures and options
thereon must not exceed the sum of (i) cash set aside in an identifiable manner,
or short-term U.S. debt obligations or other U.S. dollar-denominated high
quality short-term money market instruments so set aside, plus any funds
deposited as margin; (ii) cash proceeds from existing investments due in 30
days, and (iii) accrued profits held at the futures commission merchant. (There
is described above the segregated accounts which the Fund must maintain with its
custodian bank as to its option and futures activities due to Securities and
Exchange Commission ("SEC") requirements; the Fund will, as to its long
positions, be required to abide by the more restrictive of these SEC and CFTC
requirements.) The "underlying commodity value" of a future is computed by
multiplying the size (dollar amount) of the future by the daily settlement price
of the future. For an option on a future that value is the underlying commodity
value of the future underlying the option.

The Fund has no fundamental policy setting a percentage limitation on the
purchase and sale of futures; see, however, the CFTC limitation discussed above.

When-Issued and Delayed Delivery Transactions

The Fund may also purchase U.S. Government Securities on a when-issued or
delayed delivery basis or sell them on a delayed delivery basis. For example,
delivery to the Fund and payment by the Fund in the case of a purchase by it, or
delivery by the Fund and payment to it in the case of a sale by the Fund, may
take place a month or more after the date of the transaction. The purchase or
sale price are fixed on the transaction date. The Fund will enter into when-
issued or delayed delivery transactions in order to secure what is considered to
be an advantageous price and yield at the time of entering into the transaction.
The U.S. Government Securities so purchased by the Fund are subject to market
fluctuation; their value may be less when delivered than the purchase price
paid. No interest accrues to the Fund until delivery and payment is completed.
When the Fund makes a commitment to purchase securities on a when-issued or
delayed delivery basis the Fund will record the transaction and thereafter
reflect the value of the securities in determining its net asset value per
share. The U.S. Government Securities sold by the Fund on a delayed delivery
basis are also subject to market fluctuation; their value when the Fund delivers
them may be more than the purchase price the Fund receives. When the 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.

Ordinarily the Fund purchases U.S. Government 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 the Manager decided it was advisable to do so for investment reasons. The
Fund will hold aside or segregate cash or other U.S. Government 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 U.S.
Government Securities will be sold at or before the settlement date.

Investment Restrictions

Certain of the Fund's investment restrictions and policies are described in
the Prospectus. The following are also fundamental policies and, together with
certain restrictions described in the Prospectus, cannot be changed without
shareholder approval. Under these additional restrictions, the Fund may not:

(i) Buy any securities or commodities other than U.S. Government Securities,
put and call options (see "Put and Call Options" above) and Government
Securities Futures (see "Futures Contracts" above). Put and call
options and Government Securities Futures may, for various purposes, be
considered to be "commodities" or "securities" but the Fund may buy them
whether they are "commodities" or "securities." The Fund may not buy
any voting securities, any mineral related programs or leases or any
shares of other investment companies;

(ii) Buy real estate nor any nonliquid interest in real estate investment
trusts; however, the Fund may buy obligations or instruments which it
may otherwise buy even though the issuer invests in real estate or
interest in real estate;

(iii) Make loans other than certain limited types of loans as indicated above;
the Fund can buy the U.S. Government Securities which it is permitted to
buy; it can also lend its portfolio securities (see "Lending Securities"
above) and enter into repurchase agreements except as indicated above
(see "Repurchase Agreements" above);

(iv) Participate on a joint, or a joint and several, basis in any trading
account in any securities;

(v) Sell securities short or buy securities on margin; however, the Fund may
make margin deposits in connection with Government Securities Futures
and options thereon; also, the Fund may not engage in arbitrage
transactions;

(vi) Engage in the underwriting of securities, that is, the selling of
securities for others;

(vii) Borrow to purchase securities or increase income, but only to meet
redemptions so it will not have to sell portfolio securities for this
purpose. The Fund may borrow money from banks for temporary or
emergency purposes but only up to 10% of its total assets. It can
mortgage or pledge its assets in connection with such borrowing but only
up to the lesser of the amounts borrowed or 5% of the value of the
Fund's assets. The Fund will not purchase securities while outstanding
borrowings are more than 5% of the value of its assets. Interest on
borrowing would reduce the Fund's income. The Fund may, without
violation of this restriction, make the escrow deposits required by its
put and call activities.

Portfolio Turnover

A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares. The Fund's
portfolio turnover rate increased from 81.41% for the fiscal year ended March
31, 1993 to 122.62% for the fiscal year ended March 31, 1994 in response to
changes in market conditions.

INVESTMENT MANAGEMENT AND OTHER SERVICES

The Management Agreement

The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to Waddell & Reed Investment Management Company, a wholly-
owned subsidiary of Waddell & Reed, Inc. Under the Management Agreement, the
Manager is employed to supervise the investments of the Fund and provide
investment advice to the Fund. The address of the Manager and Waddell & Reed.
Inc. is 6300 Lamar Avenue, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Waddell & Reed, Inc. is the Fund's underwriter.

The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.

Torchmark Corporation and United Investors Management Company

The Manager is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.

Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds
since 1940 or the company's inception date, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992 when
it assigned its duties as investment manager for these funds (and the related
professional staff) to the Manager. The Manager has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September 1992 and
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. since they each commenced operations in February 1993. Waddell & Reed,
Inc. serves as principal underwriter for the investment companies in the United
Group of Mutual Funds, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.

Shareholder Services

Under the Shareholder Servicing Agreement entered into between Waddell &
Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed, Inc., and
the Fund, the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Directors without shareholder approval.

Accounting Services

Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Directors without
shareholder approval.

Payments by the Fund for Management, Accounting and Shareholder Services

Under the Management Agreement, for the Manager's management services, the
Fund pays the Manager a fee as described in the Prospectus. Prior to the above-
described assignment from Waddell & Reed, Inc. to Waddell & Reed Investment
Management Company, all fees were paid to Waddell & Reed, Inc. The management
fees paid to Waddell & Reed, Inc. or the Manager, as the case may be, during the
fiscal years ended March 31, 1994, 1993 and 1992 were $777,354, $674,126 and
$548,474, respectively.

For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
to the Fund. The Fund accrues and pays this fee daily.

Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account which was in existence at
any time during the prior month, plus $.30 for each account on which a dividend
or distribution, of cash or shares, was paid in that month, and $.75 for each
shareholder check it processes. It also pays certain out-of-pocket expenses of
the Agent, including long distance telephone communications costs; microfilm and
storage costs for certain documents; forms, printing and mailing costs; and
costs of legal and special services not provided by Waddell & Reed, Inc., the
Manager or the Agent.

Under the Accounting Services Agreement, the Fund pays the Agent a fee for
accounting services as described in the Prospectus. The Fund paid the Agent
$40,000 for each respective fiscal year ended March 31, 1994, 1993, and 1992.

The State of California imposes limits on the amount of certain expenses
the Fund can pay and requires the Manager to reduce its fee if these expense
amounts are exceeded. The Manager must reduce the amount of such expenses to
the extent they exceed these expense limits. Not all of the Fund's expenses are
included in the limit. The excluded expenses include interest, taxes, brokerage
commissions and extraordinary expenses such as litigation that usually do not
arise in the normal operations of a mutual fund. The Fund's other expenses,
including its management fee, are included.

The Manager must, under California law, reduce the cost of any included
expenses which are over 2.5% of the Fund's first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of any
remaining average net assets during a fiscal year. The Fund will notify
shareholders of any change in the limitation.

Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the Manager
and the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with the Manager and its affiliates.
The Fund pays the fees and expenses of the Fund's other Directors.

Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund. The aggregate dollar amounts of
underwriting commissions for the fiscal years ended March 31, 1994, 1993 and
1992 were $1,325,275, $1,512,634 and $1,038,432, respectively. The amounts
retained by Waddell & Reed, Inc. for each fiscal year were $563,717, $640,924
and $449,152, respectively.

A major portion of the sales charge is paid to sales representatives and
managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its sales
representatives as to purchases for which there is no sales charge.

The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.

Under a Service Plan (the "Plan") adopted by the Fund pursuant to Rule 12b-
1 under the Investment Company Act of 1940, the Fund may pay Waddell & Reed,
Inc., the principal underwriter for the Fund, a fee not to exceed .25% of the
Fund's average annual net assets, paid monthly, to reimburse Waddell & Reed,
Inc. for its costs and expenses in connection with the provision of personal
services to Fund shareholders and/or maintenance of shareholder accounts.

The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered sales
representatives, sales managers and/or other appropriate personnel in providing
personal services to Fund shareholders and/or maintaining shareholder accounts;
increasing services provided to Fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
service to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers who may regularly sell Fund shares for providing
shareholder services and/or maintaining shareholder accounts.

Fees paid (or accrued) as service fees by the Fund for the fiscal year
ended March 31, 1994 were $94,417.

The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by shareholders of the Fund.

Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding shares of the Fund, and (iv) while the
Plan remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan Directors.

Custodial and Auditing Services

The Fund's Custodian is United Missouri Bank, n.a., Kansas City, Missouri.
In general, the Custodian is responsible for holding the Fund's cash and
securities. Price Waterhouse, Kansas City, Missouri, the Fund's independent
accountants, audits the Fund's financial statements.

PURCHASE, REDEMPTION AND PRICING OF SHARES

Determination of Offering Price

The net asset value of each of the shares of the Fund is the value of the
Fund's assets, less what it owes, divided by the total number of shares. For
example, if one particular day the Fund owned securities worth $100 and had cash
of $15, the total value of the assets would be $115. If it owed $5, the net
asset value would be $110 ($115 minus $5). If it had 11 shares outstanding, the
net asset value of one share would be $10 ($110 divided by 11).

Shares of the Fund are sold at their next determined net asset value plus
the sales charge described in the Prospectus. The price makeup as of March 31,
1994 was as follows:

Net asset value per share (net assets divided by
capital shares outstanding) .............. $5.23
Add: selling commission (4.25% of offering
price) ................................... .23
-----
Maximum offering price per share (net asset value
per share (divided by 95.75%) ............ $5.46
=====

The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge. The number of
shares you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal business
office at the address shown on the cover of this SAI. You will be sent a
confirmation after your purchase which will indicate how many shares you have
purchased. Shares are normally issued for cash only.

Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.

The net asset value and offering price per share are ordinarily computed
once each day that the New York Stock Exchange is open for trading. Net asset
value per share will be computed on each day on which it is computed as of the
close of the regular session of the New York Stock Exchange or the close of the
regular session of any such domestic securities or commodities exchange on which
an option or future held by the Fund is traded. The New York Stock Exchange
annually announces the days on which it will not be open for trading. The most
recent announcement indicates that it will not be open on the following days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the
Exchange may close on other days. The net asset value will change every
business day, since the value of the assets and the number of shares change
every business day.

The Board of Directors has decided to use the prices quoted by a dealer in
bonds which offers a pricing service to value U.S. Government Securities. The
Board believes that such a service does quote their fair value. The Board,
however, may hereafter determine to use another service or use the bid price
quoted by dealers if it should determine that such service or quotes more
accurately reflect the fair value of U.S. Government Securities held by the
Fund.

Short-term U.S. Government Securities are valued at amortized cost, which
approximates market. Securities or other assets which are not valued by either
of the foregoing methods and for which market quotations are not readily
available would be valued by appraisal at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Directors.

Puts, calls and Government Securities Futures purchased and held by the
Fund are valued at the last sales price thereof on the securities or commodities
exchanges on which they are traded, or, if there are no transactions, at the
mean between bid and asked prices. Ordinarily, the close of the regular session
of option trading on national securities exchanges is 4:10 P.M. Eastern time and
the close of the regular session of commodities exchanges is 4:15 P.M. Eastern
time. Futures contracts will be valued by reference to established futures
exchanges. The value of a futures contract purchased by the Fund will be either
the closing price of that contract or the bid price. Conversely, the value of a
futures contract sold by the Fund will be either the closing price or the asked
price.

When the Fund writes a put or call, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to-market" to reflect the current market value of the
put or call. If a call the Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
the Fund received. If the Fund exercised a call it purchased, the amount paid
to purchase the related investments is increased by the amount of the premium
paid. If a put written by the Fund is exercised, the amount the Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If the Fund exercises a put it purchased, the amount the Fund
receives from the sale of the related investment is reduced by the amount of the
premium it paid. If a put or call written by the Fund expires, it has a gain in
the amount of the premium; if it enters into a closing purchase transaction, the
Fund will have a gain or loss depending on whether the premium was more or less
than the cost of the closing transaction.

Minimum Initial and Subsequent Investments

Initial investments must be at least $500 with the exceptions described in
this paragraph. A $50 minimum initial investment pertains to sales made to
certain retirement plan accounts. A minimum initial investment of $25 is
applicable to purchases made through payroll deduction for or by employees of
the Manager, Waddell & Reed, Inc., their affiliates, or certain retirement plan
accounts. A $100 minimum initial investment pertains to certain exchanges of
shares from another fund in the United Group. Except with respect to certain
exchanges and automatic withdrawals from a checking account, a shareholder may
make subsequent investments of any amount. See "Exchanges for Shares of Other
Funds in the United Group."

Waddell & Reed, Inc., in addition to distributing shares of the funds in
the United Group, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. may
distribute certain limited partnership investment interests from time to time.
These investments may provide distributions at various intervals in amounts less
than $500. A Fund account may be set up by an investor in these limited
partnerships to receive partnership distributions of $25 or more. Accordingly,
the $500 minimum initial investment will not apply to such accounts.

Reduced Sales Charges

Account Grouping

Large purchases are subject to lower sales charges. The schedule of sales
charges appears in the Prospectus. For the purpose of taking advantage of the
lower sales charges available for large purchases, a purchase in any of
categories 1 through 7 listed below made by an individual or deemed to be made
by an individual may be grouped with purchases in any other of these categories.

1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);

2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);

3. Purchases by that individual or his or her spouse in their joint account;

4. Purchases by that individual or his or her spouse for the account of their
child under age 21;

5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;

6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), Section 457 of the Code salary reduction plan
account, tax sheltered annuity account ("TSA") or Keogh plan account,
provided that the individual and spouse are the only participants in the
Keogh plan; and

7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).

Examples:

A. Grandmother opens a UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;

B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;

C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.

D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.

All purchases made for a participant in a multi-participant Keogh plan may
be grouped only with other purchases made under the same plan; a multi-
participant Keogh plan is defined as a plan in which there is more than one
participant where one or more of the participants is other than the spouse of
the owner/employer.

Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.

Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.

All purchases made under a "qualified" employee benefit plan of an
incorporated business will be grouped. A "qualified" employee benefit plan is
established pursuant to Section 401 of the Code. All qualified employee benefit
plans of any one employer or affiliated employers will also be grouped. An
affiliate is defined as an employer that directly, or indirectly, controls or is
controlled by or is under control with another employer.

Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.

All purchases made under a simplified employee pension plan ("SEP"),
payroll deduction plan or similar arrangement adopted by an employer or
affiliated employers (as defined above) may be grouped provided that the
employer elects to have all such purchases grouped at the time the plan is set
up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."

Account grouping as described above is available under the following
circumstances.

One-time Purchases

A one-time purchase in accounts eligible for grouping may be combined for
purposes of determining the availability of a reduced sales charge. In order
for an eligible purchase to be grouped, the investor must advise Waddell & Reed,
Inc. at the time the purchase is made that it is eligible for grouping and
identify the accounts with which it may be grouped.

Example: H and W open an account in the Fund and invest $100,000; at the same
time, H's parents open up two UGMA accounts for H and W's two minor
children and invest $100,000 in each child's name; the combined
purchases are subject to the reduced sales load applicable to a
purchase of $300,000 provided that Waddell & Reed, Inc. is advised
that the purchases are entitled to grouping.

Rights of Accumulation

If shares are held in any account and an additional purchase is made in
that account or in any account eligible for grouping with that account, the
additional purchase is combined with the net asset value of the existing account
as of the date the new purchase is accepted by Waddell & Reed, Inc. for the
purpose of determining the availability of a reduced sales charge.

Example: H is a current shareholder who invested in the Fund three years ago.
His account has a net asset value of $100,000. His wife, W, now
wishes to invest $15,000 in the Fund. W's purchase will be combined
with H's existing account and will be entitled to the reduced sales
charge applicable to a purchase in excess of $100,000. H's original
purchase was subject to a full sales charge and the reduced charge
does not apply retroactively to that purchase.

In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced sales
charge and provide Waddell & Reed. Inc. with the name and number of the existing
account with which the purchase may be combined.

If a purchaser holds shares which have been purchased under an investment
program ("contractual plan") the shares held under the plan may be combined with
the additional purchase only if the contractual plan has been completed.

Statement of Intention

The benefit of a reduced sales charge for larger purchases is also
available under a Statement of Intention. By signing a Statement of Intention
form, which is available from Waddell & Reed, Inc., the purchaser indicates an
intention to invest, over a 13-month period, a dollar amount which is sufficient
to qualify for a reduced sales charge. The 13-month period begins on the date
the first purchase made under the Statement is accepted by Waddell & Reed, Inc.
Each purchase made from time to time under the Statement is treated as if the
purchaser were buying at one time the total amount which he or she intends to
invest. The sales charge applicable to all purchases made under the terms of
the Statement will be the sales charge in effect on the beginning date of the
13-month period.

In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, shares already held in the same account in which the purchase is being made
or in any account eligible for grouping with that account, as described above,
will be included.

Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
shares at the sales charge applicable to a purchase of $100,000. H
has an IRA account and the shares held under the IRA in the Fund have
a net asset value as of the date the Statement is accepted by Waddell
& Reed, Inc. of $15,000; H's wife, W, has an account in her own name
invested in another fund in the United Group which charges the same
sales load as the Fund, with a net asset value as of the date of
acceptance of the Statement of $10,000; H needs to invest $75,000 over
the 13-month period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.

A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount which must be purchased within the 13-month period in order to
qualify for the reduced sales charge.

If a purchaser holds shares which have been purchased under an investment
program ("contractual plan"), the shares held under the plan will be taken into
account in determining the amount which must be invested under the Statement
only if the contractual plan has been completed.

The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement. An amount equal to 5%
of the purchase required under the Statement will be held "in escrow." If a
purchaser does not, during the period covered by the Statement, invest the
amount required to qualify for the reduced sales charge under the terms of the
Statement, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge owed on
purchases made under a Statement which is not completed will be collected by
redeeming part of the shares purchased under the Statement and held "in escrow"
unless the purchaser makes payment of this amount to Waddell & Reed, Inc. within
20 days of Waddell & Reed, Inc.'s request for payment.

If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.

A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement.

With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement will be deducted in computing the aggregate purchases under the
Statement.

Statements of Intention are not available for purchases made under a
simplified employee pension plan where the employer has elected to have all
purchases under the SEP grouped.

Other Funds in the United Group

Reduced sales charges for larger purchases apply to purchases of any of the
funds in the United Group which are subject to a sales charge. A purchase of,
or shares held, in any of the funds in the United Group which are subject to the
same sales charge as the Fund will be treated as an investment in the Fund for
the purpose of determining the applicable sales charge. The following funds in
the United Group are subject to a maximum 5.75% ("full") sales charge as
described in the prospectus of each Fund: United Funds, Inc., United
International Growth Fund, Inc., United Continental Income Fund, Inc., United
Vanguard Fund, Inc., United Retirement Shares, Inc., United High Income Fund,
Inc., United New Concepts Fund, Inc., United Gold & Government Fund, Inc. and
United High Income Fund II, Inc. The following funds in the United Group are
subject to a "reduced" sales charge as described in the prospectus of each fund:
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc. and
United Municipal High Income Fund, Inc. For the purposes of obtaining the lower
sales charge which applies to large purchases, purchases in a fund in the United
Group which is subject to a full sales charge may not be grouped with purchases
in a fund in the United Group which is subject to a reduced sales charge;
conversely, purchases made in a fund with a reduced sales charge may not be
grouped or combined with purchases of a fund which is subject to a full sales
charge.

United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.

Net Asset Value Purchases

As stated in the Prospectus, Fund shares may be purchased at net asset
value by the Directors and officers of the Fund, employees of Waddell & Reed,
Inc., employees of their affiliates, sales representatives of Waddell & Reed,
Inc. and the spouse, children, parents, children's spouses and spouse's parents
of each such Director, officer, employee and sales representative. "Child"
includes stepchild; "parent" includes stepparent. Purchases in an IRA sponsored
by Waddell & Reed, Inc. established for any of these eligible purchasers may
also be at net asset value. Purchases in any tax qualified retirement plan
under which the eligible purchaser is the sole participant may also be made at
net asset value. Trusts under which the grantor and the trustee or a co-trustee
are each an eligible purchaser are also eligible for net asset value purchases.
"Employees" includes retired employees. A retired employee is an individual
separated from service from Waddell & Reed, Inc. or affiliated companies with a
vested interest in any Employee Benefit Plan sponsored by Waddell & Reed, Inc.
or its affiliated companies. "Sales representatives" includes retired sales
representatives. A "retired sales representative" is any sales representative
who was, at the time of separation from service from Waddell & Reed, Inc., a
Senior Account Representative. A custodian under the Uniform Gifts (or
Transfers) to Minors Act purchasing for the child or grandchild of any employee
or sales representative may purchase at net asset value whether or not the
custodian himself is an eligible purchaser.

Reasons for Difference in Public Offering Price

As described herein and in the Prospectus, there are a number of instances
in which the Fund's shares are sold or issued on a basis other than the maximum
public offering price, that is, the net asset value plus the highest sales
charge. Some of these relate to lower or eliminated sales charges for larger
purchases, whether made at one time or over a period of time as under a
Statement of Intention or right of accumulation. See the table of sales charges
in the Prospectus. The reasons for these quantity discounts are, in general,
that (i) they are traditional and have long been permitted in the industry and
are therefore necessary to meet competition as to sales of shares of other funds
having such discounts; (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and distribution); and (iii) they
are designed to avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses. Quantity discounts
are made available to certain related persons for reasons of family unity and to
provide a benefit to tax exempt plans and organizations.

The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares exchanged.
Sales without sales charge are permitted to Directors, officers and certain
others due to reduced or eliminated selling expenses and since such sales may
aid in the development of a sound employee organization, encourage incentive,
responsibility and interest in the United Group and an identification with its
aims and policies. Limited reinvestments of redemptions at no sales charge are
permitted to attempt to protect against mistaken or not fully informed
redemption decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted in the Investment Company Act of 1940 from the
otherwise applicable restrictions as to what sales charge must be imposed. In
no case in which there is a reduced or eliminated sales charge are the interests
of existing shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or issued.

Flexible Withdrawal Service

If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments; this can be done by redeeming shares on a regular
basis. This service is called Flexible Withdrawal Service (the "Service"). It
is available not only for Fund shares but also for shares of any of the funds in
the United Group. It would be a disadvantage to an investor to make additional
purchases of shares while a withdrawal program is in effect as this would result
in duplication of sales charges.

To qualify for this Service, you must have invested at least $10,000 in
shares which you still own of any of the funds in the United Group; or, you must
own shares having a value of at least $10,000. The value for this purpose is
not the net asset value but the value at the offering price, i.e., the net asset
value plus the sales charge.

To start this Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:

First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;

Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or

Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a 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.

The Fund, not Waddell & Reed, Inc., pays the costs of this Service. Having
the Service costs you nothing extra individually. There is a $2.00 fee for each
withdrawal from Retirement Plan Accounts.

If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.

The dividends and distributions on shares you have made available for this
Service are reinvested in additional shares. All payments are made by redeeming
shares, which may involve a gain or loss for tax purposes. To the extent that
payments exceed dividends and distributions, the number of shares you own will
decrease. When all of the shares in an account are redeemed, you will not
receive any more payments. Thus, the payments are not an annuity or an income
or return on your investment.

You may, at any time, change the manner in which you have chosen to have
shares redeemed. You can change to any one of the other choices originally
available to you. For example, if you started out with a $50 monthly payment,
you could change to a $200 quarterly payment. You can at any time redeem part
or all of the shares in your account; if you redeem all of the shares, the
Service is terminated. The Fund can also terminate the Service by notifying you
in writing.

After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.

Exchanges for Shares of Other Funds in the United Group

You may decide you would rather own shares of one or more of the other
funds in the United Group rather than Fund shares. An exchange of Fund shares
may be made by you if you have held the shares for at least six months unless
the exchange is for shares of United Municipal Bond Fund, Inc. or United
Municipal High Income Fund, Inc. or unless the shares were acquired by
reinvestment of a dividend or distribution, in which cases there is no holding
period. You may exchange for shares of another fund without payment of an
additional sales charge. You should ask for and read the prospectus for the
fund into which you are thinking of making an exchange before doing so.

Fund shares may be received in exchange for shares of any of the other
funds in the United Group, except for shares of United Cash Management, Inc.
acquired by direct purchase or received in payment of dividends on those shares.

Subject to the above rules, you may have a specific dollar amount of shares
of United Cash Management, Inc. automatically exchanged each month into the Fund
or any other fund in the United Group. The shares of United Cash Management,
Inc. which you designate for automatic exchange must be worth at least $100 or
you must own shares of the fund in the United Group into which you want to
exchange. The minimum value of shares which you may designate for automatic
exchange monthly is $100, which may be allocated among different funds in the
United Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.

When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your written exchange request is received in good
order.

These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.

Retirement Plans

For individual taxpayers meeting certain requirements, Waddell & Reed, Inc.
offers four retirement plan arrangements which provide tax deferral and
contribute to retirement assets. All four of them involve investment in Fund
shares (or the shares of certain other funds in the United Group).

First. A self-employed person may set up a plan that is commonly called a
Keogh plan. As a general rule, an investor under a defined contribution Keogh
plan can contribute each year up to 25% of his or her annual earned income, with
a maximum of $30,000.

Second. Investors having earned income may set up a plan that is commonly
called an IRA. Under an IRA, an investor can contribute each year up to 100% of
his or her earned income up to a maximum of $2,000. The maximum is $2,250 if an
investor's spouse has no earned income in a taxable year. If an investor's
spouse has at least $2,000 of earned income in a taxable year, the maximum is
$4,000 ($2,000 for each spouse).

These contributions are deductible unless the investor (or, if married,
either spouse) is an active participant in a qualified retirement plan or if,
notwithstanding that the investor or one or both spouses so participates, the
adjusted gross income does not exceed certain levels.

An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.

Third. If an investor is an employee of a public school system or of
certain types of charitable organizations, he or she may be able to enter into a
deferred compensation arrangement in accordance with Section 403(b) of the Code.

Fourth. If an investor is an employee of a state or local government or of
certain types of charitable organizations, he or she may be able to enter into a
deferred compensation arrangement in accordance with Section 457 of the Code.

Waddell & Reed, Inc. also offers to businesses prototype employee benefit
plans qualified under Section 401 of the Code. Investments may be made in the
Fund in accordance with the terms of the plans.

More detailed information about these arrangements is in the applicable
forms which are available from Waddell & Reed, Inc. These plans may involve
complex tax questions as to premature distributions and other matters.
Investors should consult their tax adviser or pension consultant.

Redemptions

The Prospectus gives information as to redemption procedures; the emergency
or other extraordinary conditions there indicated under which payment may be
delayed beyond seven days are certain emergency conditions determined by the
Securities and Exchange Commission, when the New York Stock Exchange is closed
other than for weekends or holidays, or when trading on the Exchange is
restricted. The extraordinary conditions mentioned in the Prospectus under
which redemptions may be made in portfolio securities are that the Fund's Board
of Directors can decide that conditions exist making cash payments undesirable.
If they should, redemption payments could be made in securities. They would be
valued at the value used in figuring net asset value. There would be brokerage
costs to the redeeming shareholder in selling such securities. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, pursuant to which it is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of its net asset value during any 90-day period for any
one shareholder.

Reinvestment Privilege

The Prospectus discusses the reinvestment privilege under which, if you
redeem and then decide it was not a good idea, you may reinvest. If Fund shares
are then being offered, you can put all or part of your redemption payment back
into Fund shares without any sales charge at the net asset value next determined
after you have returned the amount. Your written request to do this must be
received within 30 days after your redemption request was received. You can do
this only once as to Fund shares. You do not use up this privilege by redeeming
shares to invest the proceeds at net asset value in a Keogh plan or an IRA.

Mandatory Redemption of Certain Small Accounts

The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.

Additional Information on Check Writing

Checks may not be presented for payment at the office of the bank upon
which the checks are drawn because under Investment Company Act rules
redemptions may be effected only at the next price determined after the
redemption request is presented to the Fund's transfer agent. This limitation
does not affect checks used for payment of bills or cashed at other banks.
Shareholders may not close their accounts through the writing of a check. If a
shareholder is subject to backup withholding described in the Prospectus, no
checks will be honored. This privilege is not available for most retirement
plan accounts. Contact the Shareholder Servicing Agent for further information.

DIRECTORS AND OFFICERS

The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board has responsibility for
establishing broad corporate policies for the Fund and for overseeing overall
performance of the selected experts. It has the benefit of advice and reports
from independent counsel and independent auditors.

Each of the Fund's Directors is also a Director of each of the other funds
in the United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc.,
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. and each of its officers is also an officer of one or more of these funds.
The principal occupation of each Director and officer during at least the past
five years is given below. Each of the persons listed through and including Mr.
Wright is a member of the Fund's Board of Directors. The other persons are
officers but not members of the Board.

RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund; Chairman of the Board of
Directors of Waddell & Reed Financial Services, Inc., United Investors
Management Company and United Investors Life Insurance Company; Chairman of the
Board of Directors and Chief Executive Officer of Torchmark Corporation;
formerly, Chairman of the Board of Directors of Waddell & Reed, Inc.

KEITH A. TUCKER*
President of the Fund; President, Chief Executive Officer and Director of
Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors of
the Manager, Waddell & Reed, Inc., Waddell & Reed Services Company, Waddell &
Reed Asset Management Company and Torchmark Distributors, Inc., an affiliate of
Waddell & Reed, Inc.; Vice Chairman of the Board of Directors, Chief Executive
Officer and President of United Investors Management Company; Vice Chairman of
the Board of Directors of Torchmark Corporation; formerly, partner in Trivest, a
private investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company.

HENRY L. BELLMON
Route 1
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.

DODDS I. BUCHANAN
University of Colorado
Campus Box 419
Boulder, Colorado 80309
Professor of Marketing, College of Business, University of Colorado;
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado.

JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Partner in Dillingham Farms, a farming operation; formerly, President and
Director of Kansas City Stock Yards Company.

JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
President of Gilliland & Hayes, P.A., a law firm; Director of Central Bank
and Trust.

GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Life Insurance Company.

WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund, each Fund in the United Group, TMK/United Funds, Inc., Waddell & Reed
Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark Insured
Tax-Free Fund, Inc. (Mr. Morgan retired as Chairman of the Board of Directors
and President of these Funds on April 30, 1993); formerly, President, Director
and Chief Executive Officer of the Manager and Waddell & Reed, Inc.; formerly,
Chairman of the Board of Directors of Waddell & Reed Services Company; formerly,
Director of Waddell & Reed Asset Management Company, United Investors Management
Company and United Investors Life Insurance Company, affiliates of Waddell &
Reed, Inc.

DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.

FREDERICK VOGEL, III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.

PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.

LESLIE S. WRIGHT
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.

Robert L. Hechler
Vice President of the Fund; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of the
Manager; President, Chief Executive Officer, Principal Financial Officer,
Director and Treasurer of Waddell & Reed, Inc.; Director and Treasurer of
Waddell & Reed Asset Management Company; President, Director and Treasurer of
Waddell & Reed Services Company; Vice President, Treasurer and Director of
Torchmark Distributors, Inc.

Henry J. Herrmann
Vice President of the Fund; Vice President, Chief Investment Officer and
Director of Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed,
Inc.; President, Chief Executive Officer, Chief Investment Officer and Director
of the Manager and Waddell & Reed Asset Management Company; Senior Vice
President and Chief Investment Officer of United Investors Management Company.

Theodore W. Howard
Vice President and Treasurer of the Fund; Vice President of Waddell & Reed
Services Company.

Rodney O. McWhinney
Vice President, Assistant Secretary and General Counsel of the Fund; Vice
President, Secretary and General Counsel of Waddell & Reed Financial Services,
Inc.; Senior Vice President, Secretary and General Counsel of the Manager and
Waddell & Reed, Inc.; Director, Senior Vice President, Secretary and General
Counsel of Waddell & Reed Services Company; Director, Secretary and General
Counsel of Waddell & Reed Asset Management Company; Vice President, Secretary
and General Counsel of Torchmark Distributors, Inc.; Director of ICI Mutual
Insurance Company.

Sharon K. Pappas
Vice President, Secretary and Assistant General Counsel of the Fund;
Assistant Secretary and Assistant General Counsel of the Manager; Assistant
General Counsel of Waddell & Reed Financial Services, Inc., Waddell & Reed,
Inc., Waddell & Reed Asset Management Company and Waddell & Reed Services
Company.

John M. Holliday
Vice President of the Fund; Senior Vice President of the Manager and
Waddell & Reed Asset Management Company; formerly, Senior Vice President of
Waddell & Reed, Inc.

John E. Sundeen, Jr.
Vice President of the Fund; Vice President of the Manager; Assistant Vice
President of Waddell & Reed Asset Management Company.

The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.

As of the date of this SAI, four of the Fund's Directors may be deemed to
be "interested persons" of its underwriter, Waddell & Reed, Inc. The Directors
who may be deemed to be "interested persons" as defined in the Investment
Company Act of 1940 are indicated as such by an asterisk.

The Board has created an honorary position of Director Emeritus, which
position a director may elect after resignation from the Board provided the
director has attained the age of 75 and has served as a director of the funds in
the United Group for a total of at least five years. A Director Emeritus
receives fees in recognition of his past services whether or not services are
rendered in his capacity as Director Emeritus, but has no authority or
responsibility with respect to management of the Fund.

The funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $40,000 per year, plus $500 for each
meeting of the Board of Directors attended and $500 for each committee meeting
attended which is not in conjunction with a Board of Directors' meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the funds in the United Group,
TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. based on their relative
size. During the Fund's fiscal year ended March 31, 1994, its share was $7,082.
The officers are paid by Waddell & Reed, Inc. or its affiliates.

Shareholdings

As of May 31, 1994, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date no
person owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding shares.

PAYMENTS TO SHAREHOLDERS

General

There are two sources for the payments the Fund makes to you as a
shareholder, other than payments when you redeem your shares. The first source
is the Fund's net investment income, which is derived from the interest and
earned discount on the securities it holds, less its expenses. The second
source is realized capital gains, which are derived from the proceeds received
from the sale of securities at a price higher than the Fund's tax basis (usually
cost) in such securities; these gains can be either long-term or short-term,
depending on how long the Fund has owned the securities before it sells them.
The payments made to shareholders from net investment income and net short-term
capital gains are called dividends. Payments, if any, from long-term capital
gains are called distributions.

Ordinarily, on the 27th day of each month or on the preceding business day
if the 27th falls on a Saturday, Sunday or holiday, all dividends declared since
the last dividend payment are paid. The shares whose holders are entitled to
receive each such dividend are those shares which are held on the Fund's books
at the close of business on the prior day. Therefore, dividends are ordinarily
paid on shares starting on the day after they are issued and on the day they are
redeemed. When shares are redeemed, any declared but unpaid dividends on these
shares will ordinarily be paid on the shares with the next regular dividend
payment and not at the time of redemption.

The Fund pays distributions only if it has net capital gains (the excess of
net long-term capital gains over net short-term capital losses). It may or may
not have such gains, depending on whether securities are sold and at what price.
If the Fund has net capital gains, it will pay distributions once each year, in
the latter part of the fourth calendar quarter. Even if it has net capital
gains for a year, the Fund does not pay the gains out if it has applicable prior
year losses to offset the gains.

Choices you Have on your Dividends and Distributions

In your application form, you can give instructions that (i) you want cash
for your dividends and distributions or (ii) you want cash for your dividends
and want your distributions reinvested in Fund shares. You can change your
instructions at any time. If you give neither instruction, your dividends and
distributions will be reinvested in Fund shares. All reinvestments are at net
asset value without any sales charge. The net asset value used for this purpose
is that computed as of the payment date for the dividend or distribution,
although this could be changed by the Directors.

Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in Fund shares at net asset value (i.e.,
no sales charge) next determined after receipt by Waddell & Reed, Inc. of the
amount clearly identified as a reinvestment. The reinvestment must be within 45
days after the payment.

TAXES

General

In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income and net short-term capital gains)
and must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities, or other income
(including gains from options or futures) derived with respect to its business
of investing in securities ("Income Requirement"); (2) the Fund must derive less
than 30% of its gross income each taxable year from the sale or other
disposition of securities, options or futures that were held for less than three
months ("Short-Short Limitation"); (3) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government Securities, securities of
other RICs and other securities that are limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets;
and (4) at the close of each quarter of the Fund's taxable year, not more than
25% of the value of its total assets may be invested in securities (other than
U.S. Government Securities or the securities of other RICs) of any one issuer.

If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors also should
be aware that if shares are purchased shortly before the record date for a
dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.

The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gains net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.

Income from Options and Futures

The use of hedging strategies, such as writing (selling) and purchasing
options and futures for hedging purposes, involves complex rules that will
determine for income tax purposes the character and timing of recognition of the
gains and losses the Fund realizes in connection therewith. Income from
transactions in options and futures derived by the Fund with respect to its
business of investing in securities will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
will be subject to the Short-Short Limitation if they are held for less than
three months.

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gains (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of options and futures beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.

Any income the Fund earns from writing covered call options is taxed as
short-term capital gains. If the Fund enters into a closing purchase
transaction, it will have a short-term capital gain or loss based on the
difference between the premium it receives for the call it wrote and the premium
it pays for the call it buys. If a call written by the Fund expires without
being exercised, the premium it receives also will be a short-term gain. If
such a call is exercised and thus the Fund sells the securities subject to the
call, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many covered
calls that it could fail to continue to qualify as a RIC.

Certain options and futures in which the Fund may invest will be "section
1256 contracts." Section 1256 contracts held by the Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, are
treated as long-term capital gains or losses, and the balance are treated as
short-term capital gains or losses. Section 1256 contracts also may be marked-
to-market for purposes of the Excise Tax and for other purposes.

Code section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If the Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Fund are not entirely clear.

PORTFOLIO TRANSACTIONS AND BROKERAGE

One of the duties undertaken by the Manager pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the portfolio of
the Fund. Purchases are made directly from issuers or from underwriters,
dealers or banks. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter. Purchases from dealers will
include the spread between the bid and asked prices. 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 Fund has not effected transactions through brokers and does not
anticipate doing so. The individual who manages the Fund may manage other
advisory accounts with similar investment objectives. It can be anticipated
that the manager will frequently place concurrent orders for all or most
accounts for which the manager has responsibility. Transactions effected
pursuant to such combined orders are averaged as to price and allocated in
accordance with the purchase or sale orders actually placed for each fund or
advisory account.

To effect the portfolio transactions of the Fund, the Manager is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. The Manager need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by the Manager to be useful or desirable for its investment
management of the Fund and/or the other funds and accounts over which the
Manager or its affiliates have investment discretion.

Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.

The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by the Manager that the
commission is reasonable in relation to the brokerage services provided.
Subject to the foregoing considerations the Manager may also consider the
willingness of particular brokers and dealers to sell shares of the Fund and
other funds managed by the Manager and its affiliates as a factor in their
selection. No allocation of brokerage or principal business is made to provide
any other benefits to the Manager or its affiliates.

The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of the Manager and its affiliates
and investment research received for the commissions of those other accounts may
be useful both to the Fund and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist the
Manager in making investment management decisions are used for administration or
other non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by the Manager.

Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager to obtain market information on the price
of securities held in the Fund's portfolio or being considered for purchase.

In placing transactions for the Fund's portfolio, the Manager may consider
sales of shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in the selection of brokers to execute portfolio
transactions. The Manager intends to allocate brokerage on the basis of this
factor only if the sale is $2 million or more and there is no sales charge.
This results in the consideration only of sales which by their nature would not
ordinarily be made by Waddell & Reed, Inc.'s direct sales force and is done in
order to prevent the direct sales force from being disadvantaged by the fact
that it cannot participate in Fund brokerage.

OTHER INFORMATION

The Shares of the Fund

The Fund presently has only one kind (class) of shares. Each share has the
same rights to dividends, to vote and to receive assets if the Fund liquidates
(winds up). Each fractional share has the same rights, in proportion, as a full
share. Shares are fully paid and nonassessable when bought.