File No. 2-77329
File No. 811-3458
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ______
Post-Effective Amendment No. 28
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 25
UNITED GOVERNMENT SECURITIES FUND, INC.
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(Exact Name as Specified in Charter)
6300 Lamar Avenue, Overland Park, Kansas City 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on June 30, 2000 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
===========================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a)(1)
The issuer has registered an indefinite amount of its securities under
the Securities Act of 1933 pursuant to Rule 24f-2 (a)(1). Notice for the
Registrant's fiscal year ended March 31, 2000 was filed on or about June
26, 2000.
PROSPECTUS
JUNE 30, 2000
WADDELL & REED ADVISORS FUNDS
FIXED INCOME &
MONEY MARKET FUNDS
Bond Fund
Government Securities Fund
High Income Fund
High Income Fund II
Municipal Bond Fund
Municipal High Income Fund
Cash Management
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THE [LOGO]
FUNDS' SECURITIES, OR DETERMINED
WHETHER THIS PROSPECTUS IS ACCURATE OR ADEQUATE. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
<PAGE>
CONTENTS
3 An Overview of the Funds
3 Bond Fund
9 Government Securities Fund
14 High Income Fund
14 High Income Fund II
24 Municipal Bond Fund
30 Municipal High Income Fund
37 Cash Management
42 The Investment Principles of the Funds
52 Your Account
75 The Management of the Funds
78 Financial Highlights
2
<PAGE>
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AN OVERVIEW OF THE FUND
GOAL
[GRAPHIC]
WADDELL & REED ADVISORS BOND FUND
(FORMERLY UNITED BOND FUND) SEEKS A REASONABLE RETURN WITH EMPHASIS ON
PRESERVATION OF CAPITAL.
PRINCIPAL STRATEGIES
Bond Fund seeks to achieve its goal by investing primarily in domestic debt
securities usually of investment grade (rated BBB and higher by Standard &
Poor's ("S&P") and Baa and higher by Moody's Investors Service, Inc. ("MIS")).
The Fund has no limitations regarding the maturity duration or dollar weighted
average of its holdings. In selecting the debt securities for the Fund's
portfolio, Waddell & Reed Investment Management Company ("WRIMCO"), the Fund's
investment manager, considers yield and relative safety and, in the case of
convertible securities, the possibility of capital growth. The Fund can invest
in securities of companies of any size.
In selecting debt securities for the Fund, WRIMCO may look at many factors.
These include the issuer's past, present and estimated future:
- financial strength;
- cash flow;
- management;
- borrowing requirements; and
- responsiveness to changes in interest rates and business conditions.
As well, WRIMCO considers the maturity of the obligation and the size or nature
of the bond issue.
In general, in determining whether to sell a security, WRIMCO uses the same
type of analysis that it uses in buying securities. For example, WRIMCO may
sell a holding if the issuer's financial strength weakens and/or the yield and
relative safety of the security declines. WRIMCO may also sell a security to
take advantage of more attractive investment opportunities or to raise
cash.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Bond Fund owns different types of securities, a variety of factors can
affect its investment performance, such as:
- prepayment of higher-yielding bonds held by the Fund;
- the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
- changes in the maturities of bonds owned by the Fund;
- WRIMCO's skill in evaluating and managing the interest rate and credit
risks of the Fund's portfolio; and
- adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Bond Fund is designed for investors who primarily seek current income while
also seeking to preserve investment principal. You should consider whether the
Fund fits your particular investment objectives.
<PAGE>
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PERFORMANCE
BOND FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
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4.24% 17.76% 7.84% 13.19% -5.76% 20.50% 3.20% 9.77% 7.27% -1.08%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 7.11% (THE
THIRD QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -7.37% (THE FIRST
QUARTER OF 1997). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
2.32%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
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CLASS A SHARES OF BOND FUND -6.77% 6.42% 6.84%
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Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75%
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Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30%
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CLASS B SHARES OF BOND FUND -4.64%
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Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75% -0.16%
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Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30% -0.45%
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CLASS C SHARES OF BOND FUND -0.86%
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Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75% -0.16%
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Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30% -0.45%
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CLASS Y SHARES OF BOND FUND -0.81% 5.93%
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Salomon Brothers Broad
Investment Grade Index -0.83% 7.74% 7.75% 6.04%
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Lipper Corporate Debt Funds
A-Rated Universe Average -2.61% 6.90% 7.30% 5.09%
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THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOAL OF THE FUND.
(1) SINCE SEPTEMBER 9, 1999 FOR CLASS B SHARES, SEPTEMBER 9, 1999 FOR CLASS C
SHARES AND JUNE 19, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS COMMENCED
OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND PARTIAL MONTH
CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX ARE NOT AVAILABLE, INDEX
PERFORMANCE IS CALCULATED FROM SEPTEMBER 30, 1999, SEPTEMBER 30, 1999, AND
JUNE 30, 1995, RESPECTIVELY.
<PAGE>
FEES AND EXPENSES
BOND FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE) 5.75% None None None
MAXIMUM DEFERRED
SALES CHARGE (LOAD)(1)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
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ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
MANAGEMENT FEES 0.52% 0.52% 0.52% 0.52%
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
OTHER EXPENSES 0.23% 0.39% 0.48% 0.21%
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.00% 1.91% 2.00% 0.73%
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(1) THE CONTINGENT DEFERRED SALES CHARGE (CDSC), WHICH IS IMPOSED ON
THE LESSER OF AMOUNT INVESTED OR REDEMPTION VALUE OF CLASS B SHARES,
DECLINES FROM 5% FOR REDEMPTIONS MADE WITHIN THE FIRST YEAR OF
PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR, TO 3% FOR
REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE
WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH
YEAR. FOR CLASS C SHARES, A 1% CDSC APPLIES TO THE LESSER OF AMOUNT
INVESTED OR REDEMPTION VALUE OF CLASS C SHARES REDEEMED WITHIN TWELVE
MONTHS AFTER PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF
MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF
SHARES, ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN
MADE ON THE FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS
A SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN
RESTATED TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30,
1999; OTHERWISE EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
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EXAMPLE
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This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
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IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Class A Shares $671 $875 $1,096 $1,729
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Class B Shares $594 $901 $1,134 $1,998(1)
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Class C Shares $303 $626 $1,076 $2,324
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Class Y Shares $ 75 $233 $ 406 $ 906
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IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Class A Shares $671 $875 $1,096 $1,729
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Class B Shares $194 $601 $1,034 $1,998(1)
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Class C Shares $203 $626 $1,076 $2,324
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Class Y Shares $ 75 $233 $ 406 $ 906
===============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER CONVERSION OF CLASS B
SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN WHICH THE SHARES WERE
PURCHASED.
<PAGE>
AN OVERVIEW OF THE FUND
WADDELL & REED ADVISORS
GOVERNMENT SECURITIES FUND
(FORMERLY UNITED GOVERNMENT SECURITIES FUND) SEEKS AS HIGH A CURRENT INCOME AS
IS CONSISTENT WITH SAFETY OF PRINCIPAL.
PRINCIPAL STRATEGIES
Government Securities Fund seeks to achieve its goal by investing exclusively
in debt securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (U.S. Government securities). The Fund invests in a
diversified portfolio of U.S. Government securities, including treasury issues
and mortgage-backed securities. The Fund has no limitations on the range of
maturities of the debt securities in which it may invest.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Government Securities Fund owns different types of fixed-income
instruments, a variety of factors can affect its investment performance, such
as:
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
- prepayment of higher-yielding bonds and mortgage-backed securities; and
- WRIMCO's skill in evaluating and selecting securities for the Fund.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. As well, not all U.S. Government
securities are backed by the full faith and credit of the United States.
WHO MAY WANT TO INVEST
Government Securities Fund is designed for investors who seek current income
and the relative security of investing in U.S. Government securities. You
should consider whether the Fund fits your particular investment objectives.
<PAGE>
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PERFORMANCE
GOVERNMENT SECURITIES FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------
7.27% 16.07% 7.54% 9.99% -3.88% 19.30% 1.77% 9.16% 7.49% -0.64%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 6.81% (THE
THIRD QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -3.32% (THE FIRST
QUARTER OF 1994). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
2.19%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE
OF CLASS(1)
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CLASS A SHARES OF
GOVERNMENT SECURITIES FUND -4.86% 6.27% 6.76%
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Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64%
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Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63%
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CLASS B SHARES OF
GOVERNMENT SECURITIES FUND - 5.09%
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Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64% -0.52%
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Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63% -0.82%
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CLASS C SHARES OF
GOVERNMENT SECURITIES FUND -0.87%
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Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64% -0.52%
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Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63% -0.82%
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CLASS Y SHARES OF
GOVERNMENT SECURITIES FUND -0.28% 5.73%
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Salomon Brothers Treasury/
Government Sponsored/
Mortgage Bond Index -0.59% 7.66% 7.64% 5.96%
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Lipper General U. S.
Government Funds
Universe Average -3.02% 6.50% 6.63% 4.69%
===============================================================================
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 8, 1999 FOR CLASS C
SHARES AND SEPTEMBER 27, 1995 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE INDEX (INCLUDING
INCOME) ARE NOT AVAILABLE, PERFORMANCE OF THE INDEX IS FROM OCTOBER 31,
1999, OCTOBER 31,1999 AND SEPTEMBER 30, 1995, RESPECTIVELY.
<PAGE>
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FEES AND EXPENSES
GOVERNMENT SECURITIES FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON
PURCHASES (AS A PERCENTAGE
OF OFFERING PRICE) 4.25% None None None
------------------------------------------------------------------------------
MAXIMUM DEFERRED
SALES CHARGE (LOAD)(1)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
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ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
MANAGEMENT FEES 0.50% 0.50% 0.50% 0.50%
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DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
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OTHER EXPENSES 0.40% 0.40% 0.60% 0.30%
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TOTAL ANNUAL FUND
OPERATING EXPENSES 1.15% 1.90% 2.10% 0.80%
===============================================================================
(1) THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT INVESTED OR REDEMPTION
VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR REDEMPTIONS MADE WITHIN THE
FIRST YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN THE SECOND YEAR,
TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH YEARS, TO 2% FOR
REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR REDEMPTIONS MADE WITHIN
THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER THE SIXTH YEAR. FOR
CLASS C SHARES, A 1% CDSC APPLIES TO THE LESSER OF AMOUNT INVESTED OR
REDEMPTION VALUE OF CLASS C SHARES REDEEMED WITHIN TWELVE MONTHS AFTER
PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER OF MONTHS OR YEARS
FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES, ALL PAYMENTS
DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE FIRST DAY
OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL FUND OPERATING EXPENSES HAVE BEEN RESTATED TO
REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED MARCH 31, 2000. ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------- --------------------------------------
Class A Shares $537 $775 $1,031 $1,763
------------------------------------------------------------------------------
Class B Shares $593 $897 $1,126 $2,025(1)
------------------------------------------------------------------------------
Class C Shares $313 $658 $1,129 $2,431
------------------------------------------------------------------------------
Class Y Shares $ 82 $255 $ 444 $ 990
------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
Class A Shares $537 $775 $1,031 $1,763
------------------------------------------------------------------------------
Class B Shares $193 $597 $1,026 $2,025(1)
------------------------------------------------------------------------------
Class C Shares $213 $658 $1,129 $2,431
------------------------------------------------------------------------------
Class Y Shares $ 82 $255 $ 444 $ 990
==============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER
CONVERSION OF CLASS B SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH
IN WHICH THE SHARES WERE PURCHASED.
<PAGE>
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AN OVERVIEW OF THE FUNDS
WADDELL & REED ADVISORS HIGH INCOME FUND
WADDELL & REED ADVISORS HIGH INCOME FUND II
(FORMERLY UNITED HIGH INCOME FUND AND UNITED HIGH INCOME FUND II) SEEK, AS A
PRIMARY GOAL, A HIGH LEVEL OF CURRENT INCOME. AS A SECONDARY GOAL, THE FUNDS
SEEK CAPITAL GROWTH WHEN CONSISTENT WITH THEIR PRIMARY GOAL.
PRINCIPAL STRATEGIES
High Income Fund and High Income Fund II seek to achieve their goals by
investing primarily in a diversified portfolio of high-yield, high-risk,
fixed-income securities the risks of which are, in the judgment of WRIMCO,
consistent with the Funds' goals. The Funds can invest in companies of any
size. The Funds invest primarily in the lower quality bonds, commonly called
junk bonds, that are rated BB and below by S&P or Ba and below by MIS or, if
unrated, deemed by WRIMCO to be of comparable quality. The Funds may invest an
unlimited amount of their respective total assets in junk bonds. As well, the
Funds may invest in bonds of any maturity.
The Funds may each invest up to 20% of their respective total assets in common
stock in order to seek capital growth. The Funds will emphasize a blend of
value and growth in their selection of common stock. Value stocks are those
whose earnings WRIMCO believes are currently selling below their true worth.
Growth stocks are those whose earnings WRIMCO believes are likely to grow
faster than the economy.
WRIMCO may look at a number of factors in selecting securities for the Funds.
These include an issuer's past, current and estimated future:
- financial strength;
- cash flow;
- management;
- borrowing requirements; and
- responsiveness to changes in interest rates and business conditions.
In general, in determining whether to sell a debt security, WRIMCO uses the
same type of analysis that it uses in buying debt securities. For example,
WRIMCO may sell a holding if the issuer's financial strength declines to an
unacceptable level or management of the company weakens. As well, WRIMCO may
choose to sell an equity security if the issuer's growth potential has
diminished. WRIMCO may also sell a security to take advantage of more
attractive investment opportunities or to raise cash.
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
Because High Income Fund and High Income Fund II own different types of
securities, a variety of factors can affect their investment performance, such
as:
- the earnings performance, credit quality and other conditions of
the companies whose securities the Funds hold;
- the susceptibility of junk bonds to greater risks of non-payment or default,
price volatility and lack of liquidity compared to higher-rated bonds;
- an increase in interest rates, which may cause the value of a bond held by
either Fund, especially bonds with longer maturities, to decline;
- changes in the maturities of bonds owned by the Funds;
- adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Funds' holdings
to fall as part of a broad market decline; and
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Funds' portfolios.
Market risk for small or medium sized companies may be greater than that for
large companies. For example, smaller companies may have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of each Fund's shares will change, and you
could lose money on your investment. An investment in each Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
High Income Fund and High Income Fund II are designed for investors who
primarily seek a level of current income that is higher than is normally
available with securities in the higher rated categories and, secondarily, seek
capital growth where consistent with the goal of income. The Funds are not
suitable for all investors. You should consider whether either Fund fits your
particular investment objectives.
<PAGE>
-------------------------------------------------------------------------------
PERFORMANCE
HIGH INCOME FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------
-14.97% 37.45% 16.33% 17.69% -3.66% 17.80% 11.88% 14.32% 3.88% 2.92%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 12.12% (THE
FIRST QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -7.59% (THE THIRD
QUARTER OF 1990). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
-1.73%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE
OF CLASS(1)
-------------------------------------------------------------------------------
CLASS A SHARES OF
HIGH INCOME FUND -3.00% 8.71% 8.93%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Market Index 1.73% 9.71% 10.94%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Composite Index 1.24% 10.39% 11.35%
-------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03%
-------------------------------------------------------------------------------
CLASS B SHARES OF
HIGH INCOME FUND -2.38%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Market Index 1.73% 9.71% 10.94% 2.42%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Composite Index 1.24% 10.39% 11.35% 2.70%
-------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 2.78%
-------------------------------------------------------------------------------
CLASS C SHARES OF
HIGH INCOME FUND 1.62%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Market Index 1.73% 9.71% 10.94% 2.42%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Composite Index 1.24% 10.39% 11.35% 2.70%
-------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 2.78%
-------------------------------------------------------------------------------
CLASS Y SHARES OF
HIGH INCOME FUND 3.15% 8.17%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Market Index 1.73% 9.71% 10.94% 7.34%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Composite Index 1.24% 10.39% 11.35% 7.57%
-------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 7.02%
===============================================================================
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE UNMANAGED.
THE SALOMON BROTHERS HIGH YIELD MARKET INDEX WILL REPLACE THE SALOMON BROTHERS
HIGH YIELD COMPOSITE INDEX. WRIMCO BELIEVES THAT THE NEW INDEX PROVIDES A MORE
ACCURATE BASIS FOR COMPARING THE FUND'S PERFORMANCE TO THE TYPES OF SECURITIES
IN WHICH THE FUND INVESTS. BOTH INDEXES ARE PRESENTED FOR COMPARISON PURPOSES.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOALS OF THE FUND.
(1) SINCE OCTOBER 4, 1999 FOR CLASS B SHARES, OCTOBER 4, 1999 FOR CLASS C
SHARES AND JANUARY 4, 1996 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE INDEXES
(INCLUDING INCOME) ARE NOT AVAILABLE, INDEX PERFORMANCE IS FROM
OCTOBER 31, 1999, OCTOBER 31, 1999AND DECEMBER 31, 1995, RESPECTIVELY.
<PAGE>
-------------------------------------------------------------------------------
FEES AND EXPENSES
HIGH INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
MAXIMUM
SALES CHARGE
(LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE
OF OFFERING PRICE) 5.75% None None None
------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES CHARGE
(LOAD)(1) (AS A PERCENTAGE
OF LESSER OF AMOUNT INVESTED
OR REDEMPTION VALUE) None(2) 5% 1% None
==============================================================================
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
MANAGEMENT FEES 0.61% 0.61% 0.61% 0.61%
------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
------------------------------------------------------------------------------
OTHER EXPENSES 0.20% 0.38% 0.31% 0.20%
------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.06% 1.99% 1.92% 0.81%
==============================================================================
(1) THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT INVESTED OR
REDEMPTION VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR REDEMPTIONS
MADE WITHIN THE FIRST YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE
WITHIN THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND
FOURTH YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1%
FOR REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS
MADE AFTER THE SIXTH YEAR. FOR CLASS C SHARES, A 1% CDSC APPLIES TO THE
LESSER OF AMOUNT INVESTED OR REDEMPTION VALUE OF CLASS C SHARES
REDEEMED WITHIN TWELVE MONTHS AFTER PURCHASE. SOLELY FOR PURPOSES OF
DETERMINING THE NUMBER OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT
FOR THE PURCHASE OF SHARES, ALL PAYMENTS DURING A MONTH ARE TOTALED AND
DEEMED TO HAVE BEEN MADE ON THE FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL FUND OPERATING EXPENSES HAVE BEEN RESTATED TO
REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES # OF THE FUND FOR
THE FISCAL YEAR ENDED MARCH 31, 2000. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
Class A Shares $677 $893 $1,126 $1,795
------------------------------------------------------------------------------
Class B Shares $602 $924 $1,173 $2,074(1)
------------------------------------------------------------------------------
Class C Shares $295 $603 $1,037 $2,243
------------------------------------------------------------------------------
Class Y Shares $ 83 $259 $ 450 $1,002
------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
Class A Shares $677 $893 $1,126 $1,795
------------------------------------------------------------------------------
Class B Shares $202 $624 $1,073 $2,074(1)
------------------------------------------------------------------------------
Class C Shares $195 $603 $1,037 $2,243
------------------------------------------------------------------------------
Class Y Shares $ 83 $259 $ 450 $1,002
==============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER
CONVERSION OF CLASS B SHARES INTO CLASS A SHARES 8 YEARS AFTER THE
MONTH IN WHICH THE SHARES WERE PURCHASED.
<PAGE>
-------------------------------------------------------------------------------
PERFORMANCE
HIGH INCOME FUND II
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and
shows how performance has varied from year to year over the past ten
calendar years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------
-5.29% 31.31% 15.23% 17.39% -4.07% 16.88% 11.93% 14.97% 2.69% 1.45%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 11.52% (THE
FIRST QUARTER OF 1991) AND THE LOWEST QUARTERLY RETURN WAS -5.76% (THE THIRD
QUARTER OF 1998). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
-1.91%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE
OF CLASS(1)
-------------------------------------------------------------------------------
CLASS A SHARES OF
HIGH INCOME FUND II -4.38% 8.11% 9.10%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Market Index 1.73% 9.71% 10.94%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Composite Index 1.24% 10.39% 11.35%
-------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03%
-------------------------------------------------------------------------------
CLASS B SHARES OF
HIGH INCOME FUND II -2.55%
-------------------------------------------------------------------------------
Salomon Brothers High
Yield Market Index 1.73% 9.71% 10.94% 2.42%
-------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 2.70%
-------------------------------------------------------------------------------
Lipper High Current Yield
Funds Universe Average 4.53% 8.84% 10.03% 2.78%
-------------------------------------------------------------------------------
CLASS C SHARES OF
HIGH INCOME FUND II 1.45%
-------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 2.42%
-------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 2.70%
-------------------------------------------------------------------------------
Lipper High Current Yield Funds
Universe Average 4.53% 8.84% 10.03% 2.78%
-------------------------------------------------------------------------------
CLASS Y SHARES OF
HIGH INCOME FUND II 1.76% 7.36%
-------------------------------------------------------------------------------
Salomon Brothers High Yield
Market Index 1.73% 9.71% 10.94% 7.08%
-------------------------------------------------------------------------------
Salomon Brothers High Yield
Composite Index 1.24% 10.39% 11.35% 7.41%
-------------------------------------------------------------------------------
Lipper High Current Yield Funds
Universe Average 4.53% 8.84% 10.03% 6.48%
===============================================================================
THE INDEXES SHOWN ARE BROAD-BASED, SECURITIES MARKET INDEXES THAT ARE UNMANAGED.
THE LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE
GOALS OF THE FUND.
(1) SINCE OCTOBER 6, 1999 FOR CLASS B SHARES, OCTOBER 6, 1999 FOR CLASS C
SHARES AND FEBRUARY 27, 1996 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEXES
(INCLUDING INCOME) ARE NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED FROM
OCTOBER 31, 1999, OCTOBER 31, 1999, AND FEBRUARY 29, 1996, RESPECTIVELY.
<PAGE>
-------------------------------------------------------------------------------
FEES AND EXPENSES
HIGH INCOME FUND II
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE
OF OFFERING PRICE) 5.75% None None None
------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES CHARGE
(LOAD)(1) (AS A PERCENTAGE
OF LESSER OF AMOUNT INVESTED
OR REDEMPTION VALUE) None(2) 5% 1% None
==============================================================================
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
------------------------------------------------------------------------------
MANAGEMENT FEES 0.63% 0.63% 0.63% 0.63%
------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.25% 1.00% 1.00% None
------------------------------------------------------------------------------
OTHER EXPENSES 0.25% 0.25% 0.25% 0.21%
------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 1.13% 1.88% 1.88% 0.84%
==============================================================================
(1) THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT
INVESTED OR REDEMPTION VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR
REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS
MADE WITHIN THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD
AND FOURTH YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1%
FOR REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE
AFTER THE SIXTH YEAR. FOR CLASS C SHARES, A 1% CDSC APPLIES TO THE LESSER
OF AMOUNT INVESTED OR REDEMPTION VALUE OF CLASS C SHARES REDEEMED WITHIN
TWELVE MONTHS AFTER PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE
NUMBER OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE
OF SHARES, ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE
BEEN MADE ON THE FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
Class A Shares $683 $912 $1,159 $1,865
------------------------------------------------------------------------------
Class B Shares $590 $889 $1,114 $1,998(1)
------------------------------------------------------------------------------
Class C Shares $290 $589 $1,014 $2,196
------------------------------------------------------------------------------
Class Y Shares $ 85 $267 $ 463 $1,031
------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------
Class A Shares $683 $912 $1,159 $1,865
------------------------------------------------------------------------------
Class B Shares $190 $589 $1,014 $1,998(1)
------------------------------------------------------------------------------
Class C Shares $190 $589 $1,014 $2,196
------------------------------------------------------------------------------
Class Y Shares $ 85 $267 $ 463 $1,031
==============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER
CONVERSION OF CLASS B SHARES INTO CLASS A SHARES 8 YEARS AFTER THE
MONTH IN WHICH THE SHARES WERE PURCHASED.
<PAGE>
AN OVERVIEW OF THE FUND
[GRAPHIC]
WADDELL & REED ADVISORS
MUNICIPAL BOND FUND
(FORMERLY UNITED MUNICIPAL BOND FUND) SEEKS TO PROVIDE INCOME THAT IS NOT
SUBJECT TO FEDERAL INCOME TAX.
PRINCIPAL STRATEGY
Municipal Bond Fund seeks to achieve its goal by investing primarily in
tax-exempt municipal bonds, mainly of investment grade. The Fund may invest in
bonds of any maturity. "Municipal bonds" mean obligations the interest on which
is not includable in gross income for Federal income tax purposes. However, a
significant portion of the Fund's municipal bond interest may be subject to the
Federal alternative minimum tax ("AMT").
The Fund diversifies its holdings among two main types of municipal bonds:
- general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
- revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds include
certain private activity bonds ("PABs") and industrial development bonds
("IDBs"), which finance privately operated facilities.
WRIMCO, the Fund's investment manager, may look at a number of factors in
selecting securities for the Fund's portfolio. These include:
- the security's current coupon;
- the maturity of the security;
- the relative value of the security;
- the creditworthiness of the particular issuer or of the private company
involved; and
- the structure of the security, including whether it has a put or a call
feature.
In general, in determining whether to sell a security, WRIMCO uses the same
type of analysis that is used in buying securities in order to determine
whether the security continues to be a desired investment for the Fund. WRIMCO
may also sell a security to take advantage of more attractive investment
opportunities or to raise cash.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Municipal Bond Fund owns different types of securities, a variety of
factors can affect its investment performance, such as:
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
- prepayment of asset-backed securities or other higher-yielding bonds held by
the Fund ("prepayment risk");
- changes in the maturities of bonds owned by the Fund;
- the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB-financed projects;
- the local economic, political or regulatory environment affecting bonds owned
by the Fund;
- failure of a bond's interest to qualify as tax-exempt;
- legislation affecting the tax status of municipal bond interest;
- adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings to
fall as part of a broad market decline; and
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; this would have the effect of reducing the Fund's return
to any such investor.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Municipal Bond Fund is designed for investors seeking current income that is
primarily free from Federal income tax, through a diversified portfolio. You
should consider whether the Fund fits your particular investment objectives.
<PAGE>
-------------------------------------------------------------------------------
PERFORMANCE
MUNICIPAL BOND FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past performance
does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------
5.63% 13.15% 9.53% 14.30% -7.14% 20.17% 4.12% 10.23% 5.20% -5.50%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 8.87% (THE
FIRST QUARTER OF 1995) AND THE LOWEST QUARTERLY RETURN WAS -6.48% (THE FIRST
QUARTER OF 1994). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH 31, 2000 WAS
3.19%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-------------------------------------------------------------------------------
CLASS A SHARES OF
MUNICIPAL BOND FUND -9.52% 5.60% 6.23%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89%
-------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14%
-------------------------------------------------------------------------------
CLASS B SHARES OF
MUNICIPAL BOND FUND -6.88%
-------------------------------------------------------------------------------
Lehman Brothers
Municipal Bond Index -2.07% 6.92% 6.89% 0.30%
-------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14% -0.03%
-------------------------------------------------------------------------------
CLASS C SHARES OF
MUNICIPAL BOND FUND -3.05%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
-------------------------------------------------------------------------------
Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14% -0.03%
-------------------------------------------------------------------------------
CLASS Y SHARES OF
MUNICIPAL BOND FUND -5.42% -5.41%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% -2.07%
-------------------------------------------------------------------------------
-Lipper General Municipal
Debt Funds Universe Average -4.16% 6.06% 6.14% -4.63%
===============================================================================
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 5, 1999 FOR CLASS B SHARES, OCTOBER 7, 1999 FOR CLASS C
SHARES AND DECEMBER 30, 1998 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX (INCLUDING
INCOME) ARE NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED FROM OCTOBER 31,
1999, OCTOBER 31, 1999 AND DECEMBER 31, 1998, RESPECTIVELY.
<PAGE>
-------------------------------------------------------------------------------
FEES AND EXPENSES
MUNICIPAL BOND FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE
OF OFFERING PRICE) 4.25% None None None
-------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES
CHARGE (LOAD)(1) (AS A
PERCENTAGE OF LESSER OF
AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
===============================================================================
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
MANAGEMENT FEES 0.51% 0.51% 0.51% 0.51%
-------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.23% 1.00% 1.00% None
-------------------------------------------------------------------------------
OTHER EXPENSES 0.11% 0.11% 0.11% 0.24%
-------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.85% 1.62% 1.62% 0.75%
===============================================================================
(1) THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT INVESTED
OR REDEMPTION VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR REDEMPTIONS
MADE WITHIN THE FIRST YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN
THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH
YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR
REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER
THE SIXTH YEAR. FOR CLASS C SHARES, A 1% CDSC APPLIES TO THE LESSER OF
AMOUNT INVESTED OR REDEMPTION VALUE OF CLASS C SHARES REDEEMED WITHIN
TWELVE MONTHS AFTER PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER
OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES,
ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE
FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
-------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Class A Shares $508 $685 $876 $1,429
-------------------------------------------------------------------------------
Class B Shares $565 $811 $981 $1,715(1)
-------------------------------------------------------------------------------
Class C Shares $265 $511 $881 $1,922
-------------------------------------------------------------------------------
Class Y Shares $ 77 $240 $417 $ 930
-------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Class A Shares $508 $685 $876 $1,429
-------------------------------------------------------------------------------
Class B Shares $165 $511 $881 $1,715(1)
-------------------------------------------------------------------------------
Class C Shares $165 $511 $881 $1,922
-------------------------------------------------------------------------------
Class Y Shares $ 77 $240 $417 $ 930
===============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER
CONVERSION OF CLASS B SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN
WHICH THE SHARES WERE PURCHASED.
<PAGE>
-------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
WADDELL & REED ADVISORS
MUNICIPAL HIGH INCOME FUND
(FORMERLY UNITED MUNICIPAL HIGH INCOME FUND) SEEKS TO PROVIDE A HIGH LEVEL OF
INCOME THAT IS NOT SUBJECT TO FEDERAL INCOME TAX.
PRINCIPAL STRATEGY
Municipal High Income Fund seeks to achieve its goal through a diversified
portfolio consisting mainly of tax-exempt municipal bonds. These bonds are
rated primarily in the lower tier of investment grade (BBB by S&P and Baa by
MIS) or lower, including bonds rated below investment grade, junk bonds (rated
BB and lower by S&P and Ba and lower by MIS), or, if unrated, judged by WRIMCO
to be of similar quality.
"Municipal bonds" mean obligations the interest on which is not includable
in gross income for Federal income tax purposes. The Fund diversifies its
holdings among two main types of municipal bonds:
- general obligation bonds, which are backed by the full faith, credit and
taxing power of the governmental authority, and
- revenue bonds, which are payable only from specific sources, such as the
revenue from a particular facility or a special tax. Revenue bonds, IDBs
and PABs finance privately operated facilities.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
- the security's current coupon;
- the maturity of the security;
- the relative value of the security;
- the creditworthiness of the particular issuer or of the private company
involved; and
- the structure of the security, including whether it has a put or a call
feature.
In general, in determining whether to sell a security, WRIMCO uses the same
type of analysis that is used in buying securities in order to determine
whether the security continues to be a desired investment for the Fund. As
well, WRIMCO may sell a security to take advantage of more attractive
investment opportunities or to raise cash.
The Fund may invest significantly in IDBs and PABs in general, revenue bonds
payable from similar projects and municipal bonds of issuers located in the
same geographic area.
The Fund typically invests in municipal bonds with remaining maturities of 10
to 30 years.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Municipal High Income Fund owns different types of securities, a
variety of factors can affect its investment performance, such as:
- an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to
decline;
- the credit quality of the issuers whose securities the Fund owns or of the
private companies involved in IDB or PAB financed projects;
- changes in the maturities of bonds owned by the Fund;
- prepayment of asset-backed securities or other higher-yielding bonds held by
the Fund ("prepayment risk");
- the local economic, political or regulatory environment affecting bonds owned
by the Fund;
- failure of a bond's interest to qualify as tax-exempt;
- legislation affecting the tax status of municipal bond interest;
- adverse bond and stock market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings to
fall as part of a broad market decline; and
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund's portfolio.
A significant portion of the Fund's municipal bond interest may subject
investors to the AMT; this would have the effect of reducing the Fund's return
to any such investor.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
WHO MAY WANT TO INVEST
Municipal High Income Fund is designed for investors seeking current income
that is primarily free from Federal income tax and that is higher than is
normally available with securities in the higher-rated categories, through a
highly diversified portfolio. The Fund is not suitable for all investors. You
should consider whether the Fund fits your particular investment objectives.
<PAGE>
-------------------------------------------------------------------------------
PERFORMANCE
MUNICIPAL HIGH INCOME FUND
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing how the Fund's average annual total returns for the
periods shown compare with those of a broad measure of market performance and a
peer group average.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
- The performance table shows average annual total returns for each class and
compares them to the market indicators listed.
- The bar chart and the performance table assume payment of dividends and other
distributions in shares. As with all mutual funds, the Fund's past performance
does not necessarily indicate how it will perform in the future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------
7.19% 11.67% 10.15% 13.19% -3.12% 16.74% 6.90% 11.77% 6.82% -5.20%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY RETURN WAS 8.48%
(THE FOURTH QUARTER OF 1998) AND THE LOWEST QUARTERLY RETURN WAS -3.93%
(THE FIRST QUARTER OF 1994). THE CLASS A RETURN FOR THE YEAR THROUGH MARCH
31, 2000 WAS 1.44%.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-------------------------------------------------------------------------------
CLASS A SHARES OF
MUNICIPAL HIGH INCOME FUND -9.22% 6.23% 6.96%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89%
-------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14%
-------------------------------------------------------------------------------
CLASS B SHARES OF
MUNICIPAL HIGH INCOME FUND -7.84%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
-------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14% -0.79%
-------------------------------------------------------------------------------
CLASS C SHARES OF
MUNICIPAL HIGH INCOME FUND -4.06%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% 0.30%
-------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14% -0.79%
-------------------------------------------------------------------------------
CLASS Y SHARES OF
MUNICIPAL HIGH INCOME FUND -5.00% -4.46%
-------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index -2.07% 6.92% 6.89% -2.07%
-------------------------------------------------------------------------------
Lipper High Yield Municipal
Bond Funds Universe Average -4.16% 6.06% 6.14% -4.16%
===============================================================================
THE INDEX SHOWN IS A BROAD-BASED, SECURITIES MARKET INDEX THAT IS UNMANAGED. THE
LIPPER AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH GOALS SIMILAR TO THE GOAL OF
THE FUND.
(1) SINCE OCTOBER 5, 1999 FOR CLASS B SHARES, OCTOBER 7, 1999 FOR CLASS C
SHARES AND DECEMBER 30, 1998 FOR CLASS Y SHARES. BECAUSE EACH CLASS
COMMENCED OPERATIONS ON A DATE OTHER THAN AT THE END OF A MONTH, AND
PARTIAL MONTH CALCULATIONS OF THE PERFORMANCE OF THE ABOVE INDEX (INCLUDING
INCOME) ARE NOT AVAILABLE, INDEX PERFORMANCE IS CALCULATED FROM OCTOBER 31,
1999, OCTOBER 31, 1999 AND DECEMBER 31, 1998, RESPECTIVELY.
<PAGE>
-------------------------------------------------------------------------------
FEES AND EXPENSES
MUNICIPAL HIGH INCOME FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C CLASS Y
YOUR INVESTMENT) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
MAXIMUM SALES CHARGE(LOAD)
IMPOSED ON PURCHASES
(AS A PERCENTAGE
OF OFFERING PRICE) 4.25% None None None
-------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES
CHARGE (LOAD)(1) (AS A
PERCENTAGE OF LESSER OF
AMOUNT INVESTED OR
REDEMPTION VALUE) None(2) 5% 1% None
===============================================================================
ANNUAL FUND OPERATING EXPENSES(3)
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C CLASS Y
FROM FUND ASSETS) SHARES SHARES SHARES SHARES
-------------------------------------------------------------------------------
MANAGEMENT FEES 0.52% 0.52% 0.52% 0.52%
-------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES 0.23% 1.00% 1.00% None
-------------------------------------------------------------------------------
OTHER EXPENSES 0.14% 0.14% 0.14% 0.30%
-------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.89% 1.66% 1.66% 0.82%
===============================================================================
(1) THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT INVESTED
OR REDEMPTION VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR REDEMPTIONS
MADE WITHIN THE FIRST YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS MADE WITHIN
THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD AND FOURTH
YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1% FOR
REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE AFTER
THE SIXTH YEAR. FOR CLASS C SHARES, A 1% CDSC APPLIES TO THE LESSER OF
AMOUNT INVESTED OR REDEMPTION VALUE OF CLASS C SHARES REDEEMED WITHIN
TWELVE MONTHS AFTER PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER
OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES,
ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE
FIRST DAY OF THE MONTH.
(2) A 1% CDSC MAY BE IMPOSED ON PURCHASES OF $2 MILLION OR MORE OF CLASS A
SHARES THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
(3) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1999, AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
-------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Class A Shares $512 $697 $ 897 $1,474
-------------------------------------------------------------------------------
Class B Shares $569 $823 $1,002 $1,759(1)
-------------------------------------------------------------------------------
Class C Shares $269 $523 $ 902 $1,965
-------------------------------------------------------------------------------
Class Y Shares $ 84 $262 $ 455 $1,014
-------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Class A Shares $512 $697 $ 897 $1,474
-------------------------------------------------------------------------------
Class B Shares $169 $523 $ 902 $1,759(1)
-------------------------------------------------------------------------------
Class C Shares $169 $523 $ 902 $1,965
-------------------------------------------------------------------------------
Class Y Shares $ 84 $262 $ 455 $1,014
===============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER
CONVERSION OF CLASS B SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN
WHICH THE SHARES WERE PURCHASED.
<PAGE>
-------------------------------------------------------------------------------
AN OVERVIEW OF THE FUND
WADDELL & REED ADVISORS
CASH MANAGEMENT
(FORMERLY UNITED CASH MANAGEMENT) SEEKS MAXIMUM CURRENT INCOME CONSISTENT WITH
STABILITY OF PRINCIPAL.
PRINCIPAL STRATEGIES
Cash Management seeks to achieve its goal by investing in U.S.
dollar-denominated, high-quality money market obligations and instruments. High
quality indicates that the securities will be rated A-1 or A-2 by S&P or
Prime-1 or Prime-2 by MIS, or if unrated, will be of comparable quality as
determined by WRIMCO. The Fund seeks, as well, to maintain a net asset value
("NAV") of $1.00 per share. The Fund maintains a dollar-weighted average
maturity of 90 days or less, and the Fund invests only in securities with a
remaining maturity of not more than 397 calendar days.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Because Cash Management owns different types of money market obligations and
instruments, a variety of factors can affect its investment performance, such
as:
- an increase in interest rates, which can cause the value of the
Fund's holdings, especially securities with longer maturities, to
decline;
- the credit quality and other conditions of the issuers whose securities the
Fund holds;
- adverse bond market conditions, sometimes in response to general economic or
industry news, that may cause the prices of the Fund's holdings to fall as
part of a broad market decline; and
- WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible to
lose money by investing in the Fund.
WHO MAY WANT TO INVEST
Cash Management is designed for investors who are risk-averse and seek to
preserve principal while earning current income and saving for short-term
needs. You should consider whether the Fund fits your particular investment
objectives.
<PAGE>
-------------------------------------------------------------------------------
PERFORMANCE
CASH MANAGEMENT
The bar chart and performance table below provide some indication of the risks
of investing in the Fund by showing changes in the Fund's performance from year
to year and by showing the Fund's average annual total returns for the periods
shown.
- The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
- The performance table shows average annual total returns for each Class.
- The bar chart and the performance table assume payment of dividends and
other distributions in shares. As with all mutual funds, the Fund's past
performance does not necessarily indicate how it will perform in the
future.
Note that the performance information in the bar chart and performance table is
based on calendar-year periods, while the information shown in the Financial
Highlights section of this Prospectus and in the Fund's shareholder reports is
based on the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
AS OF DECEMBER 31, EACH YEAR (%)
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------
7.77% 5.65% 3.16% 2.38% 3.47% 5.30% 4.74% 4.91% 4.97% 4.61%
===============================================================================
IN THE PERIOD SHOWN IN THE CHART, THE HIGHEST QUARTERLY
RETURN WAS 1.93% (THE SECOND QUARTER OF 1990) AND THE LOWEST QUARTERLY RETURN
WAS 0.54% (THE FIRST QUARTER OF 1994). AS OF DECEMBER 31, 1999, THE 7-DAY YIELD
WAS EQUAL TO 5.35%. YIELDS ARE COMPILED BY ANNUALIZING THE AVERAGE DAILY
DIVIDEND PER SHARE DURING THE TIME PERIOD FOR WHICH THE YIELD IS PRESENTED.
AVERAGE ANNUAL TOTAL RETURNS
AS OF DECEMBER 31, 1999 (%) 1 YEAR 5 YEARS 10 YEARS LIFE OF CLASS(1)
-------------------------------------------------------------------------------
CLASS A SHARES OF THE FUND 4.61% 4.91% 4.69%
-------------------------------------------------------------------------------
CLASS B SHARES OF THE FUND -3.79%
-------------------------------------------------------------------------------
CLASS C SHARES OF THE FUND 0.20%
===============================================================================
(1) SINCE SEPTEMBER 9, 1999 FOR CLASS B SHARES AND SEPTEMBER 9, 1999 FOR CLASS
C SHARES.
<PAGE>
-------------------------------------------------------------------------------
FEES AND EXPENSES
CASH MANAGEMENT
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
-------------------------------------------------------------------------------
(FEES PAID DIRECTLY FROM CLASS A CLASS B CLASS C
YOUR INVESTMENT) SHARES SHARES SHARES
-------------------------------------------------------------------------------
MAXIMUM SALES CHARGE
(LOAD) IMPOSED ON PURCHASES
(AS A PERCENTAGE
OF OFFERING PRICE) None None None
-------------------------------------------------------------------------------
MAXIMUM DEFERRED
SALES CHARGE (LOAD)(1)
(AS A PERCENTAGE OF LESSER
OF AMOUNT INVESTED OR
REDEMPTION VALUE) None 5% 1%
===============================================================================
ANNUAL FUND OPERATING EXPENSES(2)
-------------------------------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED CLASS A CLASS B CLASS C
FROM FUND ASSETS) SHARES SHARES SHARES
-------------------------------------------------------------------------------
MANAGEMENT FEES 0.40% 0.40% 0.40%
-------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE
(12b-1) FEES None 1.00% 1.00%
-------------------------------------------------------------------------------
OTHER EXPENSES 0.44% 0.44% 0.44%
-------------------------------------------------------------------------------
TOTAL ANNUAL FUND
OPERATING EXPENSES 0.84% 1.84% 1.84%
===============================================================================
(1) THE CDSC, WHICH IS IMPOSED ON THE LESSER OF AMOUNT
INVESTED OR REDEMPTION VALUE OF CLASS B SHARES, DECLINES FROM 5% FOR
REDEMPTIONS MADE WITHIN THE FIRST YEAR OF PURCHASE, TO 4% FOR REDEMPTIONS
MADE WITHIN THE SECOND YEAR, TO 3% FOR REDEMPTIONS MADE WITHIN THE THIRD
AND FOURTH YEARS, TO 2% FOR REDEMPTIONS MADE WITHIN THE FIFTH YEAR, TO 1%
FOR REDEMPTIONS MADE WITHIN THE SIXTH YEAR AND TO 0% FOR REDEMPTIONS MADE
AFTER THE SIXTH YEAR. FOR CLASS C SHARES, A 1% CDSC APPLIES TO THE LESSER
OF AMOUNT INVESTED OR REDEMPTION VALUE OF CLASS C SHARES REDEEMED WITHIN
TWELVE MONTHS AFTER PURCHASE. SOLELY FOR PURPOSES OF DETERMINING THE NUMBER
OF MONTHS OR YEARS FROM THE TIME OF ANY PAYMENT FOR THE PURCHASE OF SHARES,
ALL PAYMENTS DURING A MONTH ARE TOTALED AND DEEMED TO HAVE BEEN MADE ON THE
FIRST DAY OF THE MONTH.
(2) MANAGEMENT FEES AND TOTAL ANNUAL FUND OPERATING EXPENSES HAVE BEEN RESTATED
TO REFLECT THE CHANGE IN MANAGEMENT FEES EFFECTIVE JUNE 30, 1999; OTHERWISE,
EXPENSE RATIOS ARE BASED ON OTHER FUND-LEVEL EXPENSES OF THE FUND FOR THE
FISCAL YEAR ENDED JUNE 30, 1999 AND FOR CLASS B AND CLASS C, THE EXPENSES
ATTRIBUTABLE TO EACH CLASS THAT ARE ANTICIPATED FOR THE CURRENT YEAR. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B
or Class C shares for each time period specified, (b) your investment has a 5%
return each year, and (c) the expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
-------------------------------------------------------------------------------
IF SHARES ARE REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Class A Shares $ 86 $268 $ 466 $1,037
-------------------------------------------------------------------------------
Class B Shares $587 $879 $1,095 $1,894(1)
-------------------------------------------------------------------------------
Class C Shares $287 $579 $ 995 $2,159
-------------------------------------------------------------------------------
IF SHARES ARE NOT REDEEMED
AT END OF PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
Class A Shares $ 86 $268 $466 $1,037
-------------------------------------------------------------------------------
Class B Shares $187 $579 $995 $1,894(1)
-------------------------------------------------------------------------------
Class C Shares $187 $579 $995 $2,159
===============================================================================
(1) REFLECTS ANNUAL OPERATING EXPENSES OF CLASS A AFTER
CONVERSION OF CLASS B SHARES INTO CLASS A SHARES 8 YEARS AFTER THE MONTH IN
WHICH THE SHARES WERE PURCHASED.
<PAGE>
-------------------------------------------------------------------------------
THE INVESTMENT PRINCIPLES OF THE FUNDS
INVESTMENT GOALS, PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
WADDELL & REED ADVISORS BOND FUND
The goal of the Fund is a reasonable return with emphasis on preservation of
capital. The Fund seeks to achieve this goal by investing primarily in a
diversified portfolio of debt securities of any quality, and to a lesser
extent, in non-investment grade securities, convertible securities and debt
securities with warrants attached. The Fund may use various techniques (e.g.,
investing in put bonds) to manage the duration of its holdings. As a result, as
interest rates rise, the duration, or price sensitivity to rising interest
rates, of the Fund's holdings will typically decline. There is no guarantee
that the Fund will achieve its goal.
The Fund limits its acquisition of securities so that at least 90% of its total
assets will consist of debt securities. These debt securities primarily include
corporate bonds, mostly of investment grade, and securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
The Fund may invest in junk bonds, which are more susceptible to the risk of
non-payment or default, and their prices may be more volatile than higher-rated
bonds.
As well, the Fund may invest in foreign securities, which present additional
risks such as currency fluctuations and political or economic conditions
affecting the foreign country.
When WRIMCO believes that a defensive position is desirable, due to present or
anticipated market or economic conditions, WRIMCO may take a number of actions.
It may sell longer-term bonds and buy shorter-term bonds or money market
instruments with the sales proceeds.
By taking a temporary defensive position, the Fund may not achieve its
investment objective.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND
The goal of the Fund is high current income consistent with safety of
principal. The Fund seeks to achieve its goal by investing exclusively in a
diversified portfolio of U.S. Government securities. U.S. Government securities
are high-quality instruments issued or guaranteed as to principal or interest
by the U.S. Treasury or by an agency or instrumentality of the U.S. Government.
There is no guarantee that the Fund will achieve its goal.
Not all U.S. Government securities are backed by the full faith and credit of
the United States. Some are backed by the right of the issuer to borrow from
the U.S. Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agency's obligations, while others are supported
only by the credit of the instrumentality. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. The Fund may invest a significant portion of its assets in
mortgage-backed securities guaranteed by the U.S. Government or one of its
agencies or instrumentalities. The Fund invests in securities of agencies or
instrumentalities only when WRIMCO is satisfied that the credit risk is
acceptable.
Generally, in determining whether to sell a security, WRIMCO uses the same type
of analysis that is used in buying securities of that type. For example, WRIMCO
may sell a security if it believes the security no longer provides significant
income potential or if the safety of the principal is weakened. As well, WRIMCO
may sell a security to take advantage of more attractive investment
opportunities or to raise cash.
When WRIMCO believes that a temporary defensive position is desirable, the Fund
may increase its investments in U.S. Treasury securities and/or increase its
cash position. By taking a temporary defensive position, the Fund may not
achieve its investment objective.
WADDELL & REED ADVISORS HIGH INCOME FUND
WADDELL & REED ADVISORS HIGH INCOME FUND II
The primary goal of the Funds is to earn a high level of current income. As a
secondary goal, the Funds seek capital growth when consistent with the primary
goal. The Funds seek to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Funds'
goals. There is no guarantee that the Funds will achieve their goals.
The Funds primarily own debt securities; however, each Fund may also own, to a
lesser degree, preferred stock, common stock and convertible securities. In
general, the high income that the Funds seek is paid by debt securities in the
lower rating categories of the established rating services or unrated
securities that are determined by WRIMCO to be of comparable quality; these are
securities rated BB or lower by S&P, or Ba or lower by MIS. Lower-quality debt
securities, which include junk bonds, are considered to be speculative and
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
higher-quality securities and may decline significantly in periods of general
economic difficulty.
The Funds will each normally invest at least 80% of their respective total
assets to seek a high level of current income. The Funds each limit their
acquisition of common stock so that no more than 20% of each Fund's total
assets will consist of common stock and no more than 10% of each Fund's total
assets will consist of non-dividend-paying common stock.
The Funds may invest an unlimited amount of their assets in foreign securities.
At this time, however, the Funds intend to invest in foreign securities to a
limited extent.
When WRIMCO believes that a full or partial temporary defensive position is
desirable, due to present or anticipated market or economic conditions, WRIMCO
may take any one or more of the following steps with respect to the assets in
each Fund's portfolio:
- shorten the average maturity of the Fund's debt holdings;
- hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit) in varying amounts designed for
defensive purposes; and/or
- emphasize high-grade debt securities.
By taking a temporary defensive position in any one or more of these manners,
the Funds may not achieve their investment objectives.
WADDELL & REED ADVISORS MUNICIPAL BOND FUND
The goal of the Fund is to provide income that is not subject to Federal income
tax. The Fund seeks to achieve this goal by investing principally in a
diversified portfolio of municipal bonds. There is no guarantee that the Fund
will achieve its goal.
As used in this Prospectus, "municipal bonds" mean obligations the interest on
which is not includable in gross income for Federal income tax purposes. The
Fund and WRIMCO rely on the opinion of bond counsel for the issuer in
determining whether obligations are municipal bonds. The Fund anticipates that
not more than 40% of the dividends it will pay to shareholders will be treated
as a tax preference item for AMT purposes.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue source. IDBs and PABs are revenue
bonds issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities. The Fund may invest more than 25% of its total
assets in IDBs.
Other municipal obligations include lease obligations of municipal authorities
or entities and participations in these obligations.
At least 80% of the Fund's net assets will be invested, during normal market
conditions, in municipal bonds of investment grade.
The Fund may invest up to 10% of its total assets in taxable debt securities
other than municipal bonds. These must be either:
- U.S. Government securities;
- obligations of domestic banks and certain savings and loan associations;
- commercial paper rated at least A by S&P or MIS; and/or
- any of the foregoing obligations subject to repurchase agreements.
Subject to its policies regarding the amount of Fund assets invested in
municipal bonds and taxable debt securities, the Fund may invest in other types
of securities and use certain other instruments in seeking to achieve the
Fund's goal. For example, the Fund may invest, to a lesser extent, in options,
futures contracts, asset-backed securities and other derivative instruments if
it is permitted to invest in the type of asset by which the return on, or value
of, the derivative is measured. Income from taxable obligations, repurchase
agreements and derivative instruments will be subject to Federal income tax. At
this time, the Fund has limited exposure to futures contracts and similar
derivative instruments. The Fund does, and may in the future, hold a significant
portion of its assets in municipal bonds for which the applicable interest rate
formula varies inversely with prevailing interest rates or otherwise may expose
the bond to greater sensitivity to interest rate changes.
When WRIMCO believes that a temporary defensive position is desirable, it may
take certain steps with respect to up to all of the Fund's assets, including any
one or more of the following:
- shorten the average maturity of the Fund's portfolio;
- hold taxable obligations, subject to the limitations stated above;
- emphasize debt securities of a higher quality than those the Fund would
ordinarily hold; or
- hedge exposure to interest rate risk by investing in futures contracts and
options on futures contracts.
By taking a temporary defensive position, the Fund may not achieve its
investment objective.
WADDELL & REED ADVISORS MUNICIPAL HIGH INCOME FUND
The goal of the Fund is to provide a high level of income that is not subject
to Federal income tax. The Fund seeks to achieve this goal by investing in
medium and lower-quality municipal bonds that provide higher yields than bonds
of higher quality. The Fund anticipates that not more than 40% of the dividends
it will pay to shareholders will be treated as a tax preference item for AMT
purposes. There is no guarantee that the Fund will achieve its goal.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main types of municipal
bonds are general obligation bonds and revenue bonds. For general obligation
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. Revenue bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or a special tax or other revenue sources. IDBs and PABs are revenue
bonds issued by or on behalf of public authorities to obtain funds to finance
privately operated facilities. Other municipal obligations include lease
obligations of municipal authorities or entities and participations in these
obligations.
Under normal market conditions, the Fund will:
- invest substantially in bonds with remaining maturities of 10 to 30 years;
- invest at least 80% of its total assets in municipal bonds; and
- invest at least 75% of its total assets in medium and lower-quality
municipal bonds, which are bonds rated BBB through D by S&P, or Baa
through C by MIS, or, if unrated, are determined by WRIMCO to be
of comparable quality.
The Fund may invest in higher-quality municipal bonds, and invest less than 75%
of its total assets in medium and lower-quality municipal bonds, at times when
yield spreads are narrow and the higher yields do not justify the increased
risk; and/or when, in the opinion of WRIMCO, there is a lack of medium and
lower-quality securities in which to invest.
The Fund may invest 25% or more of its total assets in IDBs and PABs, in
securities the payment of principal and interest on which is derived from
revenue of similar projects, or in municipal bonds of issuers located in the
same geographic area. The Fund will not, however, have more than 25% of its
total assets in IDBs and PABs issued for any one industry or in any one
state.
During normal market conditions, the Fund may invest up to 20% of its total
assets in a combination of taxable obligations and in options, futures
contracts and other taxable derivative instruments. The taxable obligations
must be either:
- U.S. Government securities;
- obligations of domestic banks and certain savings and loan associations;
- commercial paper rated at least A by S&P or MIS; and/or
- any of the foregoing obligations subject to repurchase agreements.
The Fund may invest in certain derivative instruments if it is permitted to
invest in the type of asset by which the return on, or value of, the derivative
is measured. Income from taxable obligations and certain derivative instruments
will be subject to Federal income tax. At this time, the Fund has limited
exposure to derivative instruments.
At times WRIMCO may believe that a full or partial defensive position is
desirable, temporarily, due to present or anticipated market or economic
conditions that are affecting or could affect the values of municipal bonds.
During such periods, the Fund may invest up to all of its assets in taxable
obligations, which would result in a higher proportion of the Fund's income
(and thus its dividends) being subject to Federal income tax. By taking a
temporary defensive position, the Fund may not achieve its investment
objective.
WADDELL & REED ADVISORS CASH MANAGEMENT
The goal of the Fund is maximum current income consistent with stability of
principal. The Fund seeks to achieve its goal by investing in a diversified
portfolio of high-quality money market instruments in accordance with the
requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended
(the "1940 Act"). There is no guarantee that the Fund will achieve its goal.
The Fund invests only in the following U.S. dollar-denominated money
market obligations and instruments:
- U.S. government obligations (including obligations of U.S. government
agencies and instrumentalities);
- bank obligations and instruments secured by bank obligations, such as letters
of credit;
- commercial paper;
- corporate debt obligations, including variable amount master demand notes;
- Canadian government obligations; and
- certain other obligations (including municipal obligations) guaranteed
as to principal and interest by a bank in whose obligations the Fund may
invest or a corporation in whose commercial paper the Fund may invest.
The Fund only invests in bank obligations if they are obligations of a bank
subject to regulation by the U.S. Government (including foreign branches of
these banks) or obligations of a foreign bank having total assets of at
least $500 million, and instruments secured by any such obligation.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include:
- the credit quality of the particular issuer or guarantor of the security;
- the maturity of the security; and
- the relative value of the security.
Generally, in determining whether to sell a security, WRIMCO uses the same
analysis that it uses in buying securities to determine if the security no
longer offers adequate return or does not comply with Rule 2a-7. WRIMCO may also
sell a security to take advantage of more attractive investment opportunities
or to raise cash.
You will find more information in the Statement of Additional Information
("SAI") about the Fund's valuation procedures.
ALL FUNDS
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goal(s). For example, each Fund is permitted to invest in options,
futures contracts, asset-backed securities and other derivative instruments if
it is permitted to invest in the type of asset by which the return on, or value
of, the derivative is measured.
You will find more information about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in its SAI.
RISK CONSIDERATIONS OF PRINCIPAL STRATEGIES AND OTHER INVESTMENTS
Risks exist in any investment. Each Fund is subject to market risk, financial
risk and prepayment risk.
- Market risk is the possibility of a change in the price of the security
because of market factors including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if
interest rates increase, the value of a bond with a longer maturity is more
likely to decrease. Because of market risk, the share price of the Fund
(other than Cash Management) will likely change as well.
- Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities
in which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing the
stock.
- Prepayment risk is the possibility that, during periods of falling
interest rates, a debt security with a high stated interest rate will be
prepaid before its expected maturity date.
Certain types of each Fund's authorized investments and strategies, such as
derivative instruments, involve special risks. Lower-quality debt securities
are considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty. Foreign
securities and foreign currencies may involve risks relating to currency
fluctuations, political or economic conditions in the foreign country, and the
potentially less stringent investor protection and disclosure standards of
foreign markets. These factors could make foreign investments, especially those
in developing countries, more volatile.
For IDBs and PABs, their credit quality is generally dependent on the credit
standing of the company involved. To the extent that Municipal Bond Fund or
Municipal High Income Fund invests in municipal bonds the payment of principal
and interest on which is derived from revenue of similar projects, or in
municipal bonds of issuers located in the same geographic area, each Fund may be
more susceptible to the risks associated with economic, political or regulatory
occurrences that might adversely affect particular projects or areas. Currently,
Municipal High Income Fund invests a significant portion of its assets in IDBs
and PABs associated with healthcare-oriented projects. The risks particular to
these types of projects are construction risk and occupancy risk. You will find
more information in the SAI about the types of projects in which each Fund may
invest from time to time and a discussion of the risks associated with such
projects.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
<PAGE>
YOUR ACCOUNT
CHOOSING A SHARE CLASS
Each Fund offers four classes of shares: Class A, Class B, Class C and Class Y
(except Cash Management does not offer Class Y). Each class has its own sales
charge, if any, and expense structure. The decision as to which class of shares
is best suited to your needs depends on a number of factors that you should
discuss with your financial advisor. Some factors to consider are how much you
plan to invest and how long you plan to hold your investment. If you are
investing a substantial amount and plan to hold your shares for a long time,
Class A shares may be the most appropriate for you. Class B and Class C shares
are not available for investments of $2 million or more. If you are investing a
lesser amount, you may want to consider Class B shares (if investing for at
least seven years) or Class C shares (if investing for less than seven years).
Class Y shares are designed for institutional investors and others investing
through certain intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. All of your future investments in a
Fund will be made in the class you select when you open your account, unless
you inform the Fund otherwise, in writing, when you make a future
investment.
<PAGE>
GENERAL COMPARISON OF CLASS A, CLASS B AND CLASS C SHARES
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
-Initial sales charge - No initial sales charge - No initial sales charge
-------------------------------------------------------------------------------
No deferred sales - Deferred sales charge on - A 1% deferred sales
charge(1) shares you sell within six charge on shares you
years after purchase sell within twelve
months after
purchase
-------------------------------------------------------------------------------
Maximum distribution - Maximum distribution and - Maximum distribution
and service (12b-1) service (12b-1) and service (12b-1)
fees of 0.25% fees of 1.00% fees of 1.00%
-------------------------------------------------------------------------------
For an investment of - Converts to Class A shares - Does not convert to
$2 million or more, 8 years after the month in Class A shares, so
only Class A shares which the shares were annual expenses do
are available purchased, thus reducing not decrease
future annual expenses
-------------------------------------------------------------------------------
- For an investment of
$300,000 or more,
your financial advisor
typically will recommend
purchase of Class A shares
due to a reduced sales
charge and lower annual
expenses
===============================================================================
(1)A 1% CDSC MAY APPLY TO PURCHASES OF $2 MILLION OR MORE OF CLASS A SHARES
THAT ARE REDEEMED WITHIN TWELVE MONTHS OF PURCHASE.
<PAGE>
GENERAL COMPARISON OF CLASS A, CLASS B AND CLASS C SHARES
CASH MANAGEMENT
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
No initial sales charge No initial sales charge No initial sales charge
-------------------------------------------------------------------------------
Funds Plus Service Funds Plus Service Funds Plus Service
optional required for required for
direct investment direct investment
-------------------------------------------------------------------------------
Deferred sales charge A 1% deferred sales
on shares you sell charge on shares
within six years you sell within
twelve months
-------------------------------------------------------------------------------
No distribution and Maximum distribution Maximum distribution
service (12b-1) fees and service (12b-1) fees and service (12b-1)
of 1.00% fees of 1.00%
-------------------------------------------------------------------------------
For an investment of Converts to Class A shares Does not convert to
$2,000,000 or more 8 years after the month Class A shares, so
only Class A shares in which the shares were annual expenses
are available purchased, thus reducing do not decrease
future annual expenses
===============================================================================
Effective June 30, 2000, Cash Management Waddell & Reed Money Market C shares
are closed to all investments other than re-invested dividends.
EACH FUND HAS ADOPTED A DISTRIBUTION AND SERVICE PLAN ("Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, for each of its
Class A, Class B and Class C shares other than Cash Management Class A. Under
the Class A Plan, each Fund may pay Waddell & Reed, Inc. a fee of up to 0.25%,
on an annual basis, of the average daily net assets of the Class A shares. This
fee is to reimburse Waddell & Reed, Inc. for the amounts it spends for
distributing the Fund's Class A shares, providing service to Class A
shareholders and/or maintaining Class A shareholder accounts. Under the Class B
Plan and the Class C Plan, each Fund may pay Waddell & Reed, Inc., on an annual
basis, a service fee of up to 0.25% of the average daily net assets of the
class to compensate Waddell & Reed, Inc. for providing service to shareholders
of that class and/or maintaining shareholder accounts for that class and a
distribution fee of up to 0.75% of the average daily net assets of the class to
compensate Waddell & Reed, Inc. for distributing shares of that class. Because
a class's fees are paid out of the assets of that class on an ongoing basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of sales charges.
CLASS A SHARES are subject to an initial sales charge when you buy them (other
than Cash Management), based on the amount of your investment, according to the
tables below. Class A shares pay an annual 12b-1 fee of up to 0.25% of average
Class A net assets. The ongoing expenses of this class are lower than those for
Class B or Class C shares and higher than those for Class Y shares.
BOND FUND
HIGH INCOME FUND
HIGH INCOME FUND II
SIZE OF PURCHASE
SALES CHARGE REALLOWANCE
AS APPROX. TO DEALERS
SALES CHARGE PERCENT OF AS PERCENT
AS PERCENT OF AMOUNT OF OFFERING
OFFERING PRICE INVESTED PRICE
-------------------------------------------------------------------------------
Under $100,000 5.75% 6.10% 5.00%
-------------------------------------------------------------------------------
$100,000 to less than $200,000 4.75 4.99 4.00
-------------------------------------------------------------------------------
$200,000 to less than $300,000 3.50 3.63 2.80
-------------------------------------------------------------------------------
$300,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.20
-------------------------------------------------------------------------------
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
-------------------------------------------------------------------------------
$2,000,000 and over 0.00(1) 0.00(1) 0.50
===============================================================================
(1) NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $2
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS A FUND MAY IMPOSE A CDSC OF
1.00% ON CERTAIN REDEMPTIONS MADE WITHIN TWELVE MONTHS OF THE PURCHASE. THE
CDSC IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
<PAGE>
GOVERNMENT SECURITIES FUND
MUNICIPAL BOND FUND
MUNICIPAL HIGH INCOME FUND
SIZE OF PURCHASE
SALES CHARGE REALLOWANCE
AS APPROX. TO DEALERS
SALES CHARGE PERCENT OF AS PERCENT
AS PERCENT OF AMOUNT OF OFFERING
OFFERING PRICE INVESTED PRICE
-------------------------------------------------------------------------------
Under $100,000 4.25% 4.44% 3.60%
-------------------------------------------------------------------------------
$100,000 to less than $300,000 3.25 3.36 2.75
-------------------------------------------------------------------------------
$300,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.20
-------------------------------------------------------------------------------
$1,000,000 to less than $2,000,000 1.00 1.01 0.75
-------------------------------------------------------------------------------
$2,000,000 and over 0.00(1) 0.00(1) 0.50
===============================================================================
(1)NO SALES CHARGE IS PAYABLE AT THE TIME OF PURCHASE ON INVESTMENTS OF $2
MILLION OR MORE, ALTHOUGH FOR SUCH INVESTMENTS THE FUND MAY IMPOSE A CDSC
OF 1.00% ON CERTAIN REDEMPTIONS MADE WITHIN TWELVE MONTHS OF THE PURCHASE.
THE CDSC IS ASSESSED ON AN AMOUNT EQUAL TO THE LESSER OF THE THEN CURRENT
MARKET VALUE OR THE COST OF THE SHARES BEING REDEEMED. ACCORDINGLY, NO
SALES CHARGE IS IMPOSED ON INCREASES IN NET ASSET VALUE ABOVE THE INITIAL
PURCHASE PRICE.
Waddell & Reed, Inc. and its affiliates may pay additional compensation from
its own resources to securities dealers based upon the value of shares of the
Fund owned by the dealer for its own account or for its customers. Waddell &
Reed, Inc. may also provide compensation from its own resources to securities
dealers with respect to the other shares of the Fund purchased by customers of
such dealers without payment of a sales charge.
SALES CHARGE REDUCTIONS AND WAIVERS
LOWER SALES CHARGES ARE AVAILABLE BY:
- Combining additional purchases of Class A shares of any of the funds in
the Waddell & Reed Advisors Funds and/or the W&R Funds except shares of
Waddell & Reed Advisors Cash Management (formerly United Cash Management)
or Class A shares of W&R Funds Money Market Fund unless acquired by
exchange for Class A shares on which a sales charge was paid (or as a
dividend or distribution on such acquired shares), with the net asset value
"NAV") of Class A shares already held ("Rights of Accumulation");
- Grouping all purchases of Class A shares, except shares of Waddell & Reed
Advisors Cash Management or W&R Funds Money Market Fund, made during a
thirteen-month period ("Letter of Intent"); and
- Grouping purchases by certain related persons.
Additional information and applicable forms are available from your
financial advisor.
WAIVERS FOR CERTAIN INVESTORS
CLASS A SHARES MAY BE PURCHASED AT NAV BY:
- The Directors and officers of the Fund or of any affiliated entity of
Waddell & Reed, Inc., employees of Waddell & Reed, Inc., employees of its
affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each;
- Certain retirement plans and certain trusts for these persons; and
- Until March 31, 2001, clients of Legend Equities Corporation ("Legend") if
the purchase is made with the proceeds of the redemption of shares of a
mutual fund which is not within the Waddell & Reed Advisors Funds or W&R
Funds and the purchase is made within 60 days of such redemption.
You will find more information in the SAI about sales charge reductions and
waivers.
CONTINGENT DEFERRED SALES CHARGE. A CDSC may be assessed against your
redemption amount of Class B or Class C shares or certain Class A shares and
paid to Waddell & Reed, Inc. (the "Distributor"), as further described below.
The purpose of the CDSC is to compensate the Distributor for the costs incurred
by it in connection with the sale of the Fund's Class B or Class C shares or
with Class A investments of $2 million or more at NAV. The CDSC will not be
imposed on shares representing payment of dividends or other distributions or
on amounts which represent an increase in the value of a shareholder's account
resulting from capital appreciation above the amount paid for the shares
purchased during the CDSC period. For Class B, the date of redemption is
measured in calendar months from the month of purchase. Solely for purposes of
determining the number of months or years from the time of any payment for the
purchase of shares, all payments during a month are totaled and deemed to have
been made on the first day of the month. The CDSC is applied to the lesser of
amount invested or redemption value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund assumes that a redemption is made first of shares not subject
to a deferred sales charge (including shares which represent appreciation on
shares held, reinvested dividends and distributions), and then of shares that
represent the lowest sales charge.
Unless instructed otherwise, a Fund, when requested to redeem a specific dollar
amount, will redeem additional shares of the applicable class that are equal in
value to the CDSC. For example, should you request a $1,000 redemption and the
applicable CDSC is $27, the Fund will redeem shares having an aggregate NAV of
$1,027, absent different instructions.
CLASS B SHARES are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six years of
their purchase, based on the table below. Class B shares pay an annual 12b-1
service fee of up to 0.25% of average net assets and a distribution fee of up
to 0.75% of average net assets. Over time, these fees will increase the cost of
your investment and may cost you more than if you had purchased Class A shares.
Class B shares, and any dividends and distributions paid on such shares,
automatically convert to Class A shares eight years after the end of the month
in which the shares were purchased. Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. The Class A shares have lower ongoing expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
CONTINGENT DEFERRED SALES CHARGE
ON SHARES SOLD WITHIN YEAR AS % OF AMOUNT SUBJECT TO CHARGE
-------------------------------------------------------------------------------
1 5.0%
-------------------------------------------------------------------------------
2 4.0%
-------------------------------------------------------------------------------
3 3.0%
-------------------------------------------------------------------------------
4 3.0%
-------------------------------------------------------------------------------
5 2.0%
-------------------------------------------------------------------------------
6 1.0%
-------------------------------------------------------------------------------
7+ 0.0%
-------------------------------------------------------------------------------
In the table, a "year" is a 12-month period. In applying the
sales charge, all purchases are considered to have been made on the first day
of the month in which the purchase was made.
For example, if a shareholder opens an account on July 14, 2000, then redeems
all Class B shares on July 12, 2001, the shareholder will pay a CDSC of 4%, the
rate applicable to redemptions made within the second year of purchase. All
Class B purchases made prior to July 1, 2000, will be automatically accelerated
to the revised method of calculating the CDSC. Any purchase made in 1999 will be
deemed to have been made on December 1, 1998. Any purchase made from January 1,
2000 to June 30, 2000 will be deemed to have been made on December 1, 1999.
CLASS C SHARES are not subject to an initial sales charge when you buy them,
but if you sell your Class C shares within twelve months after purchase, you
will pay a 1% CDSC. For purposes of the CDSC, purchases of Class C shares
within a month will be considered as being purchased on the first day of the
month. Class C shares pay an annual 12b-1 service fee of up to 0.25% of average
net assets and a distribution fee of up to 0.75% of average net assets. Over
time, these fees will increase the cost of your investment and may cost you
more than if you had purchased Class A shares. Class C shares do not convert to
any other class.
For Class C shares, the CDSC will be applied to the lesser of amount invested
or redemption value of shares that have been held for twelve months or less.
THE CDSC WILL NOT APPLY IN THE FOLLOWING CIRCUMSTANCES:
- redemptions of shares requested within one year of the shareholder's death
or disability, provided the Fund is notified of the death or disability at
the time of the request and furnished proof of such event satisfactory to
the Distributor.
- redemptions of shares made to satisfy required minimum distributions after
age 70 1/2 from a qualified retirement plan, a required minimum
distribution from an individual retirement account, Keogh plan or custodial
account under section 403(b)(7) of the Internal Revenue Code of 1986, as
amended ("Code"), a tax-free return of an excess contribution, or that
otherwise results from the death or disability of the employee, as well as
in connection with redemptions by any tax-exempt employee benefit plan for
which, as a result of a subsequent law or legislation, the continuation of
its investment would be improper.
- redemptions of shares purchased by current or retired Directors of the Fund,
and Directors of affiliated companies, current or retired officers or
employees of the Fund, WRIMCO, the Distributor or their affiliated
companies, financial advisors of Waddell & Reed, Inc., and by the members
of immediate families of such persons.
- redemptions of shares made pursuant to a shareholder's participation in any
systematic withdrawal service adopted for a Fund. (The service and this
exclusion from the CDSC do not apply to a one-time withdrawal.)
- redemptions the proceeds of which are reinvested within forty-five days in
shares of the same class of the Fund as that redeemed.
- the exercise of certain exchange privileges.
- redemptions effected pursuant to each Fund's right (other than High Income
Fund ) to liquidate a shareholder's shares if the aggregate NAV of those
shares is less than $500, or $250 for Cash Management.
- redemptions effected by another registered investment company by virtue of a
merger or other reorganization with a Fund or by a former shareholder of such
investment company of shares of a Fund acquired pursuant to such
reorganization.
These exceptions may be modified or eliminated by a Fund at any time without
prior notice to shareholders, except with respect to redemptions effected
pursuant to the Fund's right to liquidate a shareholder's shares, which
requires certain notice.
CLASS Y SHARES are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
- participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401 of the Code, including 401(k)
plans, when the plan has 100 or more eligible employees and holds the shares
in an omnibus account on the Fund's records;
- banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
- government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more;
and
- certain retirement plans and trusts for employees and financial advisors of
Waddell & Reed, Inc. and its affiliates.
WAYS TO SET UP YOUR ACCOUNT
The different ways to set up (register) your account are listed below.
INDIVIDUAL OR JOINT TENANTS
FOR YOUR GENERAL INVESTMENT NEEDS
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS, INSTITUTIONS
OR OTHER GROUPS
RETIREMENT PLANS
TO SHELTER YOUR RETIREMENT SAVINGS FROM INCOME TAXES
Retirement plans allow individuals to shelter investment income and capital
gains from current income taxes. In addition, contributions to these accounts
(other than Roth IRAs and Education IRAs) may be tax-deductible.
- INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow a certain individual under age
70 1/2, with earned income, to invest up to $2,000 per tax year. The maximum
for an investor and his or her spouse is $4,000 ($2,000 for each spouse)or,
if less, the couple's combined earned income for the taxable year.
- IRA ROLLOVERS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- ROTH IRAs allow certain individuals to make nondeductible contributions up
to $2,000 per year. The maximum annual contribution for an investor and his
or her spouse is $4,000 ($2,000 for each spouse) or, if less, the couple's
combined earned income for the taxable year. Withdrawals of earnings may be
tax free if the account is at least five years old and certain other
requirements are met.
- EDUCATION IRAs are established for the benefit of a minor, with
nondeductible contributions up to $500 per year, and permit tax-free
withdrawals to pay the higher education expenses of the beneficiary.
- SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAs) provide business owners or
those with self-employed income (and their eligible employees) with many of
the same advantages as a Profit Sharing Plan, but with fewer administrative
requirements.
- SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS) can be
established by small employers to contribute to and allow their employees
to contribute a portion of their wages pre-tax to retirement accounts. This
plan-type generally involves fewer administrative requirements than 401(k)
or other qualified plans.
- KEOGH PLANS allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income,
with a maximum of $30,000 per year.
- PENSION AND PROFIT-SHARING PLANS, INCLUDING 401(K) PLANS, allow
corporations and nongovernmental tax-exempt organizations of all sizes
and/or their employees to contribute a percentage of the employees' wages or
other amounts on a tax-deferred basis. These accounts need to be established
by the administrator or trustee of the plan.
- 403(b) CUSTODIAL ACCOUNTS are available to employees of public school
systems, churches and certain types of charitable organizations.
- 457 ACCOUNTS allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
GIFTS OR TRANSFERS TO A MINOR
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Transfers to Minors Act ("UTMA") or the Uniform Gifts
to Minors Act ("UGMA").
TRUST
FOR MONEY BEING INVESTED BY A TRUST
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
BUYING SHARES
YOU MAY BUY SHARES OF EACH OF THE FUNDS through Waddell & Reed, Inc. and its
financial advisors or through advisors of Legend. To open your account you must
complete and sign an application. Your financial advisor can help you with any
questions you might have.
TO PURCHASE ANY CLASS OF SHARES BY CHECK, make your check payable to Waddell &
Reed, Inc. Mail the check, along with your completed application, to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
TO PURCHASE CLASS Y SHARES (AND CLASS A SHARES OF CASH MANAGEMENT) BY WIRE, you
must first obtain an account number by calling 800-366-2520, then mail a
completed application to Waddell & Reed, Inc., at the above address, or fax it
to 913-236-5044. Instruct your bank to wire the amount you wish to invest,
along with the account number and registration, to UMB Bank, n.a., ABA Number
101000695, for the account of Waddell & Reed Number 9800007978, Special Account
for Exclusive Benefit of Customers FBO Customer Name and Account Number.
You may also buy Class Y shares of a Fund indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements regarding the purchase of
Class Y shares.
THE PRICE TO BUY A FUND SHARE is its offering price, which is calculated every
business day.
The OFFERING PRICE of a share (the price to buy one share of a particular
class) is the next NAV calculated per share of that class plus, for Class A
shares, the sales charge shown in the tables.
In the calculation of a Fund's NAV:
- The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
- Bonds are generally valued according to prices quoted by an independent
pricing service.
- Short-term debt securities are valued at amortized cost, which approximates
market value.
- Other investment assets for which market prices are unavailable are valued
at their fair value by or at the direction of the Board of Directors.
EACH FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a Fund may be priced at the close of the regular
session of any other securities exchange on which that instrument is traded.
The Funds may invest in securities listed on foreign exchanges which may trade
on Saturdays or on U.S. national business holidays when the NYSE is closed.
Consequently, the NAV of Fund shares may be significantly affected on days when
a Fund does not price its shares and when you are not able to purchase or
redeem a Fund's shares. Similarly, if an event materially affecting the value
of foreign investments or foreign currency exchange rates occurs prior to the
close of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair
value as determined in good faith by or under the direction of each Fund's
Board of Directors.
WHEN YOU PLACE AN ORDER TO BUY SHARES, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
- All of your purchases must be made in U.S. dollars.
- If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the Waddell & Reed Advisors Funds
and/or W&R Funds, the payment may be delayed for up to ten days to ensure
that your previous investment has cleared.
- The Funds do not issue certificates representing Class B, Class C or Class Y
shares. Cash Management also does not normally issue certificates
representing Class A shares.
- If you purchase shares of a Fund from certain broker-dealers, banks or other
authorized third parties, the Fund will be deemed to have received your
purchase order when that third party (or its designee) has received your
order. Your order will receive the offering price next calculated after the
order has been received in proper form by the authorized third party (or its
designee). You should consult that firm to determine the time by which it
must receive your order for you to purchase shares of a Fund at that day's
price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Funds reserve the right to
discontinue offering Fund shares for purchase.
MINIMUM INVESTMENTS
FOR CLASS A, CLASS B AND CLASS C:
TO OPEN AN ACCOUNT $500 (per Fund)
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For certain exchanges $100 (per Fund)
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For certain retirement accounts and accounts opened
with Automatic Investment Service $50 (per Fund)
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For certain retirement accounts and accounts opened
through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25 (per Fund)
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TO ADD TO AN ACCOUNT Any amount
-------------------------------------------------------------------------------
For certain exchanges $100(per Fund)
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For Automatic Investment Service $25(per Fund)
-------------------------------------------------------------------------------
FOR CLASS Y:
TO OPEN AN ACCOUNT
-------------------------------------------------------------------------------
For a government entity or authority $10
million or for a corporation (within first twelve months)
-------------------------------------------------------------------------------
For other investors Any amount
-------------------------------------------------------------------------------
TO ADD TO AN ACCOUNT Any amount
===============================================================================
ADDING TO YOUR ACCOUNT
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
TO ADD TO YOUR ACCOUNT, make your check payable to Waddell & Reed, Inc. Mail
the check to Waddell & Reed, Inc., along with:
- the detachable form that accompanies the confirmation of a prior purchase or
your year-to-date statement; or
- a letter stating your account number, the account registration, the Fund and
the class of shares that you wish to purchase.
TO ADD TO YOUR CLASS Y ACCOUNT (OR YOUR CLASS A CASH MANAGEMENT ACCOUNT) BY
WIRE: Instruct your bank to wire the amount you wish to invest, along with the
account number and registration, to UMB Bank, n.a., ABA Number 101000695, for
the account of Waddell & Reed Number 9800007978, Special Account for Exclusive
Benefit of Customers FBO Customer Name and Account Number.
If you purchase shares of the Funds from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
SELLING SHARES
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The REDEMPTION PRICE (price to sell one share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to
Class A, Class B or Class C shares.
TO SELL SHARES BY WRITTEN REQUEST: Complete an Account Service Request form,
available from your financial advisor, or write a letter of instruction with:
- the name on the account registration;
- the Fund's name;
- the Fund account number;
- the dollar amount or number, and the class, of shares to be redeemed; and
- any other applicable requirements listed in the table below. Deliver the
form or your letter to your financial advisor, or mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a check
to the address on the account.
TO SELL CLASS Y SHARES OR CLASS A SHARES OF CASH MANAGEMENT BY TELEPHONE OR
FAX: If you have elected this method in your application or by subsequent
authorization, call 888-WADDELL, or fax your request to 913-236-1599, and give
your instructions to redeem Class Y shares and make payment by wire to your
predesignated bank account or by check to you at the address on the
account.
TO SELL CLASS A SHARES OF CASH MANAGEMENT OR GOVERNMENT SECURITIES BY CHECK: If
you have elected this method in your application or by subsequent
authorization, the Fund will provide you with forms or checks drawn on UMB
Bank, n.a. You may make these checks payable to the order of any payee in any
amount of $250 or more.
WHEN YOU PLACE AN ORDER TO SELL SHARES, your shares will be sold at the next
NAV calculated, subject to any applicable CDSC, after receipt of a written
request for redemption in good order by Waddell & Reed Services Company at the
address listed above. Note the following:
- If more than one person owns the shares, each owner must sign the written
request.
- If you hold a certificate, it must be properly endorsed and sent to the
Fund.
- If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance that
the check has cleared and been honored. If you do not, payment of the
redemption proceeds on these shares will be delayed until the earlier of 10
days or the date the Fund can verify that your purchase check has cleared and
been honored.
- Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted or as permitted by the Securities and Exchange Commission.
- Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities when a Fund's Board of
Directors determines that conditions exist making cash payments undesirable.
A Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its NAV during any 90-day period for any one shareholder.
- If you purchased shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms,
some of which may charge you a fee and may have additional requirements
to sell Fund shares. The Fund will be deemed to have received your order
to sell shares when that firm (or its designee) has received your order.
Your order will receive the NAV of the applicable Class subject to any
applicable CDSC next calculated after the order has been received in proper
form by the authorized firm (or its designee). You should consult that firm
to determine the time by which it must receive your order for you to sell
shares at that day's price.
SPECIAL REQUIREMENTS FOR SELLING SHARES
ACCOUNT TYPE SPECIAL REQUIREMENTS
-------------------------------------------------------------------------------
Individual The written instructions must be
or Joint Tenant signed by all persons required to sign for
transactions, exactly as their names
appear on the account.
-------------------------------------------------------------------------------
Sole The written instructions must be
Proprietorship signed by the individual owner of the business.
-------------------------------------------------------------------------------
UGMA, The custodian must sign the written instructions
UTMA indicating capacity as custodian.
-------------------------------------------------------------------------------
Retirement The written instructions must be signed by a
Account properly authorized person.
-------------------------------------------------------------------------------
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's name
is not in the account registration, provide a
currently certified copy of the trust document.
-------------------------------------------------------------------------------
Business At least one person authorized by
or Organization corporate resolution to act on the account must sign
the written instructions.
-------------------------------------------------------------------------------
Conservator, Guardian or The written instructions must be signed by the
Other Fiduciary person properly authorized by court order to act in
the particular fiduciary capacity.
===============================================================================
A Fund may require a signature guarantee in certain situations such as:
- a redemption request made by a corporation, partnership or fiduciary;
- a redemption request made by someone other than the owner of record; or
- the check is made payable to someone other than the owner of record.
This requirement is to protect you and Waddell & Reed from fraud. You can
obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
EACH FUND RESERVES THE RIGHT TO REDEEM at NAV all of your Fund shares (other
than High Income Fund) in your account if their aggregate NAV is less than
$500, or $250 for Cash Management. The Fund will give you notice and a 60-day
opportunity to purchase a sufficient number of additional shares to bring the
aggregate NAV of your shares to $500, or $250 for Cash Management. Cash
Management may charge a fee of $1.75 per month on all accounts with a NAV of
less than $250, except for retirement plan accounts.
YOU MAY REINVEST, without charge, all or part of the amount of Class A shares
of a Fund you redeemed by sending to the Fund the amount you want to reinvest.
The reinvested amounts must be received by the Fund within forty-five days
after the date of your redemption. You may do this only once with Class A
shares of a Fund.
The CDSC will not apply to the proceeds of Class A (as applicable), Class B or
Class C shares of a Fund which are redeemed and then reinvested in Class A,
Class B or Class C shares, as applicable, of the Fund within forty-five days
after such redemption. The Distributor will, with your reinvestment, restore an
amount equal to the deferred sales charge attributable to the amount reinvested
by adding the deferred sales charge amount to your reinvestment. For purposes
of determining future deferred sales charges, the reinvestment will be treated
as a new investment. You may do this only once as to Class A shares of a Fund,
once as to Class B shares of a Fund and once as to Class C shares of a Fund.
Payments of principal and interest on loans made pursuant to a 401(a) qualified
plan (if such loans are permitted by the plan) may be reinvested, without
payment of a sales charge, in Class A shares of any Waddell & Reed Advisors Fund
in which the plan may invest.
TELEPHONE TRANSACTIONS
The Funds and their agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. Each Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If a Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
SHAREHOLDER SERVICES
Waddell & Reed provides a variety of services to help you manage your
account.
PERSONAL SERVICE
Your local financial advisor is available to provide personal service.
Additionally, a toll-free call, 800-366-5465, connects you to a Client Services
Representative or our automated customer telephone service. During normal
business hours, our Client Services staff is available to answer your questions
or update your account records. At almost any time of the day or night, you may
access your account information from a touch-tone phone, or from our web site,
www.waddell.com, to:
- Obtain information about your accounts;
- Obtain price information about other funds in the Waddell & Reed Advisors
Funds and/or W&R Funds; or
- Request duplicate statements.
REPORTS
Statements and reports sent to you include the following:
- confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
- year-to-date statements (quarterly)
- annual and semiannual reports to shareholders (every six months) To
reduce expenses, only one copy of the most recent annual and semiannual
reports of the Funds may be mailed to your household, even if you have more
than one account with a Fund. Call the telephone number listed for Client
Services if you need additional copies of annual or semiannual reports or
Account information.
EXCHANGES
You may sell your shares and buy shares of the same Class of another Fund in
the Waddell & Reed Advisors Funds or in W&R Funds without the payment of an
additional sales charge if you buy Class A shares or payment of a CDSC when you
exchange Class B or Class C shares. For Class B and Class C shares or Class A
shares to which the CDSC would otherwise apply, the time period for the
deferred sales charge will continue to run. In addition, exchanging Class Y
shareholders in the Waddell & Reed Advisors Funds may buy Class A shares of
Waddell & Reed Advisors Cash Management.
You may exchange any Class A shares of the Government Securities, Municipal
Bond and Municipal High Income Funds that you have held for at least six months
and any Class A shares of these Funds acquired as payment of a dividend or
distribution for Class A shares of any other fund in the Waddell & Reed
Advisors Funds. You may exchange any Class A shares of the Government
Securities, Municipal Bond and Municipal High Income Funds that you have held
for less than six months only for Class A shares of Government Securities,
Municipal Bond, and Municipal High Income Funds and Cash Management.
You may exchange only into funds that are legally permitted for sale in your
state of residence. Note that exchanges out of a Fund may have tax consequences
for you. Before exchanging into a fund, read its prospectus.
THE FUNDS RESERVE THE RIGHT to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
AUTOMATIC TRANSACTIONS FOR CLASS A, CLASS B AND CLASS C SHAREHOLDERS
Flexible Withdrawal Service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account, or
between fund accounts, automatically. While Regular Investment Plans do not
guarantee a profit and will not protect you against loss in a declining market,
they can be an excellent way to invest for retirement, a home, educational
expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your financial advisor for more information.
REGULAR INVESTMENT PLANS
AUTOMATIC INVESTMENT SERVICE
TO MOVE MONEY FROM YOUR BANK ACCOUNT TO AN EXISTING FUND ACCOUNT
MINIMUM AMOUNT MINIMUM FREQUENCY
$25 (per Fund) Monthly
-------------------------------------------------------------------------------
FUNDS PLUS SERVICE
TO MOVE MONEY FROM WADDELL & REED ADVISORS CASH MANAGEMENT TO A FUND WHETHER IN
THE SAME OR A DIFFERENT ACCOUNT IN THE SAME CLASS
MINIMUM AMOUNT MINIMUM FREQUENCY
$100 (per Fund) Monthly
-------------------------------------------------------------------------------
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year.
Usually, a Fund distributes net investment income at the following times: Bond
Fund, High Income Fund, and Municipal Bond Fund, monthly; Cash Management,
Government Securities Fund, Municipal High Income Fund and High Income Fund II,
daily. Dividends declared for a particular day are paid to shareholders of
record on the prior business day. However, dividends declared for Saturday and
Sunday are paid to shareholders of record on the preceding Thursday. Net
capital gains (and any net gains from foreign currency transactions) usually
are distributed in December.
DISTRIBUTION OPTIONS. When you open an account, specify on your application how
you want to receive your distributions. Each Fund offers two options:
1. SHARE PAYMENT OPTION. Your dividends, capital gains and other distributions
with respect to a class will be automatically paid in additional shares of
the same class of the Fund. If you do not indicate a choice on your
application, you will be assigned this option.
2. CASH OPTION. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is equal to or greater than
five dollars. If the distribution is less than five dollars, it will be
automatically paid in additional shares of the same class of the Fund.
For retirement accounts, all distributions are automatically paid in
additional shares.
TAXES
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is not a tax-deferred retirement account (or you are
not otherwise exempt from income tax), you should be aware of the following tax
implications:
TAXES ON DISTRIBUTIONS. Dividends from a Fund's investment company taxable
income (which includes net short-term gains), if any, generally are taxable to
you as ordinary income whether received in cash or paid in additional Fund
shares. Distributions of a Fund's net capital gains, when designated as such,
are taxable to you as long-term capital gains, whether received in cash or paid
in additional Fund shares and regardless of the length of time you have owned
your shares. For Federal income tax purposes, your long-term capital gains
generally are taxed at a maximum rate of 20%.
Each Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that
year.
A portion of the dividends paid by a Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by a Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends received deduction are subject indirectly to the Federal alternative
minimum tax.
WITHHOLDING. Each Fund must withhold 31% of all dividends, capital gains and
other distributions and redemption proceeds payable to individuals and certain
other noncorporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends,
capital gains and other distributions also is required for shareholders subject
to backup withholding.
TAXES ON TRANSACTIONS. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the Waddell & Reed Advisors Funds or W&R Funds generally will have similar tax
consequences. However, special rules apply when you dispose of a Fund's Class A
shares through a redemption or exchange within ninety days after your purchase
and then reacquire Class A shares of that Fund or acquire Class A shares of
another fund in the Waddell & Reed Advisors Funds without paying a sales charge
due to the forty-five day reinvestment privilege or exchange privilege. See
"Your Account." In these cases, any gain on the disposition of the original
Fund shares will be increased, or loss decreased, by the amount of the sales
charge you paid when those shares were acquired, and that amount will increase
the adjusted basis of the shares subsequently acquired. In addition, if you
purchase shares of a Fund within thirty days before or after redeeming other
shares of the Fund (regardless of class) at a loss, part or all of that loss
will not be deductible and will increase the basis of the newly purchased
shares.
For Municipal Bond Fund and Municipal High Income Fund, interest on
indebtedness incurred or continued to purchase or carry shares of the Fund
will not be deductible for Federal income tax purposes to the extent the Fund's
distributions consist of exempt-interest dividends. Proposals may be introduced
before Congress for the purpose of restricting or eliminating the Federal
income tax exemption for interest on municipal bonds. If such a proposal were
enacted, the availability of municipal bonds for investment by the Fund and the
value of its portfolio would be affected. In that event, the Fund may decide to
reevaluate its investment goal and policies.
STATE AND LOCAL INCOME TAXES. The portion of the dividends paid by each Fund
attributable to interest earned on U.S. Government securities generally is not
subject to state and local income taxes, although distributions by any Fund to
its shareholders of net realized gains on the sale of those securities are
fully subject to those taxes. You should consult your tax adviser to determine
the taxability of dividends and other distributions by the Funds in your state
and locality.
The foregoing is only a summary of some of the important Federal income tax
considerations generally affecting each Fund and its shareholders; you will
find more information in the Fund's SAI. There may be other Federal, state or
local tax considerations applicable to a particular investor. You are urged to
consult your own tax adviser.
<PAGE>
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THE MANAGEMENT OF THE FUNDS
PORTFOLIO MANAGEMENT
Each Fund is managed by WRIMCO, subject to the authority of each Fund's Board
of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. WRIMCO and/or its predecessor have served
as investment manager to each of the registered investment companies in the
Waddell & Reed Advisors Funds, W&R Funds and Target/United Funds since the
inception of each company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
James C. Cusser is primarily responsible for the management of the Bond Fund
and the Government Securities Fund. Mr. Cusser has held his Fund
responsibilities since September 1992 for Bond Fund and since January 1997 for
Government Securities Fund. He is Vice President of WRIMCO, Vice President of
the Funds and Vice President of other investment companies for which WRIMCO
serves as investment manager. Mr. Cusser has served as the portfolio manager
for the Funds and other investment companies managed by WRIMCO and has been an
employee of WRIMCO since August 1992.
Louise D. Rieke is primarily responsible for the management of the High Income
Fund and High Income Fund II. Ms. Rieke has held her Fund responsibilities for
High Income Fund since January 1990, and for High Income Fund II from the
Fund's inception to January 1990 and from May 1992 to the present. She is Vice
President of WRIMCO, Vice President of the Funds and Vice President of other
investment companies for which WRIMCO serves as investment manager. From
November 1985 to March 1998, Ms. Rieke was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company, a former affiliate of
WRIMCO. Ms. Rieke has served as the portfolio manager for investment companies
managed by WRIMCO and its predecessor since July 1986 and has been an employee
of such since May 1971.
Bryan J. Bailey is primarily responsible for the management of the Municipal
Bond Fund. Mr. Bailey has held his Fund responsibilities since June 14, 2000.
He is Vice President of WRIMCO and Vice President of the Fund. Mr. Bailey has
served as the Assistant Portfolio Manager for investment companies managed by
WRIMCO since January 1999 and has been an employee of WRIMCO since July
1993.
Mark Otterstrom is primarily responsible for the management of the Municipal
High Income Fund. Mr. Otterstrom has held his Fund responsibilities since June
14, 2000. He is Vice President of WRIMCO and Vice President of the Fund. Mr.
Otterstrom has served as the Assistant Portfolio Manager for investment
companies managed by WRIMCO and its predecessor since January 1995 and has been
an employee of WRIMCO since May 1987.
Mira Stevovich is primarily responsible for the management of Cash Management.
Ms. Stevovich has held her Fund responsibilities since May 1998. She is Vice
President of WRIMCO, Vice President and Assistant Treasurer of the Fund and
Vice President and Assistant Treasurer of other investment companies for which
WRIMCO serves as investment manager. Ms. Stevovich has served as the Assistant
Portfolio Manager for investment companies managed by WRIMCO and its
predecessor since January 1989 and has been an employee of such since March
1987.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
MANAGEMENT FEE
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee is payable at the annual rates of
- for Bond Fund, 0.525% of net assets up to $500 million, 0.50% of net
assets over $500 million and up to $1 billion, 0.45% of net assets
over $1 billion and up to $1.5 billion, and 0.40% of net assets over
$1.5 billion. Management fees for the Fund as a percent of the Fund's
net assets for the fiscal year ended December 31, 1999 were 0.47%;
- for Government Securities Fund, 0.50% of net assets up to $500 million,
0.45% of net assets over $500 million and up to $1 billion, 0.40% of net
assets over $1 billion and up to $1.5 billion, and 0.35% of net assets
over $1.5 billion. Management fees for the Fund as a percent of the
Fund's net assets for the fiscal year ended March 31, 2000 were 0.47%;
- for High Income Fund, 0.625% of net assets up to $500 million, 0.60%
of net assets over $500 million and up to $1 billion, 0.55% of net
assets over $1 billion and up to $1.5 billion, and 0.50% of net assets
over $1.5 billion. Management fees for the Fund as a percent of the
Fund's net assets for the fiscal year ended March 31, 2000 were 0.60%;
- for High Income Fund II, 0.625% of net assets up to $500 million, 0.60%
of net assets over $500 million and up to $1 billion, 0.55% of net assets
over $1 billion and up to $1.5 billion, and 0.50% of net assets over $1.5
billion. Management fees for the Fund as a percent of the Fund's net assets
for the fiscal year ended September 30, 1999 were 0.56%;
- for Municipal Bond Fund, 0.525% of net assets up to $500 million, 0.50% of
net assets over $500 million and up to $1 billion, 0.45% of net assets over
$1 billion and up to $1.5 billion, and 0.40% of net assets over $1.5
billion. Management fees for the Fund as a percent of the Fund's net
assets for the fiscal year ended September 30, 1999 were 0.44%;
- for Municipal High Income Fund, 0.525% of net assets up to $500 million,
0.50% of net assets over $500 million and up to $1 billion, 0.45% of net
assets over $1 billion and up to $1.5 billion, and 0.40% of net assets
over $1.5 billion. Management fees for the Fund as a percent of the
Fund's net assets for the fiscal year ended September 30, 1999 were 0.50%;
And
- for Cash Management, at the annual rate of 0.40% of net assets.
WRIMCO has voluntarily agreed to waive its management fee for any day that a
Fund's net assets are less than $25 million, subject to WRIMCO's right to
change or modify this waiver.
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following information is to help you understand the financial performance
of each Fund's Class A, Class B, Class C and Class Y (other than for Cash
Management) shares for the fiscal periods shown. Certain information reflects
financial results for a single Fund share. "Total return" shows how much your
investment would have increased (or decreased) during each period, assuming
reinvestment of all dividends and distributions.
<PAGE>
-------------------------------------------------------------------------------
BOND FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal
year ended December 31, 1999, is included in the Fund's SAI, which is available
upon request.
For a Class A share outstanding throughout each period(1):
FOR THE FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
Net asset value,
beginning of
period $6.39 $6.32 $6.14 $6.34 $5.62
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.35 0.38 0.39 0.39 0.40
Net realized and
unrealized gain
(loss) on
investments (0.42) 0.07 0.19 (0.20) 0.72
-------------------------------------------------------------------------------
Total from
investment
operations (0.07) 0.45 0.58 0.19 1.12
-------------------------------------------------------------------------------
Less distributions from
net investment
income (0.35) (0.38) (0.40) (0.39) (0.40)
-------------------------------------------------------------------------------
Net asset value,
end of period $5.97 $6.39 $6.32 $6.14 $6.34
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) -1.08% 7.27% 9.77% 3.20% 20.50%
Net assets, end of
period (in
millions) $501 $551 $524 $519 $563
Ratio of expenses
to average net assets 0.95% 0.84% 0.77% 0.77% 0.74%
Ratio of net investment
income to average
net assets 5.72% 5.88% 6.34% 6.34% 6.54%
Portfolio
turnover rate 34.12% 33.87% 35.08% 55.74% 66.38%
===============================================================================
(1) ON JUNE 17, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD
DEDUCTED ON AN INITIAL PURCHASE.
<PAGE>
------------------------------------------------------------------------------
BOND FUND
For a Class B share outstanding throughout the period:
FOR THE
PERIOD FROM
9/9/99(1) TO
12/31/99
CLASS B PER-SHARE DATA
Net asset value, beginning of period $6.05
------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10
Net realized and unrealized loss on investments (0.08)
------------------------------------------------------------------------------
Total from investment operations 0.02
------------------------------------------------------------------------------
Less distributions from net investment income (0.10)
------------------------------------------------------------------------------
Net asset value, end of period $5.97
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 0.30%
Net assets, end of period (in millions) $ 2
Ratio of expenses to
average net assets 1.91%(2)
Ratio of net investment
income to average net assets 4.93%(2)
Portfolio turnover rate 34.12%(2)
==============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
------------------------------------------------------------------------------
BOND FUND
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
9/9/99(1) TO
12/31/99
CLASS C PER-SHARE DATA
Net asset value, beginning of period $6.05
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10
Net realized and unrealized loss on investments (0.09)
-------------------------------------------------------------------------------
Total from investment operations 0.01
-------------------------------------------------------------------------------
Less distributions from net investment income (0.10)
-------------------------------------------------------------------------------
Net asset value, end of period $5.96
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 0.13%
Net assets, end of period (in thousands) $289
Ratio of expenses to average net assets 1.98%(2)
Ratio of net investment income to average net assets 4.87%(2)
Portfolio turnover rate 34.12%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
------------------------------------------------------------------------------
BOND FUND
For a Class Y share outstanding throughout each period:
FOR THE FISCAL YEAR FOR THE
ENDED DECEMBER 31, PERIOD FROM
------------------------------------------- 6/19/95(1) TO
1999 1998 1997 1996 12/31/95
CLASS Y PER-SHARE DATA
-------------------------------------------------------------------------------
Net asset value,
beginning of period $6.39 $6.32 $6.14 $6.34 $6.11
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.40 0.39 0.42 0.40 0.21
Net realized and
unrealized
gain (loss)
on investments (0.45) 0.07 0.17 (0.20) 0.22
-------------------------------------------------------------------------------
Total from investment
operations (0.05) 0.46 0.59 0.20 0.43
-------------------------------------------------------------------------------
Less distributions
from net
investment income (0.37) (0.39) (0.41) (0.40) (0.20)
-------------------------------------------------------------------------------
Net asset value,
end of period $5.97 $6.39 $6.32 $6.14 $6.34
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return -0.81% 7.54% 9.91% 3.35% 7.20%
Net assets,
end of period
(in millions) $2 $6 $5 $12 $3
Ratio of expenses
to average net
assets 0.69% 0.61% 0.64% 0.62% 0.63%(2)
Ratio of net
investment
income to
average net
assets 6.00% 6.10% 6.48% 6.52% 6.41%(2)
Portfolio
turnover rate 34.12% 33.87% 35.08% 55.74% 66.38%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal
year ended March 31, 2000, is included in the Fund's SAI, which is available
upon request.
For a Class A share outstanding throughout each period(1):
FOR THE FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
CLASS A PER-SHARE DATA
Net asset value,
beginning of
period $5.43 $5.46 $5.19 $5.32 $5.13
-------------------------------------------------------------------------------
Income from
investment
operations:
Net investment
income 0.31 0.32 0.33 0.33 0.34
Net realized
and unrealized
gain (loss)
on investments (0.21) (0.03) 0.27 (0.13) 0.19
-------------------------------------------------------------------------------
Total from investment
operations 0.10 0.29 0.60 0.20 0.53
-------------------------------------------------------------------------------
Less dividends
declared from
net investment
income (0.31) (0.32) (0.33) (0.33) (0.34)
-------------------------------------------------------------------------------
Net asset value
end of period $5.22 $5.43 $5.46 $5.19 $5.32
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 1.82% 5.44% 11.84% 3.75% 10.48%
Net assets,
end of
period
(in millions) $117 $134 $131 $129 $146
Ratio of
expenses
to average
net assets 1.12% 0.96% 0.89% 0.91% 0.83%
Ratio of net
investment income
to average
net assets 5.77% 5.82% 6.14% 6.17% 6.34%
Portfolio
turnover rate 26.78% 37.06% 35.18% 34.18% 63.05%
===============================================================================
(1) ON JULY 31, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
<PAGE>
------------------------------------------------------------------------------
GOVERNMENT SECURITIES FUND
For a Class B share outstanding throughout the period:
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
Net asset value, beginning of period $5.25
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13
Net realized and unrealized loss on investments (0.03)
-------------------------------------------------------------------------------
Total from investment operations 0.10
-------------------------------------------------------------------------------
Less dividends declared from net investment income (0.13)
-------------------------------------------------------------------------------
Net asset value, end of period $5.22
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 1.88%
Net assets, end of period (in thousands) $599
Ratio of expenses to average net assets 1.85%(2)
Ratio of net investment income to average net assets 5.19%(2)
Portfolio turnover rate 26.78%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
GOVERNMENT SECURITIES FUND
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
10/8/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
Net asset value, beginning of period $5.23
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized loss on investments (0.01)
-----------------------------------------------------------------------------
Total from investment operations 0.11
-----------------------------------------------------------------------------
Less dividends declared from net investment income (0.12)
-----------------------------------------------------------------------------
Net asset value, end of period $5.22
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 2.08%
Net assets,
end of period (in thousands) $269
Ratio of expenses to
average net assets 2.07%(2)
Ratio of net investment
income to average net assets 4.98%(2)
Portfolio turnover rate 26.78%(2)
=============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
GOVERNMENT SECURITIES FUND
For a Class Y share outstanding throughout each period:
FOR THE FISCAL YEAR FOR THE
ENDED MARCH 31, PERIOD FROM
------------------------------------------------------------ 9/27/95(1) TO
2000 1999 1998 1997 3/31/96
CLASS Y PER-SHARE DATA
Net asset value
beginning of
period $5.43 $5.46 $5.19 $5.32 $5.33
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income 0.33 0.33 0.34 0.34 0.17
Net realized and
unrealized
gain (loss)
on investments (0.21) (0.03) 0.27 (0.13) (0.01)
-------------------------------------------------------------------------------
Total from investment
operations 0.12 0.30 0.61 0.21 0.16
-------------------------------------------------------------------------------
Less dividends declared
from net
investment income (0.33) (0.33) (0.34) (0.34) (0.17)
-------------------------------------------------------------------------------
Net asset value,
end of period $5.22 $5.43 $5.46 $5.19 $5.32
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 2.20% 5.71% 12.02% 3.99% 3.04%
Net assets,
end of period
(in millions) $2 $2 $2 $1 $1
Ratio of expenses to
average net assets 0.75% 0.68% 0.66% 0.67% 0.60%(2)
Ratio of net investment
income to average
net assets 6.15% 6.10% 6.37% 6.41% 6.40%(2)
Portfolio turnover
rate 26.78% 37.06% 35.18% 34.18% 63.05%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
HIGH INCOME FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal
year ended March 31, 2000, is included in the Fund's SAI, which is available
upon request.
For a Class A share outstanding throughout each period(1):
FOR THE FISCAL YEAR ENDED MARCH 31,
---------------------------------------------------
2000 1999 1998 1997 1996
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $9.39 $10.04 $9.25 $9.09 $8.70
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.78 0.81 0.82 0.80 0.79
Net realized and
unrealized gain (loss)
on investments (0.84) (0.66) 0.79 0.16 0.40
-------------------------------------------------------------------------------
Total from investment
operations (0.06) 0.15 1.61 0.96 1.19
-------------------------------------------------------------------------------
Less dividends from net
investment income (0.79) (0.80) (0.82) (0.80) (0.80)
-------------------------------------------------------------------------------
Net asset value,
end of period $8.54 $9.39 $10.04 $9.25 $9.09
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) -0.65% 1.70% 18.03% 10.94% 14.16%
Net assets,
end of
period (in millions) $826 $1,009 $1,102 $983 $972
Ratio of expenses
to average net assets 1.04% 0.94% 0.84% 0.89% 0.85%
Ratio of net investment
income to
average
net assets 8.65% 8.44% 8.38% 8.68% 8.74%
Portfolio turnover rate 41.55% 53.19% 63.40% 53.17% 41.67%
===============================================================================
(1) ON JULY 31, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
<PAGE>
HIGH INCOME FUND
For a Class B share outstanding throughout the period:
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
Net asset value, beginning of period $8.84
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36
Net realized and unrealized loss on investments (0.30)
----------------------------------------------------------------------------
Total from investment operations 0.06
----------------------------------------------------------------------------
Less dividends from net investment income (0.36)
----------------------------------------------------------------------------
Net asset value, end of period $8.54
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 0.61%
Net assets,
end of period (in millions) $3
Ratio of expenses
to average net assets 1.96%(2)
Ratio of net
investment income to average net assets 7.79%(2)
Portfolio
turnover rate 41.55%(2)
============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
HIGH INCOME FUND
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
10/4/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
Net asset value, beginning of period $8.84
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.36
Net realized and unrealized loss on investments (0.30)
----------------------------------------------------------------------------
Total from investment operations 0.06
----------------------------------------------------------------------------
Less dividends from net investment income (0.36)
----------------------------------------------------------------------------
Net asset value, end of period $8.54
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 0.65%
Net assets,
end of period (in thousands) $404
Ratio of expenses
to average net assets 1.91%(2)
Ratio of net
investment income to average net assets 7.88%(2)
Portfolio
turnover rate 41.55%(2)
============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
HIGH INCOME FUND
For a Class Y share outstanding throughout each period:
FOR THE
FOR THE FISCAL YEAR ENDED MARCH 31, PERIOD FROM
-------------------------------------- 1/4/96(1) TO
2000 1999 1998 1997 3/31/96
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $9.39 $10.04 $9.25 $9.10 $9.19
-------------------------------------------------------------------------------
Income from
investment operations:
Net investment income 0.81 0.83 0.82 0.81 0.20
Net realized and
unrealized
gain (loss)
on investments (0.84) (0.66) 0.79 0.15 (0.10)
-------------------------------------------------------------------------------
Total from
investment
operations (0.03) 0.17 1.61 0.96 0.10
-------------------------------------------------------------------------------
Less dividends from
net investment income (0.82) (0.82) (0.82) (0.81) (0.19)
-------------------------------------------------------------------------------
Net asset value,
end of period $8.54 $9.39 $10.04 $9.25 $9.10
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return -0.39% 1.90% 18.13% 11.07% 1.00%
Net
assets, end of
period (in millions) $2 $2 $3 $3 $2
Ratio of expenses to
average net assets 0.79% 0.74% 0.77% 0.77% 0.80%(2)
Ratio of net
investment income to
average net assets 8.91% 8.62% 8.46% 8.78% 8.55%(2)
Portfolio turnover rate 41.55% 53.19% 63.40% 53.17% 41.67%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
HIGH INCOME FUND II
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
FOR THE FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
SIX MONTHS ----------------------------------------
ENDED 3/31/00 1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $3.88 $4.12 $4.42 $4.14 $4.03 $3.96
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.17 0.35 0.37 0.36 0.35 0.35
Net realized and
unrealized gain
(loss)
on investments (0.13) (0.24) (0.30) 0.28 0.11 0.07
-------------------------------------------------------------------------------
Total from investment
operations 0.04 0.11 0.07 0.64 0.46 0.42
-------------------------------------------------------------------------------
Less dividends declared
from net investment
income (0.17) (0.35) (0.37) (0.36) (0.35) (0.35)
-------------------------------------------------------------------------------
Net asset value,
end of
period $3.75 $3.88 $4.12 $4.42 $4.14 $4.03
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 0.94% 2.66% 1.22% 16.20% 11.90% 11.25%
Net assets, end of
period (in millions) $328 $371 $416 $407 $368 $368
Ratio of expenses
to average net assets 1.17%(3) 1.06% 0.96% 0.93% 0.95% 0.89%
Ratio of net investment
income to average
net assets 8.70%(3) 8.60% 8.26% 8.54% 8.60% 8.93%
Portfolio turnover rate 27.31% 46.17% 58.85% 64.38% 55.64% 26.82%
===============================================================================
(1) ON JANUARY 12, 1996, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A
SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD DEDUCTED
ON AN INITIAL PURCHASE.
(3) ANNUALIZED.
<PAGE>
HIGH INCOME FUND II
For a Class B share outstanding throughout the period:
FOR THE
PERIOD FROM
10/6/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
Net asset value, beginning of period $3.88
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.13)
-------------------------------------------------------------------------------
Total from investment operations 0.02
-------------------------------------------------------------------------------
Less dividends declared from net investment income (0.15)
-------------------------------------------------------------------------------
Net asset value, end of period $3.75
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 0.31%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 2.06%(2)
Ratio of net investment income to average net assets 7.77%(2)
Portfolio turnover rate 27.31%(3)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
<PAGE>
HIGH INCOME FUND II
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
10/6/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
Net asset value, beginning of period $3.88
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.13)
---------------------------------------------------------------------------
Total from investment operations 0.02
---------------------------------------------------------------------------
Less dividends declared from net investment income (0.15)
---------------------------------------------------------------------------
Net asset value, end of period $3.75
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 0.28%
Net assets, end of period (in thousands) $195
Ratio of expenses to average net assets 2.11%(2)
Ratio of net investment income to average net assets 7.73%(2)
Portfolio turnover rate 27.31%(3)
============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
<PAGE>
-------------------------------------------------------------------------------
HIGH INCOME FUND II
For a Class Y share outstanding throughout each period:
FOR THE FISCAL YEAR FOR THE
FOR THE ENDED SEPTEMBER 30, PERIOD FROM
SIX MONTHS ------------------------- 2/27/96(1) TO
ENDED 3/31/00 1999 1998 1997 9/30/96
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $3.88 $4.12 $4.42 $4.14 $4.15
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.36 0.37 0.37 0.21
Net realized and
unrealized gain (loss)
on investments (0.13) (0.24) (0.30) 0.28 (0.01)
-------------------------------------------------------------------------------
Total from investment
operations 0.05 0.12 0.07 0.65 0.20
-------------------------------------------------------------------------------
Less dividends declared
from net investment
income (0.18) (0.36) (0.37) (0.37) (0.21)
-------------------------------------------------------------------------------
Net asset value,
end of period $3.75 $3.88 $4.12 $4.42 $4.14
CLASS Y RATIOS/SUPPLEMENT DATA
Total return 1.10% 2.95% 1.38% 16.38% 5.00%
Net assets, end of
period (in millions) $3 $3 $2 $2 $2
Ratio of expenses to
average net assets 0.84%(2) 0.77% 0.79% 0.77% 0.77%(2)
Ratio of net investment income to
average net assets 8.98%(2) 8.89% 8.43% 8.69% 8.83%(2)
Portfolio turnover rate 27.31% 46.17% 58.85% 64.38% 55.64%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL BOND FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED SEPTEMBER30,
ENDED ---------------------------------------
3/31/00
1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $6.90 $7.63 $7.47 $7.32 $7.25 $6.91
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.18 0.36 0.37 0.38 0.39 0.39
Net realized and unrealized
gain (loss) on investments (0.13) (0.61) 0.25 0.30 0.12 0.38
-------------------------------------------------------------------------------
Total from investment
operations 0.05 (0.25) 0.62 0.68 0.51 0.77
-------------------------------------------------------------------------------
Less distributions:
From net investment
income (0.18) (0.37) (0.37) (0.37) (0.39) (0.39)
From capital gains (0.03) (0.11) (0.09) (0.16) (0.05) (0.00)
In excess of
capital gains (0.04) (0.00) (0.00) (0.00) (0.00) (0.04)
-------------------------------------------------------------------------------
Total distributions (0.25) (0.48) (0.46) (0.53) (0.44) (0.43)
-------------------------------------------------------------------------------
Net asset value, end of
period $6.70 $6.90 $7.63 $7.47 $7.32 $7.25
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(2) 0.83% -3.46% 8.67% 9.77% 7.16% 11.51%
Net assets, end of period
(in millions) $774 $874 $997 $994 $997 $975
Ratio of expenses to average
net assets 0.90%(3) 0.79% 0.72% 0.67% 0.68% 0.65%
Ratio of net investment
income to average
net assets 5.30%(3) 4.98% 4.95% 5.14% 5.23% 5.51%
Portfolio turnover
rate 9.41% 30.93% 50.65% 47.24% 74.97% 70.67%
===============================================================================
(1) ON JANUARY 21, 1996, FUND SHARES OUTSTANDING WERE DESIGNATED
CLASS A SHARES.
(2) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD
DEDUCTED ON AN INITIAL PURCHASE.
(3) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL BOND FUND
For a Class B share outstanding throughout the period:
FOR THE
PERIOD FROM
10/5/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
Net asset value, beginning of period $6.87
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.10)
-------------------------------------------------------------------------------
Total from investment operations 0.05
-------------------------------------------------------------------------------
Less distributions:
From net investment income (0.15)
From capital gains (0.03)
In excess of capital gains (0.04)
-------------------------------------------------------------------------------
Total distributions (0.22)
-------------------------------------------------------------------------------
Net asset value, end of period $6.70
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 0.78%
Net assets, end of period (in thousands) $421
Ratio of expenses to average net assets 1.88%(2)
Ratio of net investment income to average net assets 4.34%(2)
Portfolio turnover rate 9.41%(3)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL BOND FUND
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
10/7/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
Net asset value, beginning of period $6.87
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15
Net realized and unrealized loss on investments (0.10)
-------------------------------------------------------------------------------
Total from investment operations 0.05
-------------------------------------------------------------------------------
Less distributions:
From net investment income (0.15)
From capital gains (0.03)
In excess of capital gains (0.04)
-------------------------------------------------------------------------------
Total distributions (0.22)
-------------------------------------------------------------------------------
Net asset value, end of period $6.70
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 0.78%
Net assets, end of period (in thousands) $202
Ratio of expenses to average net assets 1.92%(2)
Ratio of net investment income to average net assets 4.30%(2)
Portfolio turnover rate 9.41%(3)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL BOND FUND
For a Class Y share outstanding throughout each period:
FOR THE FOR THE
SIX MONTHS PERIOD FROM
ENDED 12/30/98(1) TO
3/31/00 9/30/99
CLASS Y PER-SHARE DATA
Net asset value, beginning of period $6.90 $7.41
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.28
Net realized and unrealized
loss on investments (0.14) (0.51)
-------------------------------------------------------------------------------
Total from investment operations 0.05 (0.23)
-------------------------------------------------------------------------------
Less distributions:
From net investment income (0.18) (0.28)
From capital gains (0.03) (0.00)
In excess of capital gains (0.04) (0.00)
-------------------------------------------------------------------------------
Total distributions (0.25) (0.28)
-------------------------------------------------------------------------------
Net asset value, end of period $6.70 $6.90
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return 0.84% -3.21%
Net assets, end of period (in thousands) $7,954 $2
Ratio of expenses to average net assets 0.74%(2) 0.67%(2)
Ratio of net investment
income to average net assets 5.47%(2) 5.08%(2)
Portfolio turnover rate 9.41% 30.93%(3)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
(3) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended September 30, 1999 and the six months ended March 31, 2000, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
ENDED ---------------------------------------
3/31/00
1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $5.19 $5.69 $5.55 $5.31 $5.27 $5.12
-------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.15 0.31 0.32 0.34 0.34 0.35
Net realized and
Unrealized gain
(loss) on investments (0.25) (0.37) 0.21 0.25 0.04 0.17
-------------------------------------------------------------------------------
Total from investment
operations (0.10) (0.06) 0.53 0.59 0.38 0.52
-------------------------------------------------------------------------------
Less distributions:
Declared from net
investment income (0.15) (0.31) (0.32) (0.34) (0.34) (0.35)
From capital gains (0.00)(2) (0.13) (0.07) (0.01) (0.00) (0.00)
In excess of
capital gains (0.00)(2) (0.00) (0.00) (0.00) (0.00) (0.02)
-------------------------------------------------------------------------------
Total distributions (0.15) (0.44) (0.39) (0.35) (0.34) (0.37)
-------------------------------------------------------------------------------
Net asset value, end of
period $4.94 $5.19 $5.69 $5.55 $5.31 $5.27
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return(3) -1.82% -1.22% 9.88% 11.45% 7.40% 10.63%
Net assets, end of
period (in millions) $437 $510 $522 $474 $400 $383
Ratio of expenses to
average net assets 0.95%(4) 0.87% 0.82% 0.78% 0.81% 0.76%
Ratio of net investment
income to average
net assets 6.03%(4) 5.59% 5.72% 6.19% 6.41% 6.75%
Portfolio turnover rate 10.60% 26.83% 35.16% 19.47% 26.91% 19.07%
===============================================================================
(1) ON JANUARY 30, 1996, FUND SHARES OUTSTANDING WERE DESIGNATED
CLASS A SHARES.
(2) NOT SHOWN DUE TO ROUNDING.
(3) TOTAL RETURN CALCULATED WITHOUT TAKING INTO ACCOUNT THE SALES LOAD
DEDUCTED ON AN INITIAL PURCHASE.
(4) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
For a class B share outstanding throughout the period:
FOR THE
PERIOD FROM
10/5/99(1) TO
3/31/00
CLASS B PER-SHARE DATA
Net asset value, beginning of period $5.16
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized loss on investments (0.22)
-------------------------------------------------------------------------------
Total from investment operations (0.10)
-------------------------------------------------------------------------------
Less distributions:
Declared from net investment income (0.12)
From capital gains (0.00)(2)
In excess of capital gains (0.00)(2)
-------------------------------------------------------------------------------
Total distributions (0.12)
-------------------------------------------------------------------------------
Net asset value, end of period $4.94
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return -1.88%
Net assets, end of period (in millions) $1
Ratio of expenses to average net assets 1.96%(3)
Ratio of net investment income to average net assets 5.10%(3)
Portfolio turnover rate 10.60%(4)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT SHOWN DUE TO ROUNDING.
(3) ANNUALIZED.
(4) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
10/8/99(1) TO
3/31/00
CLASS C PER-SHARE DATA
Net asset value, beginning of period $5.16
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.12
Net realized and unrealized loss on investments (0.22)
-------------------------------------------------------------------------------
Total from investment operations (0.10)
-------------------------------------------------------------------------------
Less distributions:
Declared from net investment income (0.12)
From capital gains (0.00)(2)
In excess of capital gains (0.00)(2)
-------------------------------------------------------------------------------
Total distributions (0.12)
-------------------------------------------------------------------------------
Net asset value, end of period $4.94
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return -1.91%
Net assets, end of period (in thousands) $331
Ratio of expenses to average net assets 1.87%(3)
Ratio of net investment income to average net assets 5.16%(3)
Portfolio turnover rate 10.60%(4)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) NOT SHOWN DUE TO ROUNDING.
(3) ANNUALIZED.
(4) FOR THE SIX MONTHS ENDED MARCH 31, 2000.
<PAGE>
-------------------------------------------------------------------------------
MUNICIPAL HIGH INCOME FUND
For a Class Y share outstanding throughout each period:
FOR THE FOR THE FOR THE
SIX MONTHS PERIOD FROM PERIOD FROM
ENDED 12/30/98(1)TO 7/1/98(1) TO
3/31/00 9/30/99 8/25/98
CLASS Y PER-SHARE DATA
Net asset value,
beginning of period $5.19 $5.65 $5.64
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.15 0.24 0.05
Net realized and unrealized
gain(loss) on investments (0.25) (0.33) 0.01
-------------------------------------------------------------------------------
Total from investment operations (0.10) (0.09) 0.06
-------------------------------------------------------------------------------
Less distributions:
Declared from net investment income (0.15) (0.24) (0.05)
From capital gains (0.00)(2) (0.13) (0.00)
In excess of capital gains (0.00)(2) (0.00) (0.00)
-------------------------------------------------------------------------------
Total distributions (0.15) (0.37) (0.05)
-------------------------------------------------------------------------------
Net asset value, end of period $4.94 $5.19 $5.65
CLASS Y RATIOS/SUPPLEMENTAL DATA
Total return -1.60% -1.53% 1.07%
Net assets, end of
period (in thousands) $2 $2 $0
Ratio of expenses to
average net assets 0.94%(3) 0.80%(3) 0.61%(3)
Ratio of net investment income
to average net assets 5.94%(3) 5.68%(3) 5.99%(3)
Portfolio turnover rate 10.60% 26.83%(4) 35.16%(3)
===============================================================================
(1) CLASS Y SHARES COMMENCED OPERATIONS ON JULY 1, 1998 AND CONTINUED
OPERATIONS UNTIL AUGUST 25, 1998 WHEN ALL OUTSTANDING CLASS Y SHARES WERE
REDEEMED AT THE ENDING NET ASSET VALUE SHOWN IN THE TABLE. OPERATIONS
RECOMMENCED ON DECEMBER 30, 1998.
(2) NOT SHOWN DUE TO ROUNDING.
(3) ANNUALIZED.
(4) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
<PAGE>
-------------------------------------------------------------------------------
CASH MANAGEMENT
This information has been audited by Deloitte & Touche LLP, whose independent
auditors' reports, along with the Fund's financial statements for the fiscal
year ended June 30, 1999 and the six months ended December 31, 1999, are
included in the Fund's SAI, which is available upon request.
For a Class A share outstanding throughout each period(1):
FOR THE
SIX MONTHS FOR THE FISCAL YEAR ENDED JUNE 30,
ENDED --------------------------------------
12/31/99 1999 1998 1997 1996 1995
CLASS A PER-SHARE DATA
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
Net investment income 0.0241 0.0455 0.0484 0.0472 0.0487 0.0465
Less dividends declared (0.0241) (0.0455) (0.0484) (0.0472) (0.0487) (0.0465)
-------------------------------------------------------------------------------
Net asset value, end of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
CLASS A RATIOS/SUPPLEMENTAL DATA
Total return 2.47% 4.67% 4.93% 4.80% 5.01% 4.74%
Net assets, end of
period (in millions) $800 $667 $533 $514 $402 $369
Ratio of expenses to
average net assets 0.83%(2) 0.83% 0.89% 0.87% 0.91% 0.97%
Ratio of net investment
income to average
net assets 4.72%(2) 4.54% 4.84% 4.70% 4.89% 4.68%
===============================================================================
(1) ON SEPTEMBER 5, 1995, FUND SHARES OUTSTANDING WERE DESIGNATED CLASS A
SHARES.
(2) ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
CASH MANAGEMENT
For a Class B share outstanding throughout the period:
FOR THE
PERIOD FROM
9/9/99(1) to
12/31/99
CLASS B PER-SHARE DATA
Net asset value, beginning of period $1.00
-------------------------------------------------------------------------------
Net investment income 0.0120
Less dividends declared (0.0120)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00
CLASS B RATIOS/SUPPLEMENTAL DATA
Total return 1.21%
Net assets, end of period (in millions) $3
Ratio of expenses to average net assets 1.65%(2)
Ratio of net investment income to average net assets 4.25%(2)
===============================================================================
(1)COMMENCEMENT OF OPERATIONS.
(2)ANNUALIZED.
<PAGE>
-------------------------------------------------------------------------------
CASH MANAGEMENT
For a Class C share outstanding throughout the period:
FOR THE
PERIOD FROM
9/9/99(1) to
12/31/99
CLASS C PER-SHARE DATA
Net asset value, beginning of period $1.00
-------------------------------------------------------------------------------
Net investment income 0.0119
Less dividends declared (0.0119)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00
CLASS C RATIOS/SUPPLEMENTAL DATA
Total return 1.20%
Net assets, end of period (in thousands) $160
Ratio of expenses to average net assets 1.81%(2)
Ratio of net investment income to average net assets 4.13%(2)
===============================================================================
(1) COMMENCEMENT OF OPERATIONS.
(2) ANNUALIZED.
<PAGE>
This space is intended for your notes and calculations.
<PAGE>
This space is intended for your notes and calculations.
<PAGE>
This space is intended for your notes and calculations.
<PAGE>
This space is intended for your notes and calculations.
<PAGE>
This space is intended for your notes and calculations.
<PAGE>
===============================================================================
WADDELL & REED ADVISORS FUNDS
CUSTODIAN
UMB Bank, n.a. 928
Grand Boulevard
Kansas City, Missouri 64141
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N. W.
Washington, D. C.
20036
INDEPENDENT AUDITORS
Deloitte & Touche LLP
1010 Grand Boulevard
Kansas City, Missouri
64106-2232
INVESTMENT MANAGER
Waddell & Reed Investment Management Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
UNDERWRITER
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
SHAREHOLDER SERVICING AGENT
Waddell & Reed Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217 913-236-2000
888-WADDELL
ACCOUNTING SERVICES AGENT
Waddell & Reed Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
<PAGE>
-------------------------------------------------------------------------------
WADDELL & REED ADVISORS FUNDS
You can get more information about each Fund in its --
- STATEMENT OF ADDITIONAL INFORMATION (SAI), which contains detailed
information about the Fund, particularly the investment policies and
practices. You may not be aware of important information about the Fund
unless you read both the Prospectus and the SAI. The current SAI is on file
with the Securities and Exchange Commission (SEC) and it is incorporated
into this Prospectus by reference (that is, the SAI is legally part of the
Prospectus).
- ANNUAL AND SEMIANNUAL REPORTS TO SHAREHOLDERS, which detail the Fund's
actual investments and include financial statements as of the close of
the particular annual or semiannual period. The annual report also contains
a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the year covered by
the report.
To request a copy of a Fund's current SAI or copies of its most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the
Fund or Waddell & Reed, Inc. at the address and telephone number below. Copies
of the SAI, Annual and/or Semiannual reports may also be requested via e-mail
at [email protected].
Information about each Fund (including the current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and may also be obtained, after paying a duplicating fee, by
electronic request at [email protected] or from the SEC's Public Reference
Room in Washington, D.C. You can find out about the operation of the Public
Reference Room and applicable copying charges by calling 202-942-8090.
The Funds' SEC file numbers are as follows:
Waddell & Reed Advisors Funds, Inc. Bond Fund: 811-2552
Waddell & Reed Advisors Cash Management, Inc.: 811-2922
Waddell & Reed Advisors Government Securities Fund, Inc.: 811-3458
Waddell & Reed Advisors High Income Fund, Inc.: 811-2907
Waddell & Reed Advisors High Income Fund II, Inc.: 811-4520
Waddell & Reed Advisors Municipal Bond Fund, Inc.: 811-2657
Waddell & Reed Advisors Municipal High Income Fund, Inc.: 811-4427
[LOGO] WADDELL & REED
FINANCIAL SERVICES-Registered Trademark-
-------------------------
INVESTING. WITH A PLAN-SM-.
Waddell & Reed, Inc.
6300 Lamar Avenue,
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
June 30, 2000
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the
prospectus ("Prospectus") for Waddell & Reed Advisors Government Securities
Fund, Inc. (the "Fund"), formerly, United Government Securities Fund, Inc.,
dated June 30, 2000, 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 Strategies, Policies and Practices....... 5
Investment Management and Other Services ........... 29
Purchase, Redemption and Pricing of Shares ......... 34
Directors and Officers ............................. 51
Payments to Shareholders ........................... 57
Taxes .............................................. 58
Portfolio Transactions and Brokerage ............... 61
Other Information .................................. 63
Financial Statements ............................... 65
<PAGE>
Waddell & Reed Advisors Government Securities Fund, Inc. is a mutual
fund; an investment that pools shareholders' money and invests it toward a
specified goal. In technical terms, the Fund is an open-end, diversified
management company organized as a Maryland corporation on March 26, 1982.
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
Total return is the overall change in the value of an investment over
a given period of time. An average annual total return quotation is
computed by finding the average annual compounded rates of return over the
one-, five-, and ten-year periods that would equate the initial amount
invested to the ending redeemable value. Standardized total return
information is calculated by assuming an initial $1,000 investment and, for
Class A shares, deducting the maximum sales load of 4.25%. All dividends
and distributions are assumed to be reinvested in shares of the applicable
class at net asset value for the class as of the day the dividend or
distribution is paid. No sales load is charged on reinvested dividends or
distributions on Class A shares. The formula used to calculate the total
return for a particular class of the Fund is
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for
the periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares
without deduction of the sales load in which case the same formula noted
above will be used but the entire amount of the $1,000 initial payment will
be assumed to have been invested. If the sales charge applicable to Class
A shares were reflected, it would reduce the performance quoted for that
class.
The average annual total return quotations for Class A shares as of
March 31, 2000, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
With Without
Sales Load Sales Load
Deducted Deducted
One-year period from April 1, 1999 to
March 31, 2000: -2.51% 1.82%
Five-year period from April 1, 1995 to
March 31, 2000: 5.68% 6.60%
Ten-year period from April 1, 1990 to
March 31, 2000: 7.13% 7.59%
Prior to July 31, 1995, the Fund offered only one class of shares to
the public. Shares outstanding on that date were designated as Class A
shares. Since that date, Class Y shares of the Fund have been available to
certain institutional investors.
The cumulative total return quotation for Class B shares with the
maximum deferred sales charge deducted as of March 31, 2000, which is the
most recent balance sheet included in this SAI, for the period since class
inception on October 4, 1999 to March 31, 2000 was 3.09%.
The cumulative total return quotation for Class B shares without the
maximum deferred sales charge deducted as of March 31, 2000, which is the
most recent balance sheet included in this SAI, for the period since class
inception on October 4, 1999 to March 31, 2000 was 1.88%.
The cumulative total return quotation for Class C shares with the
maximum deferred sales charge deducted as of March 31, 2000, which is the
most recent balance sheet included in this SAI, for the period since class
inception on October 4, 1999 to March 31, 2000 was 1.08%.
The cumulative total return quotation for Class C shares without the
maximum deferred sales charge deducted as of March 31, 2000, which is the
most recent balance sheet included in this SAI, for the period since class
inception on October 4, 1999 to March 31, 2000 was 2.08%.
The average annual total return quotations for Class Y shares as of
March 31, 2000, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
One year period from April 1, 1999 to
March 31, 2000 2.20%
Period from September 27, 1995* to
March 31, 2000: 5.93%
*Date of inception.
The Fund may also quote unaveraged or cumulative total return for a
class which reflects the change in value of an investment in that class
over a stated period of time. Cumulative total returns will be calculated
according to the formula indicated above but without averaging the rate for
the number of years in the period.
Yield
Yield refers to the income generated by an investment in the Fund over
a given period of time. A yield quoted for a class of the Fund is computed
by dividing the net investment income per share of that class earned during
the period for which the yield is shown by the maximum offering price per
share of that class on the last day of that period according to the
following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of the Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class outstanding
during the period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the
last day of the period.
The yield for Class A shares of the Fund computed according to the
formula for the 30-day period ended on March 31, 2000, the date of the most
recent balance sheet included in this SAI, is 5.59%. The yield for Class B
shares of the Fund computed according to the formula for the 30-day period
ended on March 31, 2000, the date of the most recent balance sheet included
in this SAI, is 5.49%. The yield for Class C shares of the Fund computed
according to the formula for the 30-day period ended on March 31, 2000, the
date of the most recent balance sheet included in this SAI, is 5.28%. The
yield for Class Y shares of the Fund computed according to the formula for
the 30-day period ended on March 31, 1999, the date of the most recent
balance sheet included in this SAI, is 6.29%.
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 of the applicable class.
Performance Rankings and Other Information
Waddell & Reed, Inc., or the Fund, also may, from time to time,
publish in advertisements and sales material performance rankings as
published by recognized independent mutual fund statistical services such
as Lipper Analytical Services, Inc., or by publications of general interest
such as Forbes, Money, The Wall Street Journal, Business Week, Barron's,
Fortune or Morningstar Mutual Fund Values. Each class of the Fund may also
compare its performance to that of other selected mutual funds or selected
recognized market indicators such as the Standard & Poor's 500 Composite
Stock Price Index and the Dow Jones Industrial Average. Performance
information may be quoted numerically or presented in a table, graph or
other illustration. In connection with a ranking, the Fund may provide
additional information, such as the particular category to which it
related, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
Performance information for the Fund may be accompanied by information
about market conditions and other factors that affected the Fund's
performance for the period(s) shown.
All performance information that the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of the Fund's shares when redeemed may
be more or less than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and
policies the Fund's investment manager, Waddell & Reed Investment
Management Company ("WRIMCO"), may employ and the types of instruments in
which the Fund may invest, in pursuit of the Fund's goal. A summary of the
risks associated with these instrument types and investment practices is
included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by the Fund's
investment policies and restrictions. WRIMCO buys an instrument or uses a
technique only if it believes that doing so will help the Fund achieve its
goal. See "Investment Restrictions" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of
the Fund.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") are high quality debt
instruments issued or guaranteed as to principal or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
securities include Treasury Bills (which mature within one year of the date
they are issued), Treasury Notes (which have maturities of one to ten
years) and Treasury Bonds (which generally have maturities of more than 10
years). All such Treasury securities are backed by the full faith and
credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing
Administration, Fannie Mae (also known as the Federal National Mortgage
Association), Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage
Association ("Ginnie Mae"), General Services Administration, Central Bank
for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation ("Freddie Mac"), Farm Credit Banks, Maritime Administration,
the Tennessee Valley Authority, the Resolution Funding Corporation and the
Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of
the United States. Some, such as securities issued by the Federal Home
Loan Banks, are backed by the right of the agency or instrumentality to
borrow from the Treasury. Others, such as securities issued by Fannie Mae,
are supported only by the credit of the instrumentality and by a pool of
mortgage assets. If the securities are not backed by the full faith and
credit of the United States, the owner of the securities must look
principally to the agency issuing the obligation for repayment and may not
be able to assert a claim against the United States in the event that the
agency or instrumentality does not meet its commitment. The Fund will
invest in securities of agencies and instrumentalities only if WRIMCO is
satisfied that the credit risk involved is acceptable.
Among the U.S. Government securities that the Fund may purchase are
"mortgage-backed securities" issued by U.S. Government agencies or
instrumentalities including, but not limited to, Ginnie Mae, Freddie Mac
and Fannie Mae. These mortgage-backed securities include pass-through
securities, participation certificates and collateralized mortgage
obligations. See "Mortgage-Backed and Asset-Backed Securities." Timely
payment of principal and interest on Ginnie Mae pass-throughs is guaranteed
by the full faith and credit of the United States. Freddie Mac and Fannie
Mae are both instrumentalities of the U.S. Government, but their
obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this paragraph could be adversely
affected by actions of the U.S. Government to tighten the availability of
its credit.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments
that present minimal credit risk. They may include U.S. Government
securities, commercial paper and other short-term corporate obligations,
and certificates of deposit and other financial institution obligations.
These instruments may carry fixed or variable interest rates.
Mortgage-Backed and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent
direct or indirect participations in, or are secured by and payable from,
mortgage loans secured by real property and include single- and multi-class
pass-through securities and collateralized mortgage obligations. Multi-
class pass-through securities and collateralized mortgage obligations are
collectively referred to in this SAI as "CMOs." Some CMOs are directly
supported by other CMOs, which in turn are supported by mortgage pools.
Investors typically receive payments out of the interest and principal on
the underlying mortgages. The portions of the payments that investors
receive, as well as the priority of their rights to receive payments, are
determined by the specific terms of the CMO class.
The U.S. Government mortgage-backed securities in which the Fund may
invest include mortgage-backed securities issued or guaranteed as to the
payment of principal and interest (but not as to market value) by Ginnie
Mae, Fannie Mae, or Freddie Mac. Other mortgage-backed securities are
issued by private issuers, generally originators of and investors in
mortgage loans, including savings associations, mortgage bankers,
commercial banks, investment bankers and special purpose entities.
Payments of principal and interest (but not the market value) of such
private mortgage-backed securities may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or
indirectly, by the U.S. Government or one of its agencies or
instrumentalities, or they may be issued without any government guarantee
of the underlying mortgage assets but with some form of non-government
credit enhancement. These credit enhancements do not protect investors
from changes in market value.
Other types of mortgage-backed securities will likely be developed in
the future, and the Fund may invest in them if WRIMCO determines they are
consistent with the Fund's goal and investment policies.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities are created when a U.S. Government agency or a financial
institution separates the interest and principal components of a mortgage-
backed security and sells them as individual securities. The holder of the
"principal-only" security ("PO") receives the principal payments made by
the underlying mortgage-backed security, while the holder of the "interest-
only" security ("IO") receives interest payments from the same underlying
security.
For example, interest-only ("IO") classes are entitled to receive all
or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage
assets underlying an IO experience greater than anticipated principal
prepayments, then the total amount of interest allocable to the IO class,
and therefore the yield to investors, generally will be reduced. In some
instances, an investor in an IO may fail to recoup all of the investor's
initial investment, even if the security is guaranteed by the U.S.
Government or considered to be of the highest quality. Conversely,
principal-only ("PO") classes are entitled to receive all or a portion of
the principal payments, but none of the interest, from the underlying
mortgage assets. PO classes are purchased at substantial discounts from
par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets are not first lien mortgage loans or
interests therein, but include assets such as motor vehicle installment
sales contracts, other installment sale contracts, home equity loans,
leases of various types of real and personal property and receivables from
revolving credit (credit card) agreements. Such assets are securitized
through the use of trusts or special purpose corporations. Payments or
distributions of principal and interest may be guaranteed up to a certain
amount and for a certain time period by a letter of credit or pool
insurance policy issued by a financial institution unaffiliated with the
issuer, or other credit enhancements may be present. The value of asset-
backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed
Securities. The yield characteristics of mortgage-backed and asset-backed
securities differ from those of traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other obligations generally may be
prepaid at any time. Prepayments on a pool of mortgage loans are
influenced by a variety of economic, geographic, social and other factors,
including changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate
mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Similar factors apply
to prepayments on asset-backed securities, but the receivables underlying
asset-backed securities generally are of a shorter maturity and thus are
likely to experience substantial prepayments. Such securities, however,
often provide that for a specified time period the issuers will replace
receivables in the pool that are repaid with comparable obligations. If the
issuer is unable to do so, repayment of principal on the asset-backed
securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to
the annual fees paid to the servicer of the mortgage pool for passing
through monthly payments to certificateholders and to any guarantor, and
due to any yield retained by the issuer. Actual yield to the holder may
vary from the coupon rate, even if adjustable, if the mortgage-backed
securities are purchased or traded in the secondary market at a premium or
discount. In addition, there is normally some delay between the time the
issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay
reduces the effective yield to the holder of such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and
the associated average life assumption. The average life of pass-through
pools varies with the maturities of the underlying mortgage loans. A
pool's term may be shortened by unscheduled or early payments of principal
on the underlying mortgages. Because prepayment rates of individual pools
vary widely, it is not possible to predict accurately the average life of a
particular pool. In the past, a common industry practice has been to
assume that prepayments on pools of fixed-rate 30-year mortgages would
result in a 12-year average life for the pool. At present, mortgage pools,
particularly those with loans with other maturities or different
characteristics, are priced on an assumption of average life determined for
each pool. In periods of declining interest rates, the rate of prepayment
tends to increase, thereby shortening the actual average life of a pool of
mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Changes in the rate or "speed" of these
payments can cause the value of the mortgage backed securities to fluctuate
rapidly. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates
or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in
a manner that provides any of a wide variety of investment characteristics,
such as yield, effective maturity and interest rate sensitivity. As market
conditions change, however, and especially during periods of rapid or
unanticipated changes in market interest rates, the attractiveness of some
CMO classes and the ability of the structure to provide the anticipated
investment characteristics may be reduced. These changes can result in
volatility in the market value and in some instances reduced liquidity, of
the CMO class.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and may
carry rights that permit holders to demand payment of the unpaid principal
balance plus accrued interest from the issuers or certain financial
intermediaries on dates prior to their stated maturities. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate while variable rate instruments provide for a
specified periodic adjustment in the interest rate. These formulas are
designed to result in a market value for the instrument that approximates
its par value.
Bank Deposits
The Fund may 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
are treated as illiquid investments unless such obligations are payable at
principal amount plus accrued interest on demand or within seven days after
demand. See "Illiquid Investments."
Lending Securities
Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. If the Fund lends securities,
the borrower pays the Fund an amount equal to the dividends or interest on
the securities that the Fund would have received if it had not lent the
securities. The Fund also receives additional compensation. Under the
Fund's current securities lending procedures, the Fund may lend securities
only to broker-dealers and financial institutions deemed creditworthy by
WRIMCO.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). At
the time of each loan, the Fund must receive collateral equal to no less
than 100% of the market value of the securities loaned. Under the present
Guidelines, the collateral must consist of cash, U.S. Government securities
or bank letters of credit, at least equal in value to the market value of
the securities lent on each day the loan is outstanding. If the market
value of the lent securities exceeds the value of the collateral, the
borrower must add more collateral so that it at least equals the market
value of the securities lent. If the market value of the securities
decreases, the borrower is entitled to return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method
is available for all three types of collateral. The second method, which
is not available when letters of credit are used as collateral, is for the
Fund to receive interest on the investment of the cash collateral or to
receive interest on the U.S. Government securities used as collateral.
Part of the interest received in either case may be shared with the
borrower.
The letters of credit that the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities),
entered into at the request of the borrower and for its account and risk,
under which the banks are obligated to pay to the Fund, while the letter is
in effect, amounts demanded by the Fund if the demand meets the terms of
the letter. The Fund's right to make this demand secures the borrower's
obligations to it. The terms of any such letters and the creditworthiness
of the banks providing them (which might include the Fund's custodian bank)
must be satisfactory to the Fund. The Fund will make loans only under
rules of the New York Stock Exchange (the "NYSE") which presently require
the borrower to give the securities back to the Fund within five business
days after the Fund gives notice to do so. If the Fund loses its voting
rights on securities loaned, it will have the securities returned to it in
time to vote them if a material event affecting the investment is to be
voted on. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with loans of securities.
Some, but not all, of these rules are necessary to meet requirements
of certain laws relating to securities loans. These rules will not be
changed unless the change is permitted under these requirements. These
requirements do not cover the present rules, which may be changed without
shareholder vote, as to (i) whom securities may be loaned, (ii) the
investment of cash collateral, or (iii) voting rights.
There may be risks of delay in receiving additional collateral from
the borrower if the market value of the securities loaned 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 that will cause more
than 10% of its net assets to be invested in illiquid investments, which
include repurchase agreements not terminable within seven days. See
"Illiquid Investments." A repurchase agreement is an instrument under
which the Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will
repurchase the security at a specified time and price. The amount by which
the resale price is greater than the purchase price reflects an agreed-upon
market interest rate effective for the period of the agreement. The return
on the securities subject to the repurchase agreement may be more or less
than the return on the repurchase agreement.
The majority of the repurchase agreements in which the Fund will
engage are overnight transactions, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The primary
risk is that the Fund may suffer a loss if the seller fails to pay the
agreed-upon amount on the delivery date and that amount is greater than the
resale price of the underlying securities and other collateral held by the
Fund. In the event of bankruptcy or other default by the seller, there may
be possible delays and expenses in liquidating the underlying securities or
other collateral, decline in their value and loss of interest. The return
on such collateral may be more or less than that from the repurchase
agreement. The Fund's repurchase agreements will be structured so as to
fully collateralize the loans. In other words, the value of the underlying
securities, which will be held by the Fund's custodian bank or by a third
party that qualifies as a custodian under Section 17(f) of the Investment
Company Act of 1940, as amended (the "1940 Act"), is and, during the entire
term of the agreement, will remain at least equal to the value of the loan,
including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO.
When-Issued and Delayed-Delivery Transactions
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. In
either case payment and delivery for the securities take place at a future
date. The U.S. Government securities so purchased by the Fund are subject
to market fluctuation; their value may be less or more when delivered than
the purchase price paid or received. When purchasing securities on a when
issued or delayed-delivery basis, the Fund assumes the rights and risks of
ownership, including the risk of price and yield fluctuations. 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, it will record the transaction and thereafter reflect the
value of the securities in determining its net asset value per share. When
the Fund sells a security on a delayed-delivery basis, the Fund does not
participate in further gains or losses with respect to the security. When
the Fund makes a commitment to sell securities on a delayed-delivery basis,
it will record the transaction and thereafter value the securities at the
sales price in determining the Fund's net asset value per share. If the
other party to a delayed-delivery transaction fails to deliver or pay for
the securities, the Fund could miss a favorable price or yield opportunity,
or could suffer a loss.
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 WRIMCO decided it was advisable to do so
for investment reasons. The Fund will hold aside or segregate cash or
liquid assets, 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 may, however, be
sold at or before the settlement date to pay the purchase price of the
when-issued or delayed-delivery securities.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities
generally can be sold in privately negotiated transactions, pursuant to an
exemption from registration under the Securities Act of 1933, as amended,
or in a registered public offering. Where registration is required, the
Fund may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent the Fund from reselling
the securities at a time when such sale would be desirable. Restricted
securities in which the Fund seeks to invest need not be listed or admitted
to trading on a foreign or domestic exchange and may be less liquid than
listed securities. Certain restricted securities, e.g., Rule 144A
securities, may be determined to be liquid in accordance with guidelines
adopted by the Board of Directors. See "Illiquid Investments."
Illiquid Investments
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Investments currently
considered to be illiquid include:
(i) repurchase agreements not terminable within seven days;
(ii) restricted securities not determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors;
(iii) securities for which market quotations are not readily available;
(iv) Insured Deposits, unless they are payable at principal amount
plus accrued interest on demand or within seven days after
demand;
(v) securities involved in swap, cap, floor and collar transactions;
(vi) non-government stripped fixed-rate mortgage-backed securities and
(vii) over-the-counter ("OTC") options and their underlying collateral.
The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers
who agree that the Fund may repurchase any OTC option it writes at a
maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure
would be considered illiquid only to the extent that the maximum repurchase
price under the formula exceeds the intrinsic value of the option.
If through a change in values, net assets, or other circumstances, the
Fund were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Indexed Securities
Indexed securities are securities the value of which varies in
relation to the value of other securities, securities indices or other
financial indicators. The Fund may invest in indexed securities only if
they are issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (subject to its operating policy regarding derivative
instruments).
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security to
which they are indexed and may also be influenced by interest rate changes
in the United States. At the same time, indexed securities are subject to
the credit risks associated with the issuer of the security and their
values may decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may be more volatile than the underlying
investments. Certain indexed securities that are not traded on an
established market may be deemed illiquid.
Options, Futures and Other Strategies
General. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), swaps, caps, floors, collars, indexed securities
and other derivative instruments (collectively, "Financial Instruments") to
attempt to enhance income or yield or to attempt to hedge the Fund's
investments. The strategies described below may be used in an attempt to
manage risks of the Fund's investments that can affect fluctuation in its
net asset value.
Generally, the Fund may purchase and sell any type of derivative
instrument (including, without limitation, futures contracts, options,
forward contracts, swaps, caps, floors, collars and indexed securities)
("Financial Instruments"). However, the Fund will only purchase or sell a
particular Financial Instrument if the return on, or value of, the
Financial Instrument is based on the return on, or value of U.S. Government
securities.
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential declines in the
value of one or more investments held in the Fund's portfolio. Thus, in a
short hedge, the Fund takes a position in a Financial Instrument whose
price is expected to move in the opposite direction of the price of the
investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that the Fund intends to
acquire. Thus, in a long hedge, the Fund takes a position in a Financial
Instrument whose price is expected to move in the same direction as the
price of the prospective investment being hedged. A long hedge is
sometimes referred to as an anticipatory hedge. In an anticipatory hedge
transaction, the Fund does not own a corresponding security and, therefore,
the transaction does not relate to a security the Fund owns. Rather, it
relates to a security that the Fund intends to acquire. If the Fund does
not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the
transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities
positions that the Fund owns or intends to acquire. Financial Instruments
on indices, in contrast, generally are used to attempt to hedge against
price movements in market sectors in which the Fund has invested or expects
to invest. Financial Instruments on debt securities may be used to hedge
either individual securities or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations
of the Securities and Exchange Commission (the "SEC"), the several
exchanges upon which they are traded and the Commodity Futures Trading
Commission (the "CFTC"). In addition, the Fund's ability to use Financial
Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below,
WRIMCO expects to discover additional opportunities in connection with
Financial Instruments and other similar or related techniques. These new
opportunities may become available as WRIMCO develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as
new Financial Instruments or other techniques are developed. WRIMCO may
utilize these opportunities to the extent that they are consistent with the
Fund's goal and permitted by the Fund's investment limitations and
applicable regulatory authorities. The Fund might not use any of these
strategies, and there can be no assurance that any strategy used will
succeed. The Fund's Prospectus or SAI will be supplemented to the extent
that new products or techniques involve materially different risks than
those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In
general, these techniques may increase the volatility of the Fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. Risks pertaining to particular Financial Instruments are
described in the sections that follow.
(1) Successful use of most Financial Instruments depends upon
WRIMCO's ability to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy will succeed, and use of Financial Instruments
could result in a loss, regardless of whether the intent was to reduce risk
or increase return.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of
the investments being hedged. For example, if the value of a Financial
Instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which Financial Instruments are traded. The
effectiveness of hedges using Financial Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts
available will not match the Fund's current or anticipated investments
exactly. The Fund may invest in options and futures contracts based on
securities with different issuers, maturities, or other characteristics
from the securities in which it typically invests, which involves a risk
that the options or futures position will not track the performance of the
Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable
price movements. However, such strategies can also reduce opportunity for
gain by offsetting the positive effect of favorable price movements. For
example, if the Fund entered into a short hedge because WRIMCO projected a
decline in the price of a security in the Fund's portfolio, and the price
of that security increased instead, the gain from that increase might be
wholly or partially offset by a decline in the price of the Financial
Instrument. Moreover, if the price of the Financial Instrument declined by
more than the increase in the price of the security, the Fund could suffer
a loss. In either such case, the Fund would have been in a better position
had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in Financial Instruments involving obligations to third
parties (i.e., Financial Instruments other than purchased options). If the
Fund were unable to close out its positions in such Financial Instruments,
it might be required to continue to maintain such assets or accounts or
make such payments until the position expired or matured. These
requirements might impair the Fund's ability to sell a portfolio security
or make an investment at a time when it would otherwise be favorable to do
so, or require that the Fund sell a portfolio security at a disadvantageous
time.
(5) The Fund's ability to close out a position in a Financial
Instrument prior to expiration or maturity depends on the existence of a
liquid secondary market or, in the absence of such a market, the ability
and willingness of the other party to the transaction (the "counterparty")
to enter into a transaction closing out the position. Therefore, there is
no assurance that any position can be closed out at a time and price that
is favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will
comply with SEC guidelines regarding cover for these instruments and will,
if the guidelines so require, set aside cash or liquid assets in an account
with its custodian in the prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a
large portion of the Fund's assets to cover or to accounts could impede
portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
price during the option period. A put option gives the purchaser the right
to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon price during the option period. Purchasers of options pay an
amount, known as a premium, to the option writer in exchange for the right
under the option contract.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call
options can enable the Fund to enhance income or yield by reason of the
premiums paid by the purchasers of such options. However, if the market
price of the security underlying a put option declines to less than the
exercise price of the option, minus the premium received, the Fund would
expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value. If
the call option is an OTC option, the securities or other assets used as
cover would be considered illiquid to the extent described under "Illiquid
Investments."
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the
Fund will be obligated to purchase the security at more than its market
value. If the put option is an OTC option, the securities or other assets
used as cover would be considered illiquid to the extent described under
"Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of
the underlying investment, the historical price volatility of the
underlying investment and general market conditions. Options that expire
unexercised have no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing
purchase transaction. Conversely, the Fund may terminate a position in a
put or call option it had purchased by writing an identical put or call
option; this is known as a closing sale transaction. Closing transactions
permit the Fund to realize profits or limit losses on an option position
prior to its exercise or expiration.
A type of put that the Fund may purchase is an "optional delivery
standby commitment," which is entered into by parties selling debt
securities to the Fund. An optional delivery standby commitment gives the
Fund the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
Risks of Options on Securities. Options offer large amounts of
leverage, which will result in the Fund's net asset value being more
sensitive to changes in the value of the related instrument. The Fund may
purchase or write both exchange-traded and OTC options. Exchange-traded
options in the United States are issued by a clearing organization
affiliated with the exchange on which the option is listed that, in effect,
guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its counterparty
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases an OTC option, it relies on the
counterparty from whom it purchased the option to make or take delivery of
the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the
Fund as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating
directly with the counterparty, or by a transaction in the secondary market
if any such market exists. There can be no assurance that the Fund will in
fact be able to close out an OTC option position at a favorable price prior
to expiration. In the event of insolvency of the counterparty, the Fund
might be unable to close out an OTC option position at any time prior to
its expiration.
If the Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by the Fund could cause material losses because
the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in
cash and gain or loss depends on changes in the index in question rather
than on price movements in individual securities or futures contracts.
When the Fund writes a call on an index, it receives a premium and agrees
that, prior to the expiration date, the purchaser of the call, upon
exercise of the call, will receive from the Fund an amount of cash if the
closing level of the index upon which the call is based is greater than the
exercise price of the call. The amount of cash is equal to the difference
between the closing price of the index and the exercise price of the call
times a specified multiple ("multiplier"), which determines the total
dollar value for each point of such difference. When the Fund buys a call
on an index, it pays a premium and has the same rights as to such call as
are indicated above. When the Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the
seller of the put, upon the Fund's exercise of the put, to deliver to the
Fund an amount of cash if the closing level of the index upon which the put
is based is less than the exercise price of the put, which amount of cash
is determined by the multiplier, as described above for calls. When the
Fund writes a put on an index, it receives a premium and the purchaser of
the put has the right, prior to the expiration date, to require the Fund to
deliver to it an amount of cash equal to the difference between the closing
level of the index and the exercise price times the multiplier if the
closing level is less than the exercise price.
Risks of Options on Indices. The risks of investment in options on
indices may be greater than options on securities. Because index options
are settled in cash, when the Fund writes a call on an index it cannot
provide in advance for its potential settlement obligations by acquiring
and holding the underlying securities. The Fund can offset some of the
risk of writing a call index option by holding a diversified portfolio of
securities similar to those on which the underlying index is based.
However, the Fund cannot, as a practical matter, acquire and hold a
portfolio containing exactly the same securities as underlie the index and,
as a result, bears a risk that the value of the securities held will vary
from the value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully
covered from a risk standpoint because of the "timing risk" inherent in
writing index options. When an index option is exercised, the amount of
cash that the holder is entitled to receive is determined by the difference
between the exercise price and the closing index level on the date when the
option is exercised. As with other kinds of options, the Fund as the call
writer will not learn that the Fund has been assigned until the next
business day at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as
of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the
writer of an index call holds securities that exactly match the composition
of the underlying index, it will not be able to satisfy its assignment
obligations by delivering those securities against payment of the exercise
price. Instead, it will be required to pay cash in an amount based on the
closing index value on the exercise date. By the time it learns that it
has been assigned, the index may have declined, with a corresponding
decline in the value of its portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk
exposure by holding securities positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change
causes the exercised option to fall out-of-the-money, the Fund will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the
assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size
and strike price, the terms of OTC options (options not traded on
exchanges) generally are established through negotiation with the other
party to the option contract. While this type of arrangement allows the
Fund great flexibility to tailor the option to its needs, OTC options
generally involve greater risk than exchange-traded options, which are
guaranteed by the clearing organization of the exchanges where they are
traded. The Fund will not enter into any such transactions unless it owns
either (1) an offsetting ("covered") position in securities or other
options or futures contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient to cover its potential obligations to
the extent not covered as provided in (1) above.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on such futures can serve as a long hedge, and the
sale of futures or the purchase of put options on such futures can serve as
a short hedge. Writing call options on futures contracts can serve as a
limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on
futures contracts can serve as a limited long hedge. Futures contracts and
options on futures contracts can also be purchased and sold to attempt to
enhance income or yield.
In addition, futures strategies can be used to manage the average
duration of the Fund's fixed-income portfolio. If WRIMCO wishes to shorten
the average duration of the Fund's fixed-income portfolio, the Fund may
sell a debt futures contract or a call option thereon, or purchase a put
option on that futures contract. If WRIMCO wishes to lengthen the average
duration of the Fund's fixed-income portfolio, the Fund may buy a debt
futures contract or a call option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at
the inception of a futures contract the Fund is required to deposit
"initial margin" in an amount generally equal to 10% or less of the
contract value. Margin must also be deposited when writing a call or put
option on a futures contract, in accordance with applicable exchange rules.
Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high
volatility, the Fund may be required by an exchange to increase the level
of its initial margin payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking-to-market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's obligations to or
from a futures broker. When the Fund purchases an option on a future, the
premium paid plus transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or writes a call or put
option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Fund has
insufficient cash to meet daily variation margin requirements, it might
need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions
on options, by selling or purchasing, respectively, an instrument identical
to the instrument purchased or sold. Positions in futures and options on
futures may be closed only on an exchange or board of trade that provides a
secondary market. However, there can be no assurance that a liquid
secondary market will exist for a particular contract at a particular time.
In such event, it may not be possible to close a futures contract or
options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once
that limit is reached, no trades may be made that day at a price beyond the
limit. Daily price limits do not limit potential losses because prices
could move to the daily limit for several consecutive days with little or
no trading, thereby preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option
on a futures position due to the absence of a liquid secondary market or
the imposition of price limits, it could incur substantial losses. The
Fund would continue to be subject to market risk with respect to the
position. In addition, except in the case of purchased options, the Fund
would continue to be required to make daily variation margin payments and
might be required to maintain the position being hedged by the futures
contract or option or to maintain cash or liquid assets in an account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on
futures market), due to differences in the nature of those markets, are
subject to the following factors, which may create distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close 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 rate trends by WRIMCO may still not result in a successful
transaction. WRIMCO may be incorrect in its expectations as to the extent
of various interest rate movements or the time span within which the
movements take place.
Index Futures. The risk of imperfect correlation between movements in
the price of an index futures and movements in the price of the securities
that are the subject of the hedge increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable
index. The price of the index futures may move more than or less than the
price of the securities being hedged. If the price of the index futures
moves less than the price of the securities that are the subject of the
hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction,
this advantage will be partially offset by the futures contract. If the
price of the futures contract moves more than the price of the securities,
the Fund will experience either a loss or a gain on the futures contract
that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of the securities being
hedged and movements in the price of the index futures, the Fund may buy or
sell index futures in a greater dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the prices of such
securities being hedged is more than the historical volatility of the
prices of the securities included in the index. It is also possible that,
where the Fund has sold index futures contracts to hedge against decline in
the market, the market may advance and the value of the securities held in
the portfolio may decline. If this occurred, the Fund would lose money on
the futures contract and also experience a decline in value of its
portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio of securities will tend to move in the same direction as the
market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before the Fund is able to invest in them in an
orderly fashion, it is possible that the market may decline instead. If
the Fund then concludes not to invest in them at that time because of
concern as to possible further market decline or for other reasons, it will
realize a loss on the futures contract that is not offset by a reduction in
the price of the securities it had anticipated purchasing.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures contracts, to
adjust the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult
to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or
puts written by the Fund, and the sale or purchase of futures contracts,
may cause it to sell or purchase related investments, thus increasing its
turnover rate. Once the Fund has received an exercise notice on an option
it has written, it cannot effect a closing transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price. The exercise of puts
purchased by the Fund may also cause the sale of related investments, also
increasing turnover; although such exercise is within the Fund's control,
holding a protective put might cause it to sell the related investments for
reasons that would not exist in the absence of the put. The Fund will pay
a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Floors and Collars. The Fund may enter into swaps, caps,
floors and collars to preserve a return or a spread on a particular
investment or portion of its portfolio, to protect against any increase in
the price of securities the Fund anticipates purchasing at a later date or
to attempt to enhance yield. Swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive cash flows
on a notional principal amount, e.g., an exchange of floating rate payments
for fixed-rate payments. The purchase of a cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling the cap.
The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar
combines elements of buying a cap and selling a floor.
Swap agreements, including caps, floors and collars, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their
structure, swap agreements may increase or decrease the overall volatility
of the Fund's investments and its share price and yield because, and to the
extent, these agreements affect the Fund's exposure to long- or short-term
interest rates, mortgage-backed security values, corporate borrowing rates,
or other factors such as security prices or inflation rates.
Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. Caps and floors have an effect similar
to buying or writing options.
The creditworthiness of firms with which the Fund enters into swaps,
caps or floors will be monitored by WRIMCO. If a firm's creditworthiness
declines, the value of the agreement would be likely to decline,
potentially resulting in losses. If a default occurs by the other party to
such transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap will be accrued on a daily basis
and an amount of cash or liquid assets having an aggregate net asset value
at least equal to the accrued excess will be maintained in an account with
the Fund's custodian that satisfies the requirements of the 1940 Act. The
Fund will also establish and maintain such account with respect to its
total obligations under any swaps that are not entered into on a net basis
and with respect to any caps or floors that are written by the Fund.
WRIMCO and the Fund believe that such obligations do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Fund's borrowing restrictions. The Fund understands
that the position of the SEC is that assets involved in swap transactions
are illiquid and are, therefore, subject to the limitations on investing in
illiquid securities.
Investment Restrictions and Limitations
Certain of the Fund's investment restrictions and other limitations
are described in this SAI. The following are the Fund's fundamental
investment limitations set forth in their entirety, which, like the Fund's
goal and the types of securities in which the Fund may invest, cannot be
changed without shareholder approval. For this purpose, shareholder
approval means the approval, at a meeting of Fund shareholders, by the
lesser of (1) the holders of 67% or more of the Fund's shares represented
at the meeting, if more than 50% of the Fund's outstanding shares are
present in person or by proxy or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(i) Purchase or sell any securities or physical commodities other
than U.S. Government securities; however, this policy shall not
prevent the Fund from purchasing and selling (a) foreign currency
if a U.S. Government Security that the Fund owns or intends to
acquire is denominated in that foreign currency and (b) futures
contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments if the return on, or
value of, the financial instrument is based on the return on or
value of U.S. Government securities;
(ii) Buy any voting securities, any mineral related programs or leases
or any shares of other investment companies;
(iii) Buy real estate nor any nonliquid interest in real estate
investment trusts; however, the Fund may buy obligations or
instruments which it may otherwise buy even though the issuer
invests in real estate or interests in real estate;
(iv) Make loans other than certain limited types of loans as indicated
above; the Fund can buy debt securities and other obligations
consistent with its goal and other investment policies and
restrictions; it can also lend its portfolio securities to the
extent allowed, and in accordance with the requirements, under
the 1940 Act and enter into repurchase agreements except as
indicated above (see "Repurchase Agreements" above);
(v) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vi) Sell securities short (unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold
short) or purchase securities on margin, except that (1) this
policy does not prevent the Fund from entering into short
positions in foreign currency, futures contracts, options,
forward contracts, swaps, caps, floors, collars and other
financial instruments, (2) the Fund may obtain such short-term
credits as are necessary for the clearance of transactions, and
(3) the Fund may make margin payments in connection with futures
contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments;
(vii) Engage in the underwriting of securities, that is, the selling of
securities for others;
(viii) 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 total assets. The Fund will not
purchase securities while outstanding borrowings are more than 5%
of the value of its total assets. Interest on borrowing would
reduce the Fund's income; or
(ix) Issue senior securities.
The following investment restriction is not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) The Fund may not purchase a security if, as a result,
more than 10% of its net assets would consist of illiquid
securities.
(ii) To the extent that the Fund enters into futures contracts,
options on futures contracts or options on foreign currencies
traded on a CFTC-regulated exchange, in each case other than
for bona fide hedging purposes (as defined by the CFTC), the
aggregate initial margin and premiums required to establish
those positions (excluding the amount by which options are
"in-the-money" at the time of purchase) will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking
into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. (In general, a call
option on a futures contract is "in-the-money" if the value of
the underlying futures contract exceeds the strike, i.e.,
exercise, price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying
futures contract is exceeded by the strike price of the put.)
This policy does not limit to 5% the percentage of the Fund's
assets that are at risk in futures contracts, options on
futures contracts and currency options.
An investment policy or limitation that states a maximum percentage of
the Fund's assets that may be so invested or describes quality standards is
typically applied immediately after, and based on, the Fund's acquisition
of an asset. Accordingly, a subsequent change in the asset's value, net
assets, or other circumstance will not be considered when determining
whether the investment complies with the Fund's investment policies and
limitations.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year
and dividing it by the monthly average of the market value of such
securities during the year, excluding certain short-term securities. The
Fund's turnover rate may vary greatly from year to year as well as within a
particular year and may be affected by cash requirements for the redemption
of its shares. The Fund's portfolio turnover rate for the fiscal years
ended March 31, 2000 and 1999 was 26.78% and 37.06%, respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to WRIMCO, a wholly owned subsidiary of Waddell
& Reed, Inc. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Fund and provide investment advice to the
Fund. The address of WRIMCO and Waddell & Reed. Inc. is 6300 Lamar Avenue,
P. O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc.
is the Fund's underwriter.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to
enter into a separate agreement for transfer agency services ("Shareholder
Servicing Agreement") and a separate agreement for accounting services
("Accounting Services Agreement") with the Fund. The Management Agreement
contains detailed provisions as to the matters to be considered by the
Fund's Board of Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, which is a wholly owned subsidiary of
Waddell & Reed Financial, Inc., a publicly held company. The address of
these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
Waddell & Reed, Inc. and its predecessors have served as investment
manager to each of the registered investment companies in the Waddell &
Reed Advisors Funds (formerly, the United Group of Mutual Funds) since 1940
or the company's inception date, whichever was later, and to Target/United
Funds, Inc. since that fund's inception, until January 8, 1992, when it
assigned its duties as investment manager for these funds (and the related
professional staff) to WRIMCO. WRIMCO has also served as investment
manager for W&R Funds, Inc. (formerly, Waddell & Reed Funds, Inc.) since
its inception in September 1992. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the Waddell & Reed Advisors
Funds and W&R Funds, Inc. and acts as principal underwriter and distributor
for variable life insurance and variable annuity policies for which
Target/United Funds, Inc. is the underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Fund and Waddell & Reed Services Company (the "Agent"), a subsidiary of
Waddell & Reed, Inc., the Agent performs shareholder servicing functions,
including the maintenance of shareholder accounts, the issuance, transfer
and redemption of shares, distribution of dividends and payment of
redemptions, the furnishing of related information to the Fund and handling
of shareholder inquiries. A new Shareholder Servicing Agreement, or
amendments to the existing one, may be approved by the Fund's Board of
Directors without shareholder approval.
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, preparation of prospectuses for existing
shareholders, preparation of proxy statements and certain shareholder
reports. A new Accounting Services Agreement, or amendments to an existing
one, may be approved by the Fund's Board of Directors without shareholder
approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Fund pays WRIMCO a fee as described in the Prospectus. The management fees
paid to WRIMCO during the fiscal years ended March 31, 2000, 1999 and 1998
were $617,688, $531,348 and $516,182, respectively.
For purposes of calculating the daily fee the Fund does not include
money owed to it by Waddell & Reed, Inc. for shares which it has sold but
not yet paid the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A,
Class B and Class C shares, the Fund pays the Agent a monthly fee of
$1.3125 for each shareholder account that was in existence at any time
during the prior month, plus $.30 for each account on which a dividend or
distribution, of cash or shares, had a record date in that month, and $.75
for each shareholder check it processes. For Class Y shares, the Fund pays
the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average
daily net assets of that class for the preceding month. The Fund also pays
certain out-of-pocket expenses of the Agent, including long distance
telephone communications costs; microfilm and storage costs for certain
documents; forms; printing and mailing costs; charges of any sub-agent used
by Agent in performing services under the Shareholder Servicing Agreement;
and costs of legal and special services not provided by Waddell & Reed,
Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended March 31, 2000, 1999
and 1998 were $40,000, $40,000 and $40,000, respectively.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO
and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Fund under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates pay the
Fund's Directors and officers who are affiliated with WRIMCO and its
affiliates. The Fund pays the fees and expenses of the Fund's other
Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting 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 Class A
shares for the fiscal years ended March 31, 2000, 1999 and 1998 were
$114,701, $502,515 and $292,989, respectively. The amounts retained by
Waddell & Reed, Inc. for each fiscal year were $(1,064), $207,377 and
$123,079, respectively.
As described in the Prospectus, Waddell & Reed, Inc. reallows to
selling broker-dealers a portion of the sales charge paid for purchases of
Class A shares. A major portion of the sales charge for Class A shares and
the contingent deferred sales charge ("CDSC") for Class B and Class C
shares and for certain Class A shares may be paid to financial advisors and
managers of Waddell & Reed, Inc. and selling broker-dealers. Waddell &
Reed, Inc. may compensate its financial advisors as to purchases for which
there is no sales or deferred sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Fund under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Under the Distribution and Service Plan (the "Plan") for Class A
shares adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, the
Fund may pay Waddell & Reed, Inc., the principal underwriter for the Fund,
a fee not to exceed 0.25% of the Fund's average annual net assets
attributable to Class A shares, paid monthly, to reimburse Waddell & Reed,
Inc. for its costs and expenses in connection with, either directly or
through others, the distribution of the Class A shares, the provision of
personal services to Class A shareholders and/or maintenance of Class A
shareholder accounts.
Waddell & Reed, Inc. offers the Fund's shares through its financial
advisors, registered representatives and sales managers (sales force) and
through other broker-dealers, banks and other appropriate intermediaries.
In distributing shares through its sales force, Waddell & Reed, Inc. will
pay commissions and incentives to the sales force at or about the time of
sale and will incur other expenses including costs for prospectuses, sales
literature, advertisements, sales office maintenance, processing of orders
and general overhead with respect to its efforts to distribute the Fund's
shares. The Class A Plan permits Waddell & Reed, Inc. to receive
reimbursement for these Class A-related distribution activities through the
distribution fee, subject to the limit contained in the Plan. The Class A
Plan also permits Waddell & Reed, Inc. to be reimbursed for amounts it
expends in compensating, training and supporting registered financial
advisors, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders of the Fund and/or maintaining
Class A shareholder accounts; increasing services provided to Class A
shareholders of the Fund by office personnel located at field sales
offices; engaging in other activities useful in providing personal service
to Class A shareholders of the Fund and/or maintenance of Class A
shareholder accounts; and in compensating broker-dealers who may regularly
sell Class A shares of the Fund, and other third parties, for providing
shareholder services and/or maintaining shareholder accounts with respect
to Class A shares. Fees paid (or accrued) as distribution and service fees
by the Fund under the Class A Plan for the fiscal year ended March 31, 2000
were $24,679 and $300,529, respectively. Class B - $481 and $1,502. Class
C - $166 and $491. To the extent that Waddell & Reed, Inc. incurs expenses
for which reimbursement may be made under the Plan that relate to
distribution and service activities also involving another fund in the
Waddell & Reed Advisors Funds or W&R Funds, Inc., Waddell & Reed, Inc.
typically determines the amount attributable to the Fund's expenses under
the Plan on the basis of a combination of the respective classes' relative
net assets and number of shareholder accounts.
Under the Plans adopted by the Fund for Class B and Class C shares,
respectively, the Fund may pay Waddell & Reed, Inc., on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate Waddell & Reed, Inc. for, either directly or through others,
providing personal services to shareholders of that class and/or
maintaining shareholder accounts for that class and a distribution fee of
up to 0.75% of the average daily net assets of the class to compensate
Waddell & Reed, Inc. for, either directly or through others, distributing
the shares of that class. The Class B Plan and the Class C Plan each
permit Waddell & Reed, Inc. to receive compensation, through the
distribution and service fee, respectively, for its distribution activities
for that class, which are similar to the distribution activities described
with respect to the Class A Plan, and for its activities in providing
personal services to shareholders of that class and/or maintaining
shareholder accounts of that class, which are similar to the corresponding
activities for which it is entitled to reimbursement under the Class A
Plan.
The only Directors or interested persons, as defined in the 1940 Act,
of the Fund who have a direct or indirect financial interest in the
operation of a Plan are the officers and Directors who are also officers of
either Waddell & Reed, Inc. or its affiliate(s) or who are shareholders of
Waddell & Reed Financial, Inc., the indirect parent company of Waddell &
Reed, Inc. Each Plan is anticipated to benefit the Fund and its
shareholders of the affected class through Waddell & Reed, Inc.'s
activities not only to distribute the shares of the affected class but also
to provide personal services to shareholders of that class and thereby
promote the maintenance of their accounts with the Fund. The Fund
anticipates that shareholders of a particular class may benefit to the
extent that Waddell & Reed's activities are successful in increasing the
assets of the Fund, through increased sales or reduced redemptions, or a
combination of these, and reducing a shareholder's share of Fund and class
expenses. Increased Fund assets may also provide greater resources with
which to pursue the goal of the Fund. Further, continuing sales of shares
may also reduce the likelihood that it will be necessary to liquidate
portfolio securities, in amounts or at times that may be disadvantageous to
the Fund, to meet redemption demands. In addition, the Fund anticipates
that the revenues from the Plan will provide Waddell & Reed, Inc. with
greater resources to make the financial commitments necessary to continue
to improve the quality and level of services to the Fund and the
shareholders. Each Plan was 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 Class A Plan was also approved by the affected shareholders of the
Fund.
Among other things, each Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding shares of the affected class of the Fund, and (iv) while
the Plan remains in effect, the selection and nomination of the Directors
who are Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, 928 Grand
Boulevard, Missouri. In general, the Custodian is responsible for holding
the Fund's cash and securities. Deloitte & Touche LLP, 1010 Grand
Boulevard, Kansas City, Missouri, the Fund's independent auditors, audits
the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value ("NAV") of each class of the shares of the Fund is
the value of the assets of that class, less the class's liabilities,
divided by the total number of outstanding shares of that class.
Class A shares of the Fund are sold at their next determined NAV plus
the sales charge described in the Prospectus. The sales charge is paid to
Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of March
31, 2000, which is the most recent balance sheet included in this SAI, was
as follows:
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $5.22
Add: selling commission (4.25% of offering
price) ................................... .23
-----
Maximum offering price per Class A share
(Class A NAV divided by ...........95.75%) $5.45
=====
The offering price of a Class A share is its NAV next calculated
following acceptance of a purchase order plus the sales charge. The
offering price of a Class B, Class C or a Class Y share is the NAV next
calculated following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. or an authorized third party receives and accepts your
order at its principal business office. You will be sent a 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 NAV and offering price per share are ordinarily computed once each
day that the NYSE is open for trading as of the later of the close of the
regular session of the NYSE or the close of the regular session of any
domestic securities or commodities exchange on which an option or futures
contract held by the Fund is traded. The NYSE annually announces the days
on which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
it is possible that the NYSE may close on other days. The NAV will change
every business day, since the value of the assets and the number of shares
outstanding change every business day.
The 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 value. 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
For Class A, Class B and Class C shares, initial investments must be
at least $500, with the exceptions described in this paragraph. A $100
minimum initial investment pertains to certain exchanges of shares from
another fund in the Waddell & Reed Advisors Funds or W&R Funds, Inc. A $50
minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the
time of initial investment, to make subsequent purchases for the account by
having regular monthly withdrawals of $25 or more made from a bank account.
A minimum initial investment of $25 is applicable to purchases made through
payroll deduction for or by employees of WRIMCO, Waddell & Reed, Inc.,
their affiliates, or certain retirement plan accounts. Except with respect
to certain exchanges and automatic withdrawals from a bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges
for Shares of Other Funds in the Waddell & Reed Advisors Funds and W&R
Funds, Inc."
For Class Y shares, investments by government entities or authorities
or by corporations must total at least $10 million within the first twelve
months after initial investment. There is no initial investment minimum
for other Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges.
The schedule of sales charges appears in the Prospectus. For the purpose
of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by
an individual or deemed to be made by an individual may be grouped with
purchases in any other of these categories:
1. Purchases by an individual for his or her own account (includes
purchases under the Waddell & Reed Advisors Funds Revocable Trust
Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes Waddell & Reed Advisors Funds Revocable Trust Form
of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or spouse
in a Uniform Transfers to Minors Act ("UTMA") or Uniform Gift to
Minors Act (_UGMA_) account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), salary reduction plan account
under Section 457 of the Code, provided that such purchases are
subject to a sales charge (see "Net Asset Value Purchases"), tax-
sheltered annuity account ("TSA") or Keogh plan account, provided that
the individual and spouse are the only participants in the Keogh plan;
and
7. Purchases by a trustee under a trust where that individual or his or
her spouse is the settlor (the person who establishes the trust).
For the foregoing categories, an individual's domestic partner is
treated as his or her spouse.
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has
an account in her own name; A's father has an account in his own
name; the UGMA account may be grouped with A's father's account
but may not be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made
in the trust account is eligible for grouping with an IRA account
of W, H's wife;
C. H's will provides for the establishment of a trust for the
benefit of his minor children upon H's death; his bank is named
as trustee; upon H's death, an account is established in the name
of the bank, as trustee; a purchase in the account may be grouped
with an account held by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son,
as successor trustee and R and S as beneficiaries; upon X's
death, the account is transferred to R as trustee; a purchase in
the account may not be grouped with R's individual account. If
X's spouse, Y, was successor trustee, this purchase could be
grouped with Y's individual account.
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under
the same plan; a multi-participant Keogh plan is defined as a plan in which
there is more than one participant where one or more of the participants is
other than the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made
under the plan with any purchases in categories 1 through 7
above.
Example B: H has established a Keogh plan; his wife, W, is a participant
and they have hired one or more employees who also become
participants in the plan; H and W may not combine any purchases
made under the plan with any purchases in categories 1 through
7 above; however, all purchases made under the plan for H, W or
any other employee will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A "qualified"
employee benefit plan is established pursuant to Section 401 of the Code.
All qualified employee benefit plans of any one employer or affiliated
employers will also be grouped. An affiliate is defined as an employer
that directly, or indirectly, controls or is controlled by or is under
control with another employer. All qualified employee benefit plans of an
employer who is a franchisor and those of its franchisee(s) may also be
grouped.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made
under both plans will be grouped.
All purchases of Class A shares made under a simplified employee
pension plan ("SEP"), payroll deduction plan or similar arrangement adopted
by an employer or affiliated employers (as defined above) may be grouped
provided that the employer elects to have all such purchases grouped at the
time the plan is set up. If the employer does not make such an election,
the purchases made by individual employees under the plan may be grouped
with the other accounts of the individual employees described above in
"Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for
grouping may be combined for purposes of determining the availability of a
reduced sales charge. In order for an eligible purchase to be grouped, the
investor must advise Waddell & Reed, Inc. at the time the purchase is made
that it is eligible for grouping and identify the accounts with which it
may be grouped.
Example: H and W open an account in the Fund and invest $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 of Class A shares 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 Class A shares are held in any account and an additional purchase
is made in that account or in any account eligible for grouping with that
account, the additional purchase is combined with the NAV of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc.
for the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a NAV of $100,000. His wife, W, now
wishes to invest $15,000 in Class A shares of 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 of
Class A shares 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(s) with which the purchase may be combined.
Letter of Intent
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under an Letter of Intent (_LOI_). By signing an
LOI form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount
which is sufficient to qualify for a reduced sales charge. The 13-month
period begins on the date the first purchase made under the LOI is accepted
by Waddell & Reed, Inc. Each purchase made from time to time under the LOI
is treated as if the purchaser were buying at one time the total amount
which he or she intends to invest. The sales charge applicable to all
purchases of Class A shares made under the terms of the LOI will be the
sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under an LOI, the investor's Rights of
Accumulation (see above) will be taken into account; that is, Class A
shares already held in the same account in which the purchase is being made
or in any account eligible for grouping with that account, as described
above, will be included.
Example: H signs an LOI indicating his intent to invest in his own name a
dollar amount sufficient to entitle him to purchase Class A
shares at the sales charge applicable to a purchase of $100,000.
H has an IRA account and the Class A shares held under the IRA in
the Fund have a NAV as of the date the LOI is accepted by Waddell
& Reed, Inc. of $15,000; H's wife, W, has an account in her own
name invested in another fund in the Waddell & Reed Advisors
Funds which charges the same sales load as the Fund, with a NAV
as of the date of acceptance of the LOI of $10,000; H needs to
invest $75,000 in Class A shares over the 13-month period in
order to qualify for the reduced sales load applicable to a
purchase of $100,000.
A copy of the LOI signed by a purchaser will be returned to the
purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-
month period in order to qualify for the reduced sales charge.
The minimum initial investment under an LOI is 5% of the dollar amount
which must be invested under the LOI. An amount equal to 5% of the
purchase required under the LOI will be held "in escrow." If a purchaser
does not, during the period covered by the LOI, invest the amount required
to qualify for the reduced sales charge under the terms of the LOI, he or
she will be responsible for payment of the sales charge applicable to the
amount actually invested. The additional sales charge owed on purchases of
Class A shares made under an LOI which is not completed will be collected
by redeeming part of the shares purchased under the LOI and held "in
escrow" unless the purchaser makes payment of this amount to Waddell &
Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the LOI, the lower sales charge will apply.
An LOI does not bind the purchaser to buy, or Waddell & Reed, Inc. to
sell, the shares covered by the LOI.
With respect to LOIs for $2,000,000 or purchases otherwise qualifying
for no sales charge under the terms of the LOI, the initial investment must
be at least $200,000, and the value of any shares redeemed during the 13-
month period which were acquired under the LOI will be deducted in
computing the aggregate purchases under the LOI.
Letters of Intent are not available for purchases made under a SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the Waddell & Reed Advisors Funds and W&R Funds, Inc.
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the Class A shares of any of the funds in the Waddell &
Reed Advisors Funds and the W&R Funds, Inc. subject to a sales charge. A
purchase of Class A shares, or Class A shares held, in any of the funds in
the Waddell & Reed Advisors Funds and/or W&R Funds, Inc. subject to a sales
charge will be treated as an investment in the Fund in determining the
applicable sales charge. For these purposes, Class A shares of Waddell &
Reed Advisors Cash Management, Inc. (formerly, United Cash Management,
Inc.) or W&R Funds, Inc. Money Market Fund that were acquired by exchange
of another Waddell & Reed Advisors Fund or W&R Funds, Inc. Class A shares
on which a sales charge was paid, plus the shares paid as dividends on
those acquired shares, are also taken into account.
Net Asset Value Purchases of Class A Shares
Class A shares of the Fund may be purchased at NAV by the Directors
and officers of the Fund or of any affiliated entity of Waddell & Reed,
Inc., employees of Waddell & Reed, Inc. or of any of its affiliates,
financial advisors of Waddell & Reed, Inc. and the spouse, children,
parents, children's spouses and spouse's parents of each such Director,
officer, employee and financial advisor. "Child" includes stepchild;
"parent" includes stepparent. Purchases of Class A shares in an IRA
sponsored by Waddell & Reed, Inc. established for any of these eligible
purchasers may also be at NAV. Purchases in any tax qualified retirement
plan under which the eligible purchaser is the sole participant may also be
made at NAV. Trusts under which the grantor and the trustee or a co-
trustee are each an eligible purchaser are also eligible for NAV purchases
of Class A shares. "Employees" includes retired employees. A retired
employee is an individual separated from service from Waddell & Reed, Inc.,
or from an affiliated company with a vested interest in any Employee
Benefit Plan sponsored by Waddell & Reed, Inc. or any of its affiliated
companies. "Employees" also includes individuals who, on November 6, 1998,
were employees (including retired employees) of a company that on that date
was an affiliate of Waddell & Reed, Inc. _Financial advisors" includes
retired financial advisors. A "retired financial advisor" is any financial
advisor who was, at the time of separation from service from Waddell &
Reed, Inc., a Senior Financial advisor. A custodian under UGMA or UTMA
purchasing for the child or grandchild of any employee or financial advisor
may purchase Class A shares at NAV whether or not the custodian himself is
an eligible purchaser.
Until March 31, 2001, Class A shares may also be purchased at NAV by
persons who are clients of Legend Equities Corporation (_Legend_) if the
purchase is made with the proceeds of the redemption of shares of a mutual
fund which is not within the Waddell & Reed Advisors Funds or W&R Funds,
Inc. and the purchase is made within 60 days of such redemption.
Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100
or more eligible employees may be made at NAV.
Shares may also be issued at NAV in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund is a
party.
Reasons for Difference in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of
instances in which the Fund's Class A shares are sold or issued on a basis
other than at the maximum public offering price, that is, the NAV plus the
highest sales charge. Some of these instances relate to lower or
eliminated sales charges for larger purchases of Class A shares, whether
made at one time or over a period of time as under an LOI or Rights of
accumulation. See the table of sales charges in the Prospectus. The
reasons for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are therefore
necessary to meet competition as to sales of shares of other funds having
such discounts, (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as is elimination of
sales charges on the reinvestment of dividends and 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.
In general, the reasons for the other instances in which there are
reduced or eliminated sales charges for Class A shares are as follows.
Exchanges at NAV are permitted because a sales charge has already been paid
on the shares exchanged. Sales of Class A shares without a sales charge
are permitted to Directors, officers and certain others due to reduced or
eliminated selling expenses and since such sales may aid in the development
of a sound employee organization, encourage responsibility and interest in
the Waddell & Reed Advisors Funds and an identification with its aims and
policies. Limited reinvestments of redemptions of Class A shares at no
sales charge are permitted to attempt to protect against mistaken or not
fully informed redemption decisions. Class A shares may be issued at no
sales charge in plans of reorganization due to reduced or eliminated sales
expenses and since, in some cases, such issuance is exempted in the 1940
Act from the otherwise applicable restrictions as to what sales charge must
be imposed. Reduced or eliminated sales charges may also be used for
certain short-term promotional activities by Waddell & Reed, Inc. In no
case in which there is a reduced or eliminated sales charge are the
interests of existing Class A shareholders adversely affected since, in
each case, the Fund receives the NAV per share of all shares sold or
issued.
Flexible Withdrawal Service for Class A, Class B and Class C Shareholders
If you qualify, you may arrange to receive through the Flexible
Withdrawal Service ("the Service") regular monthly, quarterly, semiannual
or annual payments by redeeming on an ongoing basis Class A, Class B or
Class C shares that you own of the Fund or of any of the funds in the
Waddell & Reed Advisors Funds or W&R Funds, Inc. It would be a
disadvantage to an investor to make additional purchases of Class A shares
while the Service is in effect because it would result in duplication of
sales charges. Class B and Class C shares and certain Class A shares to
which the CDSC otherwise applies that are redeemed under the Service are
not subject to a CDSC. Applicable forms to start the Service are available
through Waddell & Reed Services Company.
The maximum amount of the withdrawal for monthly, quarterly,
semiannual and annual withdrawals is 2%, 6%, 12% and 24% respectively of
the value of your account at the time the Service is established. The
withdrawal proceeds are not subject to the deferred sales charge, but only
within these percentage limitations. The minimum withdrawal is $50. The
Service, and this exclusion from the deferred sales charge, does not apply
to a one-time withdrawal.
To qualify for the Service, you must have invested at least $10,000 in
Class A, Class B or Class C shares which you still own of any of the funds
in the Waddell & Reed Advisors Funds or W&R Funds, Inc.; or, you must own
Class A, Class B or Class C shares having a value of at least $10,000. The
value for this purpose is the value at the current offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to one-
twelfth of a percentage of the value of the shares in the Account (you
select the percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five
shares).
Shares are redeemed on the 20th day of the month in which the payment
is to be made, or on the prior business day if the 20th is not a business
day. Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of the Service.
If you have a share certificate for the shares you want to make
available for the Service, you must enclose the certificate with the form
initiating the Service.
The dividends and distributions on shares of a class you have made
available for the Service are paid in additional shares of that class. All
payments under the Service are made by redeeming shares, which may involve
a gain or loss for tax purposes. To the extent that payments exceed
dividends and distributions, the number of shares you own will decrease.
When all of the shares in an account are redeemed, you will not receive any
further payments. Thus, the payments are not an annuity, an income or
return on your investment.
You may, at any time, change the manner in which you have chosen to
have shares redeemed. You can change to any one of the other choices
originally available to you. You may at any time, redeem part or all of
the shares in your account; if you redeem all of the shares, the Service is
terminated. The Fund can also terminate the Service by notifying you in
writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax
return.
Exchanges for Shares of Other Funds in the Waddell & Reed Advisors Funds
and W&R Funds, Inc.
Class A Share Exchanges
You may decide you would rather own Class A shares of one or more of
the other funds in the Waddell & Reed Advisors Funds or the W&R Funds, Inc.
rather than Class A shares of the Fund. You may exchange Class A shares of
the Fund if you have held the shares for at least six months unless the
exchange is for Class A shares of Waddell & Reed Advisors Municipal Bond
Fund, Inc. or Waddell & Reed Advisors Municipal High Income Fund, Inc.,
Waddell & Reed Advisors Cash Management, Inc., W&R Funds Municipal Bond
Fund, W&R Funds Limited-Term Bond Fund or W&R Funds Money Market Fund or
unless the Class A shares of the Fund were acquired by reinvestment of a
dividend or distribution, in which cases there is no holding period. The
shares you exchange must be worth at least $100 or you must already own
shares of the fund in which you are investing. You may exchange for Class
A 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.
Class A shares of the Fund may be received in exchange for Class A
shares of any of the other funds in the Waddell & Reed Advisors Funds,
except for shares of Waddell & Reed Advisors 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
Class A shares of Waddell & Reed Advisors Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any
other fund in the Waddell & Reed Advisors Funds, provided you already own
Class A shares of the fund. The shares of Waddell & Reed Advisors Cash
Management, Inc. which you designate for automatic exchange must be worth
at least $100, which may be allocated among the Class A or shares of
different funds in the Waddell & Reed Advisors Funds so long as each fund
receives a value of at least $25. Minimum initial investment and minimum
balance requirements apply to such automatic exchange service.
You may redeem your Class A shares of the Fund and use the proceeds to
purchase Class Y shares of the Fund if you meet the criteria for purchasing
Class Y shares.
Class B Share Exchanges
You may exchange Class B shares of the Fund for Class B shares of
other funds in the Waddell & Reed Advisors Funds and/or W&R Funds, Inc.
without charge.
The redemption of the Fund's Class B shares as part of an exchange is
not subject to the deferred sales charge. For purposes of computing the
deferred sales charge, if any, applicable to the redemption of the shares
acquired in the exchange, those acquired shares are treated as having been
purchased when the original redeemed shares were purchased.
You may have a specific dollar amount of Class B shares of Waddell &
Reed Advisors Cash Management, Inc. automatically exchanged each month into
Class B shares of the Fund or any other fund in the Waddell & Reed Advisors
Funds, provided you already own Class B shares of the fund. The shares of
Waddell & Reed Advisors Cash Management, Inc. which you designate for
automatic exchange must be worth at least $100, which may be allocated
among different funds so long as each fund receives a value of at least
$25. Minimum initial investment and minimum balance requirements apply to
such automatic exchange service.
Class C Share Exchanges
You may exchange Class C shares of the Fund for Class C shares of
other funds in the Waddell & Reed Advisors Funds and/or W&R Funds, Inc.
without charge.
The redemption of the Fund's Class C shares as part of an exchange is
not subject to the deferred sales charge. For purposes of computing the
deferred sales charge, if any, applicable to the redemption of the shares
acquired in the exchange, those acquired shares are treated as having been
purchased when the original redeemed shares were purchased.
You may have a specific dollar amount of Class C shares of Waddell &
Reed Advisors Cash Management, Inc. automatically exchanged each month into
Class C shares of the Fund or any other fund in the Waddell & Reed Advisors
Funds, provided you already own Class C shares of the fund. The shares of
Waddell & Reed Advisors Cash Management, Inc. which you designate for
automatic exchange must be worth at least $100, which may be allocated
among different funds so long as each fund receives a value of at least
$25. Minimum initial investment and minimum balance requirements apply to
such automatic exchange service.
Class Y Share Exchanges
Class Y shares of the Fund may be exchanged for Class Y shares of any
other fund in the Waddell & Reed Advisors Funds or for Class A shares of
Waddell & Reed Advisors Cash Management, Inc.
General Exchange Information
When you exchange shares, the total shares you receive will have the
same aggregate NAV as the total shares you exchange. The relative values
are those next figured after your exchange request is received in good
order.
These exchange rights and other exchange rights concerning the other
funds in the Waddell & Reed Advisors Funds and/or W&R Funds, Inc., can in
most instances, be eliminated or modified at any time and any such exchange
may not be accepted.
Retirement Plans
Your account may be set up as a funding vehicle for a retirement plan.
For individual taxpayers meeting certain requirements, Waddell & Reed, Inc.
offers model or prototype documents for the following retirement plans.
All of these plans involve investment in shares of the Fund (or shares of
certain other funds in the Waddell & Reed Advisors Funds or W&R Funds,
Inc.).
Individual Retirement Accounts (IRAs). Investors having earned income
may set up a plan that is commonly called an IRA. Under a traditional IRA,
an investor can contribute each year up to 100% of his or her earned
income, up to an annual maximum of $2,000 (provided the investor has not
reached the age 70 1/2). For a married couple, the annual maximum is
$4,000 ($2,000 for each spouse) or, if less, the couple's combined earned
income for the taxable year even if one spouse had no earned income.
Generally, the contributions are deductible unless the investor (or, if
married, either spouse) is an active participant in a qualified retirement
plan or if, notwithstanding that the investor or one or both spouses so
participate, their adjusted gross income does not exceed certain levels.
However, a married investor who is not an active participant, files jointly
with his or her spouse and whose combined adjusted gross income does not
exceed $150,000, is not affected by the spouse's active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution from an
employer's plan or (b) a rollover of an eligible distribution paid to the
investor from an employer's plan or another IRA. To the extent a rollover
contribution is made to a traditional IRA, the distribution will not be
subject to Federal income tax until distributed from the IRA. A direct
rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not
an IRA) other than certain periodic payments, required minimum
distributions and other specified distributions. In a direct rollover, the
eligible rollover distribution is paid directly to the IRA, not to the
investor. If, instead, an investor receives payment of an eligible
rollover distribution, all or a portion of that distribution generally may
be rolled over to an IRA within 60 days after receipt of the distribution.
Because mandatory Federal income tax withholding applies to any eligible
rollover distribution which is not paid in a direct rollover, investors
should consult their tax advisers or pension consultants as to the
applicable tax rules. If you already have an IRA, you may have the assets
in that IRA transferred directly to an IRA offered by Waddell & Reed, Inc.
Roth IRAs. Investors whose adjusted gross income (or combined
adjusted gross income, if married) does not exceed certain levels may
establish and contribute up to $2,000 per tax year to a Roth IRA (or to any
combination of Roth and traditional IRAs). In addition, for an investor
whose adjusted gross income does not exceed $100,000 (and who is not a
married person filing a separate return), certain distributions from
traditional IRAs may be rolled over to a Roth IRA and any of the investor's
traditional IRAs may be converted into a Roth IRA; these rollover
distributions and conversions are, however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not
subject to Federal income tax if the account has been held for at least
five years and the account holder has reached age 59 1/2 (or certain other
conditions apply).
Education IRAs. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education.
An Education IRA may be established for the benefit of any minor, and any
person whose adjusted gross income does not exceed certain levels may
contribute up to $500 to an Education IRA (or to each of multiple Education
IRAs), provided that no more than $500 may be contributed for any year to
Education IRAs for the same beneficiary. Contributions are not deductible
and may not be made after the beneficiary reaches age 18; however, earnings
accumulate tax-free, and withdrawals are not subject to tax if used to pay
the qualified higher education expenses of the beneficiary (or a member of
his or her family).
Simplified Employee Pension (SEP) plans. Employers can make
contributions to SEP-IRAs established for employees. An employer may
contribute up to 15% of compensation or $25,500, whichever is less, per
year for each employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An
employer with 100 or fewer employees who does not sponsor another active
retirement plan may sponsor a SIMPLE plan to contribute to its employees'
retirement accounts. A SIMPLE plan can be funded by either an IRA or a
401(k) plan. In general, an employer can choose to match employee
contributions dollar-for-dollar (up to 3% of an employee's compensation) or
may contribute to all eligible employees 2% of their compensation, whether
or not they defer salary to their retirement plans. SIMPLE plans involve
fewer administrative requirements, generally, than 401(k) or other
qualified plans.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money
purchase plan or a profit-sharing plan. As a general rule, an investor
under a defined contribution Keogh plan can contribute each year up to 25%
of his or her annual earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local
government or of certain types of charitable organizations, he or she may
be able to enter into a deferred compensation arrangement in accordance
with Section 457 of the Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code.
Some organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
Pension and Profit-Sharing Plans, including 401(k) Plans. With a
401(k) plan, employees can make tax-deferred contributions into a plan to
which the employer may also contribute, usually on a matching basis. An
employee may defer each year up to 25% of compensation, subject to certain
annual maximums, which may be increased each year based on cost-of-living
adjustments.
More detailed information about these arrangements and applicable
forms are available from Waddell & Reed, Inc. These plans may involve
complex tax questions as to premature distributions and other matters.
Investors should consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days from receipt of request,
unless delayed because of emergency conditions determined by the SEC, when
the NYSE is closed other than for weekends or holidays, or when trading on
the NYSE is restricted. Payment is made in cash, although under
extraordinary conditions redemptions may be made in portfolio securities.
Payment for redemption of shares of the Fund may be made in portfolio
securities when the Fund's Board of Directors determines that conditions
exist making cash payments undesirable. Securities used for payment of
redemptions are valued at the value used in figuring NAV. There would be
brokerage costs to the redeeming shareholder in selling such securities.
The Fund, however, has elected to be governed by Rule 18f-1 under the 1940
Act, pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of its NAV during any 90-day period for any
one shareholder.
Reinvestment Privilege
The Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount of Class A shares you
redeem from the Fund by sending to the Fund the amount you wish to
reinvest. The amount you return will be reinvested in Class A shares at the
NAV next calculated after the Fund receives the returned amount. Your
written request to reinvest and the amount to be reinvested must be
received within forty-five days after your redemption request was received,
and the Fund must be offering Class A shares at the time your reinvestment
request is received. You can do this only once as to Class A shares of the
Fund. You do not use up this privilege by redeeming Class A shares to
invest the proceeds at NAV in a Keogh plan or an IRA.
There is also a reinvestment privilege for Class B and Class C shares,
and, where applicable, certain Class A shares under which you may reinvest
all or part of any amount of the shares you redeemed and have the
corresponding amount of the deferred sales charge, if any, which you paid
restored to your account by adding the amount of that charge to the amount
you are reinvesting in shares of the same class. If Fund shares of that
class are then being offered, you can put all or part of your redemption
payment back into such shares at the NAV next calculated after you have
returned the amount. Your written request to do this must be received
within forty-five days after your redemption request was received. You can
do this only once as to Class B, Class C and Class A shares of the Fund.
For purposes of determining future deferred sales charges, the reinvestment
will be treated as a new investment. You do not use up this privilege by
redeeming shares to invest the proceeds at NAV 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 NAV of such shares (taken at cost
or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will
receive prior written notice and will be permitted 60 days to bring their
accounts up to the minimum before this redemption is processed.
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 1940 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 of Directors
has responsibility for establishing broad corporate policies for the Fund
and for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors. The majority of the Directors are not affiliated with Waddell &
Reed, Inc.
The principal occupation during the past five years of each Director
and officer is stated below. Each of the persons listed through and
including Mr. Vogel is a member of the Fund's Board of Directors. The
other persons are officers of the Fund but are not members of the Board of
Directors. For purposes of this section, the term "Fund Complex" includes
each of the registered investment companies in the Waddell & Reed
Advisors Funds, W&R Funds, Inc. and Target/United Funds, Inc. Each of the
Fund's Directors is also a Director of each of the other funds in the Fund
Complex and each of its officers is also an officer of one or more of the
funds in the Fund Complex.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors, Chief
Executive Officer and Director of Waddell & Reed Financial, Inc.;
President, Chairman of the Board of Directors, Director and Chief Executive
Officer of Waddell & Reed Financial Services, Inc.; Chairman of the Board
of Directors and Director of WRIMCO, Waddell & Reed, Inc. and Waddell &
Reed Services Company; formerly, President of each of the funds in the Fund
Complex; formerly, Chairman of the Board of Directors of Waddell & Reed
Asset Management Company, a former affiliate of Waddell & Reed Financial,
Inc. Date of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law;
Director, AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President of JoDill Corp., an agricultural company; President and
Director of Dillingham Enterprises Inc.; formerly, Director and consultant,
McDougal Construction Company; formerly, Instructor at Central Missouri
State University; formerly, Member of the Board of Police Commissioners,
Kansas City, Missouri; formerly, Senior Vice President-Sales and Marketing
of Garney Companies, Inc., a specialty utility contractor. Date of birth:
January 9, 1939.
DAVID P. GARDNER
263 West 3rd Avenue
San Mateo, California 94402
Chairman and Chief Executive Officer of George S. and Delores Dor'e
Eccles Foundation; Director of First Security Corp., a bank holding
company, and Director of Fluor Corp., a company with interests in coal;
formerly, President of Hewlett Foundation. Date of birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, Partner, Levy and Craig, P.C., a law
firm. Date of birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents at the University of Oklahoma;
Adjunct Professor of Law at the University of Oklahoma College of Law;
Managing Member, Harroz Investments, L.L.C.; formerly, Vice President for
Executive Affairs of the University of Oklahoma; formerly, Attorney with
Crowe & Dunlevy, a law firm. Date of birth: January 17, 1967.
JOHN F. HAYES
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Chairman of the Board of Directors, Gilliland & Hayes, P.A., a
law firm; formerly, President of Gilliland & Hayes, P.A.; formerly,
Director of Central Properties, Inc. Date of birth: December 11, 1919.
ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Executive Vice
President, Chief Operating Officer, Director and Treasurer of Waddell &
Reed Financial Services, Inc.; Executive Vice President, Principal
Financial Officer, Director and Treasurer of WRIMCO; President, Chief
Executive Officer, Principal Financial Officer, Director and Treasurer of
Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed Services
Company; Chairman of the Board of Directors, Chief Executive Officer,
President and Director of Fiduciary Trust Company of New Hampshire, an
affiliate of Waddell & Reed, Inc.; Director of Legend Group Holdings, LLC,
Legend Advisory Corporation, Legend Equities Corporation, Advisory Services
Corporation, The Legend Group, Inc. and LEC Insurance Agency, Inc.;
formerly, Vice President of each of the funds in the Fund Complex;
formerly, Director and Treasurer of Waddell & Reed Asset Management
Company; formerly, President of Waddell & Reed Services Company. Date of
birth: November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, and Director of Waddell &
Reed Financial, Inc.; Executive Vice President, Chief Investment Officer
and Director of Waddell & Reed Financial Services, Inc.; Director of
Waddell & Reed, Inc.; President, Chief Executive Officer, Chief Investment
Officer and Director of WRIMCO; Chairman of the Board of Directors of
Austin, Calvert & Flavin, Inc., an affiliate of WRIMCO; formerly,
President, Chief Executive Officer, Chief Investment Officer and Director
of Waddell & Reed Asset Management Company. Date of birth: December 8,
1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and its subsidiaries. Date of birth: February 19,
1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
each of the funds in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in
the Fund Complex then in existence on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.;
formerly, Chairman of the Board of Directors of Waddell & Reed Services
Company. Date of birth: April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of
Kansas City; Director and Vice President of Network Rehabilitation
Services; Board Member, Member of Executive Committee and Finance Committee
of Truman Medical Center; formerly, Employment Counselor and Director of
McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm;
Director of Columbian Bank and Trust. Date of birth: April 9, 1953.
ELEANOR B. SCHWARTZ
1213 West 95th Court, Chartwell 4
Kansas City, Missouri 64114
Professor of Business Administration, University of Missouri-Kansas
City; formerly, Chancellor, University of Missouri-Kansas City. Date of
birth: January 1, 1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
Daniel C. Schulte
Vice President, Assistant Secretary and General Counsel of the Fund
and each of the other funds in the Fund Complex; Vice President, Secretary
and General Counsel of Waddell & Reed Financial, Inc.; Senior Vice
President, Secretary and General Counsel of Waddell & Reed Financial
Services Company, Waddell & Reed, Inc., WRIMCO and Waddell & Reed Services
Company; Secretary and Director of Fiduciary Trust Company of New
Hampshire, an affiliate of Waddell & Reed, Inc.; formerly, Assistant
Secretary of Waddell & Reed Financial, Inc.; formerly, an attorney with
Klenda, Mitchell, Austerman & Zuercher, L.L.C. Date of birth: December 8,
1965.
Kristen A. Richards
Vice President, Secretary and Associate General Counsel of the Fund
and each of the other funds in the Fund Complex; Vice President and
Associate General Counsel of WRIMCO; formerly, Assistant Secretary of the
Fund and each of the other funds in the Fund Complex; formerly, Compliance
Officer of WRIMCO. Date of birth: December 2, 1967.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell
& Reed Services Company. Date of birth: July 18, 1942.
James C. Cusser
Vice President of the Fund and two other funds in the Fund Complex;
Vice President of WRIMCO. Date of birth: May 30, 1949.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be "interested persons" as defined
in the 1940 Act of the Fund's underwriter, Waddell & Reed, Inc., or of
WRIMCO are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, whereby an incumbent Director who has attained the age of 70 may,
or if elected on or after May 31, 1993 and has attained the age of 75 must,
resign his or her position as Director and, unless he or she elects
otherwise, will serve as Director Emeritus provided the Director has served
as a Director of the Funds for at least five years which need not have been
consecutive. A Director Emeritus receives fees in recognition of his or
her past services whether or not services are rendered in his or her
capacity as Director Emeritus, but he or she has no authority or
responsibility with respect to management of the Fund. Messrs. Henry L.
Bellmon, Jay B. Dillingham, Doyle Patterson, Ronald K. Richey and Paul S.
Wise retired as Directors of the Fund and of each of the funds in the Fund
Complex, and each serves as Director Emeritus.
The funds in the Waddell & Reed Advisors Funds, Target/United Funds,
Inc. and W&R Funds, Inc. pay to each Director effective October 1, 1999, an
annual base fee of $50,000, plus $3,000 for each meeting of the Board of
Directors attended and effective January 1, 2000, an annual base fee of
$52,000 plus $3,250 for each meeting of the Board of Directors attended,
plus reimbursement of expenses for attending such meeting and $500 for each
committee meeting attended which is not in conjunction with a Board of
Directors meeting, other than Directors who are affiliates of Waddell &
Red, Inc. (Prior to October 1, 1999, the funds in the Waddell & Reed
Advisors Funds, Target/United Funds, Inc. and W&R Funds, Inc. paid to each
Director and annual base fee of $48,000 per year, plus $2,500 for each
meeting of the Board of Directors attended). The fees to the Directors are
divided among the funds in the Waddell & Reed Advisors Funds, Target/United
Funds, Inc. and W&R Funds, Inc. based on the funds' relative size.
During the Fund's fiscal year ended March 31, 2000, the Fund's
Directors received the following fees for service as a director:
Compensation Table
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund Complex*
-------- ------------ ------------
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 302 61,000
John A. Dillingham 302 61,000
David P. Gardner 289 58,500
Linda K. Graves 302 61,000
Joseph Harroz, Jr. 302 61,000
John F. Hayes 302 61,000
Glendon E. Johnson 302 61,000
William T. Morgan 302 61,000
Ronald C. Reimer 302 61,000
Frank J. Ross, Jr. 302 61,000
Eleanor B. Schwartz 302 61,000
Frederick Vogel III 302 61,000
*No pension or retirement benefits have been accrued as a part of Fund
expenses.
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 2000, all of the Fund's Directors and officers as a
group owned less than 1% of the outstanding shares of the Fund. The
following table sets forth information with respect to the Fund, as of May
31, 2000, regarding the ownership of the Fund's shares.
Shares owned
Name and Address Beneficially
of Beneficial Owner Class or of Record Percent
------------------- ----- ------------ -------
Frederick F Walschot & Class B 9,198 5.57%
Alice M Walschot Jtn Ros
27 Lexington Ave
South Elgin IL 60177-1818
Dr. David Monjot Tr Class B 8,248 5.00%
CPSP Dr. David Monjot
FBO Barbara Little
30 W McCreight Ave #100
Springfield OH 45504-1853
Annie L Thigpen Class C 4,402 5.67%
210 Barry Ave
Lockport IL 60441-5104
Bents Fort Water Company Class C 5,900 7.59%
P. O. Box 305
La Junta CO 81050-0305
Viola E Blauvelt Class C 7,401 9.53%
4429 Witherbee Blvd
Lincoln NE 68510-1851
Margrethe Hansen Class C 4,847 6.24%
Richards (TOD)
782 Voyager Dr
Bartlett IL 60103-4737
Johanna G Beal (TOD) Class C 7,202 9.27%
80 Grove St Apt 610
Melrose MA 02176-4693
Kenneburt & Co Class Y 61,631 14.44%
P. O. Box 11426
Birmingham AL 35202-1426
John L Green & Class Y 59,509 13.95%
Edward F Brennan Tr
Midwestern Teamsters
Pension Plan
2160 S Foster Ave
Wheeling IL 60090-6507
Waddell & Reed Class Y 198,741 46.58%
Financial, Inc.
401(k) and Thrift Plan
6300 Lamar Avenue
Overland Park KS 66201
Compass Bank Tr Class Y 75,491 17.69%
Profit Sharing Plan
FBO Torchmark Corp
Savings & Investment Plan
Attn: Wayne Laugevin
15 20th St S Fl 8
Birmingham AL 35233-2000
PAYMENTS TO SHAREHOLDERS
General
There are two sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is net investment income, which is
derived from the interest and earned discount on the securities the Fund
holds, less expenses (which will vary by class). The second source is net
realized capital gains, which are derived from the proceeds received from
the Fund's sale of securities at a price higher than the Fund's tax basis
(usually cost) in such securities, less losses from sales of securities at
a price lower than the Fund's basis therein these gains can be either long-
term or short-term, depending on how long the Fund has owned the securities
before it sells them. The payments made to shareholders from net
investment income and net short-term capital gains are called dividends.
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 from net capital gains (the excess of net
long-term capital gains over net short-term capital losses). It may or may
not have such gains, depending on whether securities are sold and at what
price. If the Fund has net realized capital gains, it will pay
distributions once each year, in the latter part of the fourth calendar
quarter, except to the extent it has applicable net capital losses carried
over from a prior year or years to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the Fund of the same class as that with
respect to which they were paid, or (iii) you want cash for your dividends
and want your distributions reinvested in shares of the Fund of the same
class as that with respect to which they were paid. However, a total
dividend and/or distribution amount less than five dollars will be
automatically paid in shares of the Fund of the same class as that with
respect to which they were paid. You can change your instructions at any
time. If you give no instructions, your dividends and distributions will
be paid in shares of the Fund of the same class as that with respect to
which they were paid. All payments in shares are at NAV without any sales
charge. The NAV used for this purpose is that computed as of the payment
date for the dividend or distribution, although this could be changed by
the Board of Directors.
Even if you receive dividends and distributions on Fund shares in
cash, you can thereafter reinvest them (or distributions only) in shares of
the Fund at NAV (i.e., no sales charge) next calculated after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment.
The reinvestment must be within 45 days after the payment.
TAXES
General
The Fund has qualified since inception for treatment as a regulated
investment company ("RIC") under the Code, so that it is relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gains) that it distributes to its shareholders. To continue to
qualify for treatment as a RIC, the Fund must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income ("Distribution Requirement") and must meet several
additional requirements. 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 contracts) derived with respect to
its business of investing in securities ("Income Requirement"); (2) at the
close of each quarter of the Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities that
are limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets ("50% Diversification
Requirement"); and (3) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government securities or the securities of
other RICs) of any one issuer.
If the Fund failed to qualify for treatment as a RIC for any taxable
year, (a) it would be taxed as an ordinary corporation on the full amount
of its taxable income for that year (even if it distributed that income to
its shareholders) and (b) the shareholders would treat all distributions
out of its earnings and profits, including distributions of net capital
gains, as dividends (that is, ordinary income). In addition, the Fund
could be required to recognize unrealized gains, pay substantial taxes and
interest, and make substantial distributions before requalifying for RIC
treatment.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as a long-term, instead of short-term,
capital loss to the extent of any distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for a dividend or distribution, the investor will receive
some portion of the purchase price back as a taxable dividend or
distribution.
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. For these purposes, the Fund may defer into the
next calendar year net capital losses incurred between November 1 and the
end of the current calendar year. It is the policy of the Fund to pay
sufficient dividends and distributions each year to avoid imposition of the
Excise Tax.
Income from Options and Futures Contracts
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures contracts, involves complex
rules that will determine for income tax purposes the amount, character and
timing of recognition of the gains and losses the Fund realizes in
connection therewith. Gains from transactions in options and futures
contracts derived by the Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
Any income the Fund earns from writing options is treated as short-
term capital gains. If the Fund enters into a closing purchase
transaction, it will have a short-term capital gain or loss based on the
difference between the premium it receives for the option it wrote and the
premium it pays for the option it buys. If an option written by the Fund
lapses without being exercised, the premium it receives also will be a
short-term capital gain. If such an option is exercised and the Fund thus
sells the securities subject to the option, the premium the Fund receives
will be added to the exercise price to determine the gain or loss on the
sale.
Certain options and futures in which the Fund may invest may be
"section 1256 contracts." Section 1256 contracts held by the Fund at the
end of its taxable year, other than contracts subject to a "mixed straddle"
election made by the Fund are "marked-to-market" (that is, treated as sold
at that time for their fair market value) for Federal income tax purposes,
with the result that unrealized gains or losses are treated as though they
were realized. Sixty percent of any net gains or losses recognized on
these deemed sales, and 60% of any net realized gain or loss from any
actual sales of section 1256 contracts, are treated as long-term capital
gains or losses, and the balance is treated as short-term capital gains or
losses. Section 1256 contracts also may be marked-to-market for purposes of
the Excise Tax and other purposes. The Fund may need to distribute any
mark-to-market gains to its shareholders to satisfy the Distribution
Requirement and/or avoid imposition of the Excise Tax, even though it may
not have closed the transactions and received cash to pay the
distributions.
Code section 1092 (dealing with straddles) may also affect the
taxation of options and futures contracts in which the Fund may invest.
That section defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options, futures contracts and
forward currency contracts are personal property. Section 1092 generally
provides that any loss from the disposition of a position in a straddle may
be deducted only to the extent the loss exceeds the unrealized gain on the
offsetting position(s) of the straddle. In addition, these rules may
postpone the recognition of loss that would otherwise be recognized under
the mark-to-market rules discussed above. The Regulations under section
1092 also provide certain "wash sale" rules which apply to transactions
where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the Fund makes certain elections, the amount, character and
timing of the recognition of gains and losses from the affected straddle
positions will be determined under rules that vary according to the
elections made. Because only a few of the regulations implementing the
straddle rules have been promulgated, the tax consequences of straddle
transactions to the Fund are not entirely clear.
If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward
currency contract or short sale) with respect to any stock, debt instrument
(other than "straight debt") or partnership interest the fair market value
of which exceeds its adjusted basis -- and enters into a "constructive
sale" of the position, the Fund will be treated as having made an actual
sale thereof, with the result that gain will be recognized at that time. A
constructive sale generally consists of a short sale, an offsetting
notional principal contract or futures or forward currency contract entered
into by the Fund or a related person with respect to the same or
substantially identical property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition
of the underlying property or substantially identical property will be
deemed a constructive sale. The foregoing will not apply, however, to any
transaction during any taxable year that otherwise would be treated as a
constructive sale if the transaction is closed within 30 days after the end
of that year and the Fund holds the appreciated financial position unhedged
for 60 days after that closing (i.e., at no time during that 60-day period
is the Fund's risk of loss regarding that position reduced by reason of
certain specified transactions with respect to substantially identical or
related property, such as having an option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the
portfolio of the Fund. 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 or WRIMCO may otherwise combine orders for the
Fund with those of other funds in the Waddell & Reed Advisors Funds,
Target/United Funds, Inc. and W&R Funds, Inc. or other accounts for which it
has investment discretion, including accounts affiliated with WRIMCO. WRIMCO,
at its discretion, may aggregate such orders. Under current written
procedures, transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each fund or advisory account, except where the
combined order is not filled completely. In this case, for a transaction
not involving an initial public offering (_IPO_), WRIMCO will ordinarily
allocate the transaction pro rata based on the orders placed, subject to
certain variances provided for in the written procedures. For a partially
filled IPO order, subject to certain variances specified in the written
procedures, WRIMCO generally allocates the shares as follows: the IPO
shares are initially allocated pro rata among the included funds and/or
advisory accounts grouped according to investment objective, based on
relative total assets of each group; and the shares are then allocated
within each group pro rata based on relative total assets of the included
funds and/or advisory accounts, except that (a) within a group having a
small cap-related investment objective, shares are allocated on a
rotational basis after taking into account the impact of the anticipated
initial gain on the value of the included fund or advisory account and (b)
within a group having a mid-cap-related investment objective, shares are
allocated based on the portfolio manager's judgment, including but not
limited to such factors as the fund's or advisory account's investments
strategies and policies, cash availability, any minimum investment policy,
liquidity, anticipated term of the investment and current securities
positions.
In all cases, WRIMCO seeks to implement its allocation procedures to
achieve a fair and equitable allocation of securities among its funds and
other advisory accounts. Sharing in large transactions could affect the
price the Fund pays or receives or the amount it buys and sells. As well,
a better negotiated commission may be available through combined orders.
To effect the portfolio transactions of the Fund, WRIMCO is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on
all relevant factors, will implement the policy of the Fund to seek "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of
brokers which provide execution and/or research services and other
services, including pricing or quotation services directly or through
others ("research and brokerage services") considered by WRIMCO to be
useful or desirable for its investment management of the Fund and/or the
other funds and accounts over which WRIMCO has investment discretion.
Research and brokerage services are, in general, defined by reference
to Section 28(e) of the Securities Exchange Act of 1934 as including (i)
advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or
selling securities and the availability of securities and purchasers or
sellers; (ii) furnishing analyses and reports; or (iii) effecting
securities transactions and performing functions incidental thereto (such
as clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such research and/or
brokerage services may be higher than the commission another qualified
broker would charge for effecting comparable transactions if a good faith
determination is made by WRIMCO that the commission is reasonable in
relation to the research or brokerage services provided. Subject to the
foregoing considerations WRIMCO may also consider sales of Fund shares as a
factor in the selection of broker-dealers to execute portfolio
transactions. No allocation of brokerage or principal business is made to
provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO, and
investment research received for the commissions of those other accounts
may be useful both to the Fund and one or more of such other accounts. To
the extent that electronic or other products provided by such brokers to
assist WRIMCO in making investment management decisions are used for
administration or other non-research purposes, a reasonable allocation of
the cost of the product attributable to its non-research use is made by
WRIMCO.
Such investment research (which may be supplied by a third party at
the instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of
WRIMCO; serves to make available additional views for consideration and
comparisons; and enables WRIMCO to obtain market information on the price
of securities held in the Fund's portfolio or being considered for
purchase.
As of March 31, 2000, the Fund owned J. P. Morgan Securities Inc.
securities in the aggregate amount of $423,000. J. P. Morgan Securities
Inc. is a regular broker of the Fund.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics under Rule 17j-1 of the 1940 Act that permits their respective
directors, officers and employees to invest in securities, including
securities that may be purchased or held by the Fund. The Code of Ethics
subjects covered personnel to certain restrictions that include prohibited
activities, pre-clearance requirements and reporting obligations.
OTHER INFORMATION
The Shares of the Fund
The Fund offers four classes of shares: Class A, Class B, Class C and
Class Y. Each class represents interest in the same assets of the Fund and
differ as follows: each class of shares has exclusive voting rights on
matters pertaining to matters appropriately limited to that class; Class A
shares are subject to an initial sales charge and to an ongoing
distribution and/or service fee and certain Class A shares are subject to a
contingent deferred sales charge; Class B and Class C are subject to a CDSC
and to ongoing distribution and service fees; Class B shares converts to
Class A shares eight years after the month in which the shares were
purchased; and Class Y shares, which are designated for institutional
investors, have no sales charge nor ongoing distribution and/or service
fee; each class may bear differing amounts of certain class-specific
expenses; and each class has a separate exchange privilege. The Fund does
not anticipate that there will be any conflicts between the interests of
holders of the different classes of shares of the Fund by virtue of those
classes. On an ongoing basis, the Board of Directors will consider whether
any such conflict exists and, if so, take appropriate action. Each share
of the Fund is entitled to equal voting, dividend, liquidation and
redemption rights, except that due to the differing expenses borne by the
four classes, dividends of Class B shares and Class C shares are expected
to be lower than for Class A shares, which in turn are expected to be lower
than for Class Y shares of the Fund. Each fractional share of a class has
the same rights, in proportion, as a full share of that class. Shares are
fully paid and nonassessable when purchased.
The Fund does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new
investment advisory agreement or a change in a fundamental investment
policy, which require shareholder approval will be presented to
shareholders at a meeting called by the Board of Directors for such
purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding
not less than 25% of all shares entitled to vote at such meeting, provided
certain conditions stated in the Bylaws are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until
such time as less than a majority of directors holding office have been
elected by shareholders, at time which the directors then in office will
call a shareholders' meeting for the election of directors. To the extent
that Section 16(c) of the 1940 Act applies to the Fund, the directors are
required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested in writing to do so
by the shareholders of record of not less than 10% of the Fund's
outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund
vote together as a single class, except as to any matter for which a
separate vote of any class is required by the 1940 Act, and except as to
any matter which affects the interests of one or more particular classes,
in which case only the shareholders of the affected classes are entitled to
vote, each as a separate class.
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 2000
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-03 ......................... $ 17 $ 18,100
7.5%, 9-1-07 .......................... 51 50,978
6.5%, 9-25-18 ......................... 2,500 2,405,450
7.0%, 1-15-19 ......................... 4,500 4,421,250
6.25%, 1-15-21 ........................ 3,500 3,380,755
8.0%, 2-1-23 .......................... 1,126 1,130,151
6.5%, 11-1-24 ......................... 1,816 1,719,518
7.0%, 12-1-25 ......................... 5,899 5,673,717
Total ................................. 18,799,919
Federal National Mortgage Association:
8.5%, 8-1-01 .......................... 2,732 2,738,319
7.0%, 10-25-03 ........................ 4,548 4,514,763
7.135%, 6-1-07 ........................ 5,560 5,440,305
7.15%, 6-1-07 ......................... 2,256 2,208,721
8.4%, 2-25-09 ......................... 3,458 3,495,994
6.09%, 4-1-09 ......................... 3,966 3,631,132
6.147%, 4-1-09 ........................ 3,022 2,777,093
0.0%, 2-12-18 ......................... 2,500 773,375
7.0%, 9-25-20 ......................... 500 492,500
11.0%, 10-1-20 ........................ 1,829 2,016,709
6.5%, 8-25-21 ......................... 7,000 6,772,500
7.0%, 12-1-23 ......................... 5,342 5,134,836
7.42%, 10-1-25 ........................ 6,018 6,083,033
Total ................................. 46,079,280
Government National Mortgage Association:
7.0%, 7-15-23 ......................... 2,595 2,520,635
7.0%, 8-20-27 ......................... 695 669,920
9.75%, 11-15-28 ....................... 2,902 3,160,599
7.75%, 10-15-31 ....................... 1,959 1,965,766
Total ................................. 8,316,920
United States Treasury:
5.5%, 3-31-03 ......................... 2,000 1,949,060
7.5%, 2-15-05 ......................... 4,000 4,182,480
6.5%, 8-15-05 ......................... 2,500 2,514,850
6.5%, 10-15-06 ........................ 500 504,220
6.125%, 11-15-27 ...................... 8,500 8,583,640
Total ................................. 17,734,250
See Notes to Schedule of Investments on page .
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 2000
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Miscellaneous United States Government
Backed Securities:
Federal Agricultural Mortgage Corporation
Guaranteed Agricultural Mortgage-Backed
Securities,
7.066%, 1-25-12 ..................... $ 6,582 $ 6,371,209
Tennessee Valley Authority,
5.88%, 4-1-36 ....................... 7,750 7,451,237
United States Department of Veterans Affairs,
Guaranteed REMIC Pass-Through Certificates,
Vendee Mortgage Trust:
1997-2 Class C,
7.5%, 8-15-17 ....................... 3,500 3,502,170
1998-1 Class 2-B,
7.0%, 6-15-19 ....................... 3,000 2,952,180
1998-3 Class B,
6.5%, 5-15-20 ....................... 1,500 1,432,500
1999-1 Class 2-B,
6.5%, 8-15-20 ....................... 3,000 2,899,680
United States Government Guaranteed Development
Company Participation Certificates,
Series 1995-20 F, Guaranteed by the U.S.
Small Business Administration (an
Independent Agency of the United States),
6.8%, 6-1-15 ........................ 3,831 3,720,228
Total ............................... 28,329,204
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 99.56% $119,259,573
(Cost: $121,457,551)
SHORT-TERM SECURITIES - 0.35%
J.P. Morgan Securities Inc., 5.97% Repurchase
Agreement dated 3-31-00, to be
repurchased at $423,211 on 4-3-00* .... 423 $ 423,000
(Cost: $423,000)
TOTAL INVESTMENT SECURITIES - 99.91% $119,682,573
(Cost: $121,880,551)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.09% 109,034
NET ASSETS - 100.00% $119,791,607
Notes to Schedule of Investments
*Collateralized by $349,000 U.S. Treasury Bonds, 8.125% due 8-15-21;
market value and accrued interest aggregate $432,506.
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.
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $119,683
Cash ............................................ 33
Receivables:
Interest ........................................ 1,210
Fund shares sold ................................ 41
Investment securities sold ...................... 1
Prepaid insurance premium ........................ 11
--------
Total assets .................................. 120,979
--------
Liabilities
Payable to Fund shareholders ..................... 1,040
Dividends payable ................................ 72
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 34
Accrued service fee (Note 2) ..................... 22
Accrued accounting services fee (Note 2) ......... 3
Accrued management fee (Note 2) .................. 2
Accrued distribution fee (Note 2) ................ 3
Other ............................................ 11
--------
Total liabilities ............................. 1,187
--------
Total net assets.............................. $119,792
========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 229
Additional paid-in capital ...................... 124,044
Accumulated undistributed loss:
Accumulated undistributed net realized loss on
investment transactions ....................... (2,283)
Net unrealized depreciation in value of
investments ................................... (2,198)
--------
Net assets applicable to outstanding units
of capital ................................... $119,792
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.22
Class B .......................................... $5.22
Class C .......................................... $5.22
Class Y .......................................... $5.22
Capital shares outstanding
Class A .......................................... 22,373
Class B .......................................... 115
Class C .......................................... 53
Class Y .......................................... 406
Capital shares authorized .......................... 3,000,000
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 2000
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $9,004
------
Expenses (Note 2):
Investment management fee ....................... 618
Transfer agency and dividend disbursing:
Class A ........................................ 336
Class B ........................................ 1
Class C ........................................ ---*
Service fee:
Class A ........................................ 301
Class B ........................................ ---*
Class C ........................................ ---*
Accounting services fee ......................... 40
Distribution fee:
Class A ........................................ 25
Class B ........................................ 2
Class C ........................................ ---*
Audit fees ...................................... 10
Custodian fees .................................. 9
Legal fees ...................................... 7
Shareholder servicing - Class Y ................. 3
Other ........................................... 112
------
Total expenses ................................ 1,464
------
Net investment income ........................ 7,540
------
Realized and Unrealized Loss on
Investments (Notes 1 and 3)
Realized net loss on investments .................. (739)
Unrealized depreciation in value of investments
during the period ............................... (4,577)
------
Net loss on investments ....................... (5,316)
------
Net increase in net assets resulting from
operations ................................. $2,224
======
*Not shown due to rounding.
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the fiscal year ended
March 31,
-------------------------
2000 1999
------------ ------------
Operations:
Net investment income ............ $ 7,540 $ 7,892
Realized net gain
(loss) on investments ......... (739) 1,192
Unrealized depreciation ......... (4,577) (2,312)
-------- --------
Net increase in net assets
resulting from operations ..... 2,224 6,772
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (7,397) (7,788)
Class B .......................... (10) ---
Class C .......................... (3) ---
Class Y .......................... (130) (104)
-------- --------
(7,540) (7,892)
-------- --------
Capital share transactions
(Note 5) ......................... (11,340) 4,219
-------- --------
Total increase (decrease) ..... (16,656) 3,099
Net Assets
Beginning of period ............... 136,448 133,349
-------- --------
End of period ..................... $119,792 $136,448
======== ========
Undistributed net investment income $--- $---
==== ====
*See "Financial Highlights" on pages - .
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.43 $5.46 $5.19 $5.32 $5.13
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.31 0.32 0.33 0.33 0.34
Net realized and
unrealized gain
(loss) on
investments ..... (0.21) (0.03) 0.27 (0.13) 0.19
----- ----- ----- ----- -----
Total from investment
operations ....... 0.10 0.29 0.60 0.20 0.53
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.31) (0.32) (0.33) (0.33) (0.34)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.22 $5.43 $5.46 $5.19 $5.32
===== ===== ===== ===== =====
Total return* ...... 1.82% 5.44% 11.84% 3.75% 10.48%
Net assets, end
of period (in
millions) ........ $117 $134 $131 $129 $146
Ratio of expenses
to average net
assets ........... 1.12% 0.96% 0.89% 0.91% 0.83%
Ratio of net investment
income to average
net assets ....... 5.77% 5.82% 6.14% 6.17% 6.34%
Portfolio turnover
rate ............. 26.78% 37.06% 35.18% 34.18% 63.05%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/4/99*
through
3/31/00
-------
Net asset value,
beginning of period $5.25
----
Income from investment
operations:
Net investment
income .......... 0.13
Net realized and
unrealized loss
on investments .. (0.03)
----
Total from investment
operations ....... 0.10
----
Less dividends declared
from net investment
income ........... (0.13)
----
Net asset value,
end of period .... $5.22
====
Total return ....... 1.88%
Net assets, end of
period (000
omitted) ......... $599
Ratio of expenses
to average
net assets ....... 1.85%**
Ratio of net investment
income to average
net assets ....... 5.19%**
Portfolio turnover
rate ............. 26.78%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/8/99*
through
3/31/00
-------
Net asset value,
beginning of period $5.23
----
Income from investment
operations:
Net investment
income .......... 0.12
Net realized and
unrealized loss
on investments .. (0.01)
----
Total from investment
operations ....... 0.11
----
Less dividends declared
from net investment
income ........... (0.12)
----
Net asset value,
end of period .... $5.22
====
Total return ....... 2.08%
Net assets, end of
period (000
omitted) ......... $269
Ratio of expenses
to average net
assets ........... 2.07%**
Ratio of net investment
income to average
net assets ....... 4.98%**
Portfolio turnover
rate ............. 26.78%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
period
For the fiscal year from
ended March 31, 9/27/95*
--------------------------- through
2000 1999 1998 1997 3/31/96
----- ----- ----- ----- -------
Net asset value,
beginning of period $5.43 $5.46 $5.19 $5.32 $5.33
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.33 0.33 0.34 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments ..... (0.21) (0.03) 0.27 (0.13) (0.01)
----- ----- ----- ----- -----
Total from investment
operations ....... 0.12 0.30 0.61 0.21 0.16
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.33) (0.33) (0.34) (0.34) (0.17)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.22 $5.43 $5.46 $5.19 $5.32
===== ===== ===== ===== =====
Total return ....... 2.20% 5.71% 12.02% 3.99% 3.04%
Net assets, end of
period (in
millions) ........ $2 $2 $2 $1 $1
Ratio of expenses
to average net
assets ........... 0.75% 0.68% 0.66% 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ........... 6.15% 6.10% 6.37% 6.41% 6.40%**
Portfolio
turnover rate .... 26.78% 37.06% 35.18% 34.18% 63.05%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
UNITED GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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. Its investment objective is
to seek as high a current income as is consistent with safety of
principal. 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 accounting
principles generally accepted in the United States of America.
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 pricing service or 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. Original issue discount
(as defined in the Internal Revenue Code), premiums and post-1984
market discount on the purchase of bonds are amortized for both
financial and tax reporting purposes over the remaining lives of
the bonds. 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
Subchapter M of 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 as of the close of the
preceding business day. Net investment income dividends and
capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting
principles generally accepted in the United States of America.
These differences are due to differing treatments for items such
as deferral of wash sales and post-October losses, net operating
losses and expiring capital loss carryovers.
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.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee
is computed daily based on the net asset value at the close of
business. The fee is payable by the Fund at the annual rates of:
0.50% of net assets up to $500 million, 0.45% of net assets over $500
million and up to $1 billion, 0.40% of net assets over $1 billion and
up to $1.5 billion, and 0.35% of net assets over $1.5 billion. The
Fund accrues and pays the fee daily.
Pursuant to assignment of the Investment Management Agreement
between the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of
W&R, serves as the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly owned subsidiary of W&R. Under
the agreement, WARSCO acts as the agent in providing accounting
services and assistance to the Fund and pricing daily the value of
shares of the Fund. For these services, the Fund pays WARSCO a
monthly fee of one-twelfth of the annual fee shown in the following
table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A, Class B and Class C shares, the Fund pays WARSCO a
monthly per account charge for transfer agency and dividend
disbursement services of $1.3125 for each shareholder account which
was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution of cash or shares had
a record date in that month. With respect to Class Y shares, the Fund
pays WARSCO a monthly fee at an annual rate of 0.15% of the average
daily net assets of the class for the preceding month. The Fund also
reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received
gross sales commissions for Class A shares (which are not an expense
of the Fund) of $114,701. With respect to Class A, Class B and Class
C shares, W&R paid sales commissions of $115,765 and all expenses in
connection with the sale of Fund shares, except for registration fees
and related expenses.
A contingent deferred sales charge (_CDSC_) may be assessed
against a shareholder's redemption amount of Class B and Class C
shares and is paid to W&R. The purpose of the deferred sales charge
is to compensate W&R for the costs incurred by W&R in connection with
the sale of Fund shares.
With respect to Class B shares, the amount of the CDSC will be
the following percent of the total amount invested during a calendar
year to acquire the shares or the value of the shares redeemed,
whichever is less. Redemption at any time during the first calendar
year of investment, 5%; the second calendar year, 4%; the third
calendar year, 3%; the fourth calendar year, 3%; the fifth calendar
year, 2%; the sixth calendar year, 1% and thereafter, 0%.
If Class C shares are sold within 12 months of buying these
shares, a 1% CDSC will be imposed.
The deferred sales charge will not be imposed on shares
representing payment of dividends or distributions or on amounts which
represent an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares
purchased during the deferred sales charge period. During the period
ended March 31, 2000, W&R received $627 in deferred sales charges from
Class C shares. No CDSC fees were received from Class B shares.
Under a Distribution and Service Plan for Class A shares adopted
by the Fund pursuant to Rule 12b-1 under the Investment Company Act of
1940, the Fund may pay monthly a distribution and/or service fee to
W&R in an amount not to exceed 0.25% of the Fund's average annual net
assets. The fee is to be paid to reimburse W&R for amounts it expends
in connection with the distribution of the Class A shares and/or
provision of personal services to Fund shareholders and/or maintenance
of shareholder accounts.
Under the Distribution and Service Plan adopted by the Fund for
Class B and Class C shares, respectively, the Fund may pay W&R, on an
annual basis, a service fee of up to 0.25% of the average daily net
assets of the class to compensate W&R for providing services to
shareholders of that class and/or maintaining shareholder accounts for
that class and a distribution fee of up to 0.75% of the average daily
net assets of the class to compensate W&R for distributing the shares
of that class. The Class B Plan and the Class C Plan each permit W&R
to receive compensation, through the distribution and service fee,
respectively, for its distribution activities for that class, which
are similar to the distribution activities described with respect to
the Class A Plan, and for its activities in providing personal
services to shareholders of that class and/or maintaining shareholder
accounts of that class, which are similar to the corresponding
activities for which is it entitled to reimbursement under the Class A
Plan.
The Fund paid Directors' fees of $4,776, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding
company, and a direct subsidiary of Waddell & Reed Financial Services,
Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of U.S. Government securities aggregated $33,655,839
while proceeds from maturities and sales aggregated $34,364,228.
Purchases of short-term securities aggregated $1,212,029,000 while
proceeds from maturities and sales aggregated $1,222,301,000.
For Federal income tax purposes, cost of investments owned at
March 31, 2000 was $122,151,091, resulting in net unrealized
depreciation of $2,468,518, of which $811,592 related to appreciated
securities and $3,280,110 to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses
of $467,822 during the year ended March 31, 2000. Capital loss
carryovers aggregated $2,016,745 at March 31, 2000, and are available
to offset future realized capital gain net income for Federal income
tax purposes but will expire if not utilized as follows: $515,470 at
March 31, 2003; $343,195 at March 31, 2004; $690,258 at March 31,
2005; and $467,822 at March 31, 2008.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A,
Class B, Class C and Class Y, each of which have equal rights as to
assets and voting privileges. Class Y shares are not subject to a
sales charge on purchases, are not subject to a Rule 12b-1
Distribution and Service Plan and are subject to a separate transfer
agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of each class
are offered is contained in the Prospectus and the Statement of
Additional Information for the Fund.
Income, non-class specific expenses, and realized and unrealized
gains and losses are allocated daily to each class of shares based on
the value of their relative net assets as of the beginning of each day
adjusted for the prior day's capital share activity.
Transactions in capital stock are summarized below. Amounts are
in thousands.
For the fiscal
year ended March 31,
--------------------------
2000 1999
------------ ------------
Shares issued from sale
of shares:
Class A ............ 4,386 6,970
Class B ............. 179 ---
Class C ............. 67 ---
Class Y ............ 57 351
Shares issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 1,282 1,303
Class B ............. 2 ---
Class C ............. 1 ---
Class Y ............ 229 19
Shares redeemed:
Class A ............ (8,120) (7,387)
Class B ............. (66) ---
Class C ............. (15) ---
Class Y ............ (202) (521)
------ -----
Increase(decrease) in
outstanding capital
shares .............. (2,200) 735
====== =====
Value issued from sale
of shares:
Class A ............ $23,155 $38,397
Class B ............. 929 ---
Class C ............. 349 ---
Class Y ............ 1,387 1,930
Value issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 6,736 7,154
Class B ............. 10 ---
Class C ............. 3 ---
Class Y ............ 115 102
Value redeemed:
Class A ............ (42,553) (40,510)
Class B ............. (344) ---
Class C ............. (78) ---
Class Y ............ (1,049) (2,854)
-------- -------
Increase(decrease) in outstanding
capital ............ ($11,340) $ 4,219
======== =======
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Government Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of United Government Securities
Fund, Inc. (the "Fund") as of March 31, 2000, and the related
statement of operations for the fiscal year then ended, the statements
of changes in net assets for each of the two fiscal years in the
period then ended, and the financial highlights for each of the five
fiscal years in the period then ended. These financial statements and
the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 2000, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of United Government Securities Fund, Inc. as of
March 31, 2000, the results of its operations for the fiscal year then
ended, the changes in its net assets for each of the two fiscal years
in the period then ended, and the financial highlights for each of
the five fiscal years in the period then ended in conformity with
accounting principles generally accepted in the United States of
America.
/s/Deloitte & Touche LLP
------------------------
Deloitte & Touche LLP
Kansas City, Missouri
May 5, 2000
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: United Government Securities Fund, Inc.
(a) Articles of Incorporation, as amended, filed by EDGAR on
June 1, 1995 as EX-99.B1-gschart to Post-Effective Amendment
No. 20 to the Registration Statement on Form N-1A*
Articles Supplementary, filed by EDGAR on June 1, 1995 as
EX-99.B1-gsarsupy to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Articles Supplementary attached hereto as EX-99.B(a)gsartsup
(b) Bylaws, as amended, filed by EDGAR on June 27, 1996 as EX-
99.B2-gsbylaws to Post-Effective Amendment No. 21 to the
Registration Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 30, 1999 as EX-
99B(b)gsbylaw2 to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management filed by EDGAR on June 1, 1995 as EX-
99.B5-gsima to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreement filed by
EDGAR on June 1, 1995 as EX-99.B5-gsassign to Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A*
Fee Schedule to the Investment Management Agreement, as
amended, filed by EDGAR on July 2, 1999 as EX-
99.B(d)gsimafee to Post-Effective Amendment No. 27 to the
Registration Statement on Form N-1A*
(e) Underwriting Agreement, filed by EDGAR on June 1, 1995 as
EX-99.B6-gsua to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on April 30,
1999 as EX-99.B(g)-gsca to Post-Effective Amendment No. 24
to the Registration Statement on Form N-1A*
Custodian Agreement, as amended, attached hereto as EX-
99.B(g)gsca
(h) Shareholder Servicing Agreement, filed by EDGAR on April 30,
1999 as EX-99.B(h)-gsssa to Post-Effective Amendment No. 24
to the Registration Statement on Form NA-1*
Fund Class A application, as amended, filed by EDGAR on May
30, 1997 as EX-99.B9-gsappca to Post-Effective Amendment No.
22 to the Registration Statement on Form N-1A*
Fund Class Y application, filed by EDGAR on June 1, 1995 as
EX-99.B9-gsappcy to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Fund NAV application, filed by EDGAR on June 1, 1995 as EX-
99.B9-gsappnav to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Fund Class Y Letter of Understanding, filed by EDGAR on June
27, 1996 as EX-99.B9-gslou to Post-Effective Amendment No.
21 to the Registration Statement on Form N-1A*
Accounting Services Agreement filed by EDGAR on June 1, 1995
as EX-99.B9-gsasa to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Service Agreement filed by EDGAR on July 30, 1993 as Exhibit
(b)(15) to Post-Effective Amendment No. 15 to the
Registration Statement on Form N-1A*
Amendment to Service Agreement, filed by EDGAR on June 1,
1995 as EX-99.B9-gssaa to Post-Effective Amendment No. 20 to
the Registration Statement on Form N-1A*
Fidelity Bond Coverage (Exhibit C) to the Shareholder
Servicing Agreement, as amended, attached hereto as EX-
99.B(h)gsssafid
Fund Application (Non-Retirement Plan) attached hereto as
EX-99.B(h)gsappnon
Fund Application (Retirement Plan) attached hereto as EX-
99.B(h)gsappabc
Fund Application (Institutional) attached hereto as EX-
99.B(h)gsappnav
Fund Application (Legend Non-Retirement) attached hereto as
EX-99.B(h)gsapplegnon
Fund Application (Legend Retirement) attached hereto as EX-
99.B(h)gsapplegabc
(i) Opinion and Consent of Counsel, attached heret as EX-
99.B(i)gslegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B(j)gsconsnt
(k) Not applicable
(l) Not applicable
(m) Service Plan, as restated, filed by EDGAR on June 1, 1995 as
EX-99.B15-gsspca to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Distribution and Service Plan for Class A shares filed by
EDGAR on June 29, 1998 as EX-99.B15-gsdsp to Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A*
(n) Not applicable
(o) Multiple Class Plan, as amended, attached hereto as EX-
99.B(o)gsmcp
(p) Code of Ethics attached hereto as EX-99.B(p)gscode
24. Persons Controlled by or under common control with Registrant
---------------------------------------------------------------------
None
25. Indemnification
---------------
Reference is made to Section (7) of Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed June 1, 1995 as EX-
99.B1-gschart to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A*, and to Article IV of the Underwriting
Agreement, filed June 1, 1995 as EX-99.B6-gsua to Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A*; each of
which provide indemnification. Also refer to Section 2-418 of the
Maryland General Corporation Law regarding indemnification of
directors, officers and employees and agents.
Registrant undertakes to carry out all indemnification provisions of
its Articles of Incorporation, Bylaws, and the above-described
contracts in accordance with the Investment Company Act Release No.
11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liability arising under the 1933 Act,
as amended, may be provided to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment of the Registrant of expenses incurred or paid
by a director, officer of controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is a corporation which is not engaged in any business other
than the provision of investment management services to those
registered investment companies described in Part A and Part B of this
Post-Effective Amendment and to other investment advisory clients.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation
or employment during the past two years only his duties as an
executive officer and/or employee of Waddell & Reed Investment
Management Company or its predecessors, except as to persons who are
directors and/or officers of the Registrant and have served in the
capacities shown in the Statement of Additional Information of the
Registrant. The address of the officers is 6300 Lamar Avenue, Shawnee
Mission, Kansas 66202-4200.
As to each director and officer of Waddell & Reed Investment
Management Company, reference is made to the Prospectus and SAI of
this Registrant.
27. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter to the
Registrant. It is also the principal underwriter to the
following investment companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United New Concepts Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
United Small Cap Fund, Inc.
United Tax-Managed Equity Fund, Inc.
Waddell & Reed Funds, Inc.
Advantage I
Advantage II
Advantage Plus
Advantage Gold
(b) The information contained in the underwriter's application on
Form BD as filed on June 16, 2000 SEC No. 8-27030 , under the
Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or
any affiliated person of such affiliated person.
28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Kristen A. Richards, as officers of the Registrant,
each of whose business address is Post Office Box 29217, Shawnee
Mission, Kansas 66201-9217.
29. Management Services
-------------------
There is no service contract other than as discussed in Parts A and B
of this Post-Effective Amendment and listed in response to Items
23.(h) and 23.(m) hereof.
30. Undertakings
------------
Not applicable
---------------------------------
*Incorporated herein by reference
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED
ASSET STRATEGY FUND, INC., UNITED CASH MANAGEMENT, INC., UNITED CONTINENTAL
INCOME FUND, INC., UNITED FUNDS, INC., UNITED GOVERNMENT SECURITIES FUND,
INC., UNITED HIGH INCOME FUND, INC., UNITED HIGH INCOME FUND II, INC.,
UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED NEW CONCEPTS FUND, INC.,
UNITED RETIREMENT SHARES, INC., UNITED SMALL CAP FUND, INC., UNITED TAX-
MANAGED EQUITY FUND, INC., UNITED VANGUARD FUND, INC., TARGET/UNITED FUNDS,
INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called the
"Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, DANIEL C.
SCHULTE and KRISTEN A. RICHARDS, and each of them individually, their true
and lawful attorneys and agents to take any and all action and execute any
and all instruments which said attorneys and agents may deem necessary or
advisable to enable each Corporation to comply with the Securities Act of
1933 and/or the Investment Company Act of 1940, as amended, and any rules,
regulations, orders or other requirements of the United States Securities
and Exchange Commission thereunder, in connection with the registration
under the Securities Act of 1933 and/or the Investment Company Act of 1940,
as amended, including specifically, but without limitation of the
foregoing, power and authority to sign the names of each of such directors
and officers in his/her behalf as such director or officer as indicated
below opposite his/her signature hereto, to any Registration Statement and
to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or
the Investment Company Act of 1940, as amended, and to any instruments or
documents filed or to be filed as a part of or in connection with such
Registration Statement or amendment or supplement thereto; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: February 9, 2000 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board February 9, 2000
------------------- -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal February 9, 2000
-------------------- Financial Officer and -----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and February 9, 2000
-------------------- Director -----------------
Henry J. Herrmann
/s/Theodore W. Howard Vice President, Treasurer February 9, 2000
-------------------- and Principal Accounting -----------------
Theodore W. Howard Officer
/s/James M. Concannon Director February 9, 2000
-------------------- -----------------
James M. Concannon
/s/John A. Dillingham Director February 9, 2000
-------------------- -----------------
John A. Dillingham
/s/David P. Gardner Director February 9, 2000
------------------- -----------------
David P. Gardner
/s/Linda K. Graves Director February 9, 2000
-------------------- -----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director February 9, 2000
-------------------- -----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director February 9, 2000
-------------------- -----------------
John F. Hayes
/s/Glendon E. Johnson Director February 9, 2000
-------------------- -----------------
Glendon E. Johnson
/s/William T. Morgan Director February 9, 2000
-------------------- -----------------
William T. Morgan
/s/Ronald C. Reimer Director February 9, 2000
-------------------- -----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr. Director February 9, 2000
-------------------- -----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director February 9, 2000
-------------------- -----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director February 9, 2000
-------------------- -----------------
Frederick Vogel III
Attest:
/s/Kristen A. Richards
--------------------------------
Kristen A. Richards
Secretary
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(b) of the Securities Act of 1933 and the Registrant
has duly caused this Post-Effective Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Overland Park,
and State of Kansas, on the 30th day of June, 2000.
UNITED GOVERNMENT SECURITIES FUND, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been
signed below by the following persons in the capacities and on the date
indicated.
Signatures Title
---------- -----
/s/Keith A. Tucker* Chairman of the Board June 30, 2000
---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal June 30, 2000
---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and June 30, 2000
---------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer June 30, 2000
---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director June 30, 2000
------------------ ----------------
James M. Concannon
/s/John A. Dillingham* Director June 30, 2000
------------------ ----------------
John A. Dillingham
/s/David P. Gardner* Director June 30, 2000
------------------ ----------------
David P. Gardner
/s/Linda K. Graves* Director June 30, 2000
------------------ ----------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director June 30, 2000
------------------ ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director June 30, 2000
------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director June 30, 2000
------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director June 30, 2000
------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director June 30, 2000
------------------ ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director June 30, 2000
------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director June 30, 2000
------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 30, 2000
------------------- ----------------
Frederick Vogel III
*By /s/Kristen A. Richards
-------------------------
Kristen A. Richards
Attorney-in-Fact
ATTEST:
/s/Daniel C. Schulte
--------------------------
Daniel C. Schulte
Assistant Secretary
