<PAGE>
File No. 811-7217
File No. 33-55753
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. __2_
Post-Effective Amendment No. ____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. _2_
UNITED ASSET STRATEGY FUND, INC.
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(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
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Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering
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As soon as practical after effective date of Registration Statement
===========================================================================
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). It is anticipated that the
Notice for the Registrant's fiscal year ending September 30, 1995 will be filed
on or about November 14, 1995.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, action pursuant to said Section 8(a)
may determine.
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UNITED ASSET STRATEGY FUND, INC.
================================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... *
(b) ..................... *
(c) ..................... Performance
(d)...................... *
4(a) ..................... About the Fund's Investment Principles
(b) ..................... About the Fund's Investment Principles
(c) ..................... About the Fund's Investment Principles
5(a) ..................... About the Fund's Management and Expenses
(b)...................... About the Fund's Management and Expenses; Inside
Back Cover
(c) ..................... About the Fund's Management and Expenses
(d) ..................... About the Fund's Management and Expenses; Inside
Back Cover
(e) ..................... About the Fund's Management and Expenses; Inside
Back Cover
(f) ..................... About the Fund's Management and Expenses
(g)(i)................... *
(g)(ii).................. About Your Account
5A........................ *
6(a) ..................... About the Fund's Management and Expenses
(b) ..................... About the Fund's Management and Expenses
(c) ..................... *
(d) ..................... *
(e) ..................... About Your Account; About Waddell & Reed, Inc.
(f)...................... About Your Account
(g) ..................... About Your Account
7(a) ..................... About the Fund's Management and Expenses; Inside
Back Cover
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Fund's Management and Expenses
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
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10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Policies and Limitations
(b) ..................... Investment Policies and Limitations
(c) ..................... Investment Policies and Limitations
(d) ..................... Investment Policies and Limitations
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... Organization of the Fund
(b) ..................... Organization of the Fund
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers; Investment Management and
Other Services
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... Investment Management and Other Services
(d) ..................... *
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Organization of the Fund
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ **
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* Not Applicable or Negative Answer
** Included in the Prospectus
<PAGE>
March 9, 1995
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated March 9, 1995. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., its underwriter, at the address or telephone number below.
The SAI is incorporated by reference into this Prospectus and you will not be
aware of all facts unless you read both this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United Asset Strategy Fund, Inc.
This asset allocation fund seeks high total return with reduced risk over the
long term through investments in stocks, bonds, and short-term instruments.
Prospectus
March 9, 1995
UNITED ASSET STRATEGY FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
<PAGE>
Table of Contents
An Overview of the Fund..................................3
Expenses.................................................4
Performance..............................................5
Explanation of Terms................................5
About Waddell & Reed.....................................6
About the Fund's Investment Principles...................7
Investment Principles...............................7
Risk Considerations............................8
Securities and Investment Practices.................9
Fundamental Investment Policies and Restrictions....19
About Your Account.......................................20
Ways to Set Up Your Account ........................ 20
Buying Shares.......................................21
Minimum Investments.................................23
Adding to Your Account..............................23
Selling Shares......................................23
Shareholder Services................................25
Personal Service...............................25
Reports........................................25
Exchanges......................................26
Automatic Transactions.........................26
Dividends, Distributions, and Taxes.................26
Distributions..................................26
Taxes..........................................27
About the Fund's Management and Expenses.................29
WRIMCO and Its Affiliates...........................29
Breakdown of Expenses...............................30
Management Fee.................................30
Other Expenses.................................31
<PAGE>
An Overview of the Fund
Goal: United Asset Strategy Fund, Inc. seeks high total return with reduced
risk over the long term. The Fund seeks to reduce risk over the long term by
spreading its assets among stocks, bonds and short-term instruments, attempting
to moderate the risk potential of investing solely in one class of instruments.
As with any mutual fund, there is no assurance that the Fund will achieve its
goal.
Strategy: The Fund diversifies among stocks, bonds, and short-term instruments,
both in the United States and abroad, to pursue its specific goal. The Fund
designates a mix which represents the way the Fund's investments will generally
be allocated over the long term. This mix will vary over short-term periods as
Fund management adjusts the Fund's holdings - within defined ranges - based on
the current outlook for the different markets.
Mix
_ Stocks 40% _ Bonds 40%
(can range (can range
from from
10-60%) 20-60%)
_ Short-term 20%
(can range from
0-70%)
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940.
Purchases: You may buy shares of the Fund through Waddell & Reed, Inc. and
its account representatives. The price to buy a share of the Fund is the net
asset value of a share plus a sales charge. See "About Your Account" for
information on how to purchase shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Who May Want to Invest:
Asset allocation funds are designed for investors who want to diversify among
stocks, bonds, and short-term instruments, in one fund. If you are looking for
an investment that uses this technique in pursuit of high total return with
reduced risk, this Fund may be appropriate for you.
Risk Considerations: Because the Fund owns different types of investments,
its performance will be affected by a variety of factors. The value of the
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
allocating assets.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases 5.75%
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption feesNone
Exchange fee None
Annual Fund operating expenses.
Management fees1 0.81%
12b-1 fees2 0.25%
Other expenses3 0.29%
Total Fund
operating expenses4 1.35%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return5 and (2) redemption at the end of each time
period:
1 year $70
3 years $98
The purpose of the table is to assist you in understanding the various costs
and expenses that a shareholder of the Fund will bear directly or indirectly.
The expenses are pro forma and estimated for the first fiscal year of
operations. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
1The Management fee for the Fund is higher than that of most funds.
2Expense information reflects the maximum 12b-1 service fee. The 12b-1
service fee is paid as reimbursement for amounts actually expended by account
representatives, Waddell & Reed, Inc. and/or other third parties in connection
with the provision of personal services to Fund shareholders and/or maintenance
of shareholder accounts. See "Breakdown of Expenses" for further information
about the 12b-1 service fee.
3Estimated expenses for the first fiscal year of operation. Actual expenses may
be greater or lesser than those shown.
4Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
5Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
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Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing performance rankings.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Standardized total return figures reflect payment of the
maximum sales charge. The Fund may also provide non-standardized performance
information which does not reflect deduction of the sales charge or which is for
periods other than those required to be presented or which differs otherwise
from standardized performance information.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all shareholders.
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department which is part of the Waddell & Reed headquarters
operations in Overland Park, Kansas is available to assist you and your Waddell
& Reed account representative. You may speak with a customer service
representative by calling 913-236-2000.
About the Fund's Investment Principles
Investment Principles
The Fund seeks high total return with reduced risk over the long term by
allocating its assets among stocks, bonds, and short-term instruments.
Allocating assets among different types of investments allows the Fund to take
advantage of opportunities wherever they may occur, but also subjects the Fund
to the risks of a given investment type. Stock values generally fluctuate in
response to the activities of individual companies and general market and
economic conditions. The value of bonds and short-term instruments generally
fluctuates based on changes in interest rates and in the credit quality of the
issuer.
WRIMCO regularly reviews the Fund's allocation of assets and makes changes to
favor investments that it believes provide the most favorable outlook for
achieving the Fund's goal. Although WRIMCO uses its expertise and resources in
choosing investments and in allocating assets, WRIMCO's decisions may not always
be advantageous to the Fund. When you sell your shares, they may be worth more
or less than what you paid for them.
The Fund allocates its assets among the following classes, or types, of
investments. The stock class includes equity securities of all types. The bond
class includes all varieties of fixed-income instruments with maturities of more
than three years (including adjustable rate preferred stocks). The short-term
class includes all types of short-term instruments with remaining maturities of
three years or less. Within each of these classes, the Fund may invest in both
domestic and foreign securities.
WRIMCO has the ability to allocate the Fund's assets within specified ranges.
The Fund's mix indicates the benchmark for its combination of investments in
each class over time. WRIMCO may change the mix within the specified ranges
from time to time. The range and approximate percentage of the mix for each
asset class are shown below. Some types of investments, such as indexed
securities, can fall into more than one asset class.
Mix Range
- --------- ------
Stock
class 10-60% 40%
Bond
class 20-60% 40%
Short-term
class 0-70% 20%
In pursuit of the Fund's goal, WRIMCO will not try to pinpoint the precise
moment when a major reallocation should be made. Asset shifts among classes may
be made gradually over time. Under normal circumstances, a single reallocation
will not involve more than 10% of the Fund's total assets.
Within each class, WRIMCO seeks to maximize total return. WRIMCO seeks to
maximize total return within the stock class by actively allocating assets to
industry sectors expected to benefit from major trends, and to individual stocks
that WRIMCO believes to have superior growth potential. WRIMCO seeks to
maximize total return within the bond class by adjusting the Fund's investments
in securities with different credit qualities, maturities, and coupon or
dividend rates, and by seeking to take advantage of yield differentials between
securities. WRIMCO seeks to maximize total return within the short-term asset
class by taking advantage of yield differentials between different instruments,
issuers, and currencies. WRIMCO intends to take advantage of yield
differentials by considering the purchase or sale of instruments when
differentials on spreads between various grades and maturities of such
instruments approach extreme levels relative to long-term norms.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, as a temporary defensive measure at times when WRIMCO believes that
stocks, bonds and certain short-term instruments do not offer a good investment
opportunity, it may temporarily invest up to all of the Fund's assets in money
market instruments rated A-1 by Standard & Poor's Ratings Group ("S&P") or Prime
1 by Moody's Investor's Service, Inc. ("MIS"), or unrated securities judged by
WRIMCO to be of equivalent quality.
Risk Considerations
Because the Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of the 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 allocating assets. The Fund
diversifies across investment types more than most mutual funds. No one mutual
fund, however, can provide an appropriate balanced investment plan for all
investors.
As more fully discussed under "Securities and Investment Practices," certain
types of instruments in which the Fund may invest, and certain strategies WRIMCO
may employ in pursuit of the Fund's investment goal, involve special risks.
Lower-quality debt securities (commonly called "junk bonds") are considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than 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.
The Fund can use various techniques to increase or decrease its exposure to
changing security prices, interest rates, currency exchange rates, commodity
prices, or other factors that affect security values. These techniques may
involve derivative transactions. If WRIMCO judges market conditions incorrectly
or employs a strategy that does not correlate well with the Fund's investments,
these techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
the Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that the Fund has entered
into.
The value of mortgage-backed and asset-backed securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. These securities may also be
subject to prepayment risk. Stripped securities and direct debt involve risks
that are similar to those of other debt securities, although stripped securities
may be more volatile. Direct debt instruments may have additional risks beyond
conventional debt securities because they may entail less legal protection for
the Fund, or there may be a requirement that the Fund supply additional cash to
a borrower on demand.
See "Securities and Investment Practices" for a more detailed discussion
concerning the instruments in which the Fund may invest, and the strategies
WRIMCO may employ in pursuit of the Fund's investment goal.
Securities and Investment Practices
The following pages contain more detailed information about types of instruments
in which the Fund may invest, and strategies WRIMCO may employ in pursuit of the
Fund's investment goal. Certain types of instruments and investment practices
could entail significant risks and WRIMCO will invest in these instruments and
engage in these practices only to the extent that they are consistent with the
Fund's goal of high total return with reduced risk over the long term. A
summary of risks and restrictions associated with these instrument types and
investment practices is included as well. Policies and limitations are
typically considered at the time of purchase; the sale of instruments is usually
not required in the event of a subsequent change in circumstances.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing the Fund's holdings.
Please see the SAI for further information concerning the following instruments
and associated risks.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives the Fund the right to vote on
measures affecting the issuer's organization and operations. The Fund may
invest in domestic and foreign equity securities. Equity securities may include
common stocks, fixed-rate preferred stocks (including convertible preferred
stocks), warrants, rights, depositary receipts, securities of closed-end
investment companies, and other equity securities issued by companies of any
size, located anywhere in the world. Although common stocks and other equity
securities have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Restrictions: With respect to 75% of total assets, the Fund may not own more
than 10% of the outstanding voting securities of a single issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values.
Debt securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. As a general matter, however, when
interest rates rise, the values of fixed rate debt securities fall and
conversely, when interest rates fall, the value of fixed rate debt securities
rise. The values of floating and adjustable rate debt securities are not as
sensitive to changes in interest rates as the values of fixed rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
Debt securities rated AAA, AA, A and BBB by S&P or Aaa, Aa, A and Baa by MIS, or
unrated securities which are, in WRIMCO's opinion, of equivalent quality to
rated securities in these categories, are considered to be of investment grade
quality. Debt securities rated in the lowest investment grade category (BBB by
S&P or Baa by MIS), or comparable unrated securities, may have speculative
characteristics. Debt securities rated in the lower rating categories of the
established rating services (BB or lower by S&P or Ba or lower by MIS), or
comparable unrated securities, (commonly called "junk bonds") have predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. The Fund may invest
in debt securities rated in any rating category by an established rating service
and unrated securities judged by WRIMCO to be of equivalent quality. Debt
securities rated D by S&P or C by MIS are in payment default or are regarded as
having extremely poor prospects of ever attaining any real investment standing.
S&P and MIS ratings are described in Appendix A to the SAI. Credit ratings for
individual securities may change from time to time, and the Fund may retain a
portfolio security whose rating has been changed.
U.S. Government Securities are high-quality instruments issued or guaranteed as
to principal or interest by the U.S. Treasury or by an agency or instrumentality
of the U.S. government. Not all U.S. Government Securities are backed by the
full faith and credit of the United States. Some are supported only by the
credit of the agency that issued them.
Lower-quality debt securities ("junk bonds") are considered to be speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than high-quality securities and may decline significantly in periods of
general economic difficulty. While the market for high yield, high-risk
corporate debt securities has been in existence for many years and has weathered
previous economic downturns, the 1980s brought a dramatic increase in the use of
such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by the
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in its portfolio in an attempt to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments. The
Fund may choose, at its expense or in conjunction with others, to pursue
litigation or otherwise to exercise its rights as a security holder to seek to
protect the interests of security holders if it determines this to be in the
best interest of the Fund's shareholders.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Restrictions: The Fund may not invest more than 35% of its assets in lower-
quality debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, the Fund
does not currently intend to invest more than 20% of its total assets in
securities rated below investment-grade or judged by WRIMCO to be of equivalent
quality.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to the
SAI. Preferred stock rated AAA, AA, A or BBB by S&P or aaa, aa, a or baa by MIS
is considered to be of investment grade. Preferred stock rated BB or lower by
S&P or ba or lower by MIS is considered to have speculative characteristics.
The Fund may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be of
equivalent quality.
Convertible Securities. A convertible security is bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally (1) have higher yields than those of
common stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, (2) are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and (3) provide
the potential for capital appreciation if the market price of the underlying
common stock increases. Convertible securities are usually subordinated to
comparable-tier nonconvertible securities but rank senior to common stock in the
corporation's capital structure. The value of a convertible security is a
function of (1) its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege, and (2)
its worth, at market value, if converted into the underlying common stock.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit
standing of the issuer and other factors also may have an effect on the
convertible security's investment value. The conversion value of a convertible
security is determined by the market price of the underlying common stock. If
the conversion value is low relative to the investment value, the price of the
convertible security is governed principally by its investment value and
generally the conversion value decreases as the convertible security approaches
maturity. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
Convertible securities are typically issued by smaller capitalized companies
whose stock prices may be volatile. A convertible security may be subject to
redemption at the option of the issuer at a price established in the security's
governing instrument. If a convertible security held by the Fund is called for
redemption, the Fund will be required to convert it into the underlying common
stock, sell it to a third party or permit the issuer to redeem the security.
Any of these actions could have an adverse effect on the Fund's ability to
achieve its investment objective.
Money Market Instruments are high-quality 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, bankers'
acceptances, bank deposits, and other financial institution obligations. These
instruments may carry fixed or variable interest rates.
Restrictions: The Fund does not currently intend to invest in money-market
instruments rated below A-1 by S&P or Prime 1 by MIS, or judged by WRIMCO to be
of equivalent quality.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate or counter these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
The Fund may invest in foreign securities that impose restrictions on transfer
within the U.S. or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Restrictions: Under normal conditions, the Fund intends to limit its
investments in foreign securities to no more than 50% of total assets. The Fund
currently intends to limit its investments in obligations of any single foreign
government to less than 25% of its total assets.
Derivative Transactions. The Fund can use various techniques to increase or
decrease its exposure to changing security prices, interest rates, currency
exchange rates, commodity prices, or other factors that affect security values.
These techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into currency exchange contracts or swap
agreements, and purchasing indexed 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
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities, or cash in the case of an option on a stock index, subject to
the call or the collateral underlying the put until a closing purchase
transaction can be entered into or the option expires. Because index options
are settled in cash, the Fund cannot provide in advance for its potential
settlement obligations on a call it has written on an index by holding the
underlying securities. The Fund bears the risk that the value of the securities
it holds will vary from the value of the index. Option transactions may
increase the Fund's portfolio turnover rate creating greater commission
expenses, transaction costs and tax consequences.
Since futures contracts and options thereon can replicate movements in the cash
markets for the securities in which the Fund invests without the large cash
investments required for dealing in such markets, they may subject the Fund to
greater and more volatile risks than might otherwise be the case. The principal
risks related to the use of such instruments are: imperfect correlation between
movements in the market price of the portfolio investments (held or intended)
and in the price of the futures contract or option; possible lack of a liquid
secondary market for closing out futures or options positions; the need for
additional portfolio management skills and techniques; and losses due to
unanticipated market price movements. The ordinary spreads between prices in
the cash and futures markets, due to the differences in the natures of those
markets, are subject to distortion. Due to the possibility of distortion, a
correct forecast of general interest or stock market trends by WRIMCO may still
not result in a successful transaction. WRIMCO may be incorrect in its
expectations as to the extent of various interest rate movements or stock market
movements or the time span within which the movements take place.
Gains and losses on investments in options and futures contracts depends on
WRIMCO's ability to predict correctly the direction of stock prices, interest
rates and other economic factors. See the SAI for further information about
these instruments and their risks.
Currencies may be exchanged on a spot (i.e., cash) basis, or by entering into
forward currency contracts to purchase or sell foreign currencies at a future
date, at a price set when the contract is entered into. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged. Successful use of forward currency contracts will depend on WRIMCO's
skill in analyzing and predicting currency values. Forward currency contracts
may substantially change the Fund's investment exposure to changes in currency
exchange rates, and could result in losses to the Fund if currencies do not
perform as WRIMCO anticipates. There is no assurance that WRIMCO's use of
forward currency contracts will be advantageous to the Fund or that it will
hedge at an appropriate time.
With respect to the Fund's options, futures and forward currency contract
positions, the Fund will segregate assets as described in the SAI.
Swap agreements can take many different forms and are known by a variety of
names. The Fund is not limited to any particular form of swap agreement if
WRIMCO determines it is consistent with the Fund's investment objective and
policies. In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level, while the seller of an interest rate floor is
obligated to make payments to the extent that a specified interest rate falls
below an agreed-upon level. An interest rate collar combines elements of buying
a cap and selling a floor. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of the Fund's investments and its
share price and yield. The most significant factor in the performance of swap
agreements is the change in the specific interest rate, currency, or other
factors that determine the amounts of payments due to and from the Fund. If,
however, a swap agreement calls for payments by the Fund, the Fund must be
prepared to make such payments when due. In addition, if the counterparty's
creditworthiness declined, the value of a swap agreement would be likely to
decline, potentially resulting in losses.
Indexed securities are securities whose prices are indexed to the prices of
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. The
performance of indexed securities depends to a great extent on the performance
of the security, currency, or other instrument to which they are indexed, and
may also be influenced by interest rate changes in the U.S. and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
The Fund may invest in derivative mortgage-backed securities. These securities
are subject to significant market risks. See "Mortgage-Backed and Asset-Backed
Securities".
WRIMCO can use each of the practices described above for hedging purposes and
for speculative purposes. The use of derivative techniques for speculative
purposes can increase investment risk. See the SAI for further information
regarding the risks associated with these techniques.
Restrictions: The Fund does not currently intend to invest more than 5% of its
total assets in forward currency contracts.
Mortgage-Backed and Asset-Backed Securities may include pools of consumer loans
or mortgages, such as collateralized mortgage obligations and stripped mortgage-
backed securities. The value of these securities may be significantly affected
by changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved. The effective maturities of these
securities are estimated based upon expected prepayments. Rates of prepayment
that exceed or do not meet those anticipated may affect total return and
increase risk.
Restrictions: The Fund does not currently intend to invest more than 40% of its
total assets in mortgage-backed securities.
The Fund does not currently intend to invest in any non-mortgage asset-backed
securities.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates. As interest rates fall, prepayment rates tend to increase, which tends
to reduce prices of "interest only" securities and increase prices of "principal
only" securities. Rising interest rates can have the opposite effect.
Restrictions: The Fund does not currently intend to invest more than 5% of its
total assets in stripped securities.
Direct Debt. Loans and other direct debt instruments are interests in amounts
owed to another party by a company, government, or other borrower. They have
additional risks beyond conventional debt securities.
Investments in direct debt instruments may entail less legal protection for the
Fund. Certain types of direct indebtedness purchased by the Fund, such as
letters of credit, revolving credit facilities, or other standby financing
commitments, obligate the Fund to pay additional cash on demand. These
commitments may have the effect of requiring the Fund to increase its investment
in a borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
Other types of direct debt instruments, such as loans through direct assignment
of a financial institution's interest with respect to a loan, may involve
additional risks to the Fund. For example, if a loan is foreclosed, the Fund
could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price fluctuations.
Because the Fund is not required to pay for securities until the delivery date,
these risks are in addition to the risks associated with the Fund's other
investments. If the Fund remains substantially fully invested at a time when
delayed-delivery purchases are outstanding, the delayed-delivery purchases may
result in a form of leverage. When delayed-delivery purchases are outstanding,
the Fund will set aside appropriate liquid assets in a segregated custodial
account to cover its purchase obligations.
When the Fund has sold a security on a delayed-delivery basis, the Fund does not
participate in further gains or losses with respect to the security. If the
other party to a delayed-delivery transaction fails to deliver or pay for the
securities, the Fund could miss a favorable price opportunity, or could suffer a
loss. The Fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
Restrictions: The Fund does not currently intend to invest more than 5% of its
total assets in when-issued and delayed delivery transactions.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Restricted and Illiquid Securities. The Fund may invest in restricted
securities, which are securities that are subject to legal or contractual
restrictions on resale. The Fund may also invest in illiquid investments.
Illiquid investments may be difficult to sell promptly at an acceptable price.
Difficulty in selling securities may result in a loss or may be costly to the
Fund.
Restrictions: The Fund may not purchase a security if, as a result, more than
15% of its assets would be invested in illiquid investments.
Other Instruments may include depositary receipts, rights, warrants and
securities of closed-end investment companies.
Restrictions: The Fund does not currently intend to invest more than 10% of its
total assets in securities of other investment companies, subject to the
limitations explained in the SAI.
Diversification. Diversifying a fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Restrictions: With respect to 75% of total assets, the Fund may not invest more
than 5% of its total assets in any one issuer. The Fund also may not invest
more than 25% of its total assets in any one industry. These limitations do not
apply to U.S. Government Securities.
Borrowing. The Fund may borrow from banks. If the Fund borrows money, its
share price may be subject to greater fluctuation until the borrowing is paid
off. If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Restrictions: The Fund may borrow only for emergency or extraordinary purposes,
but not in an amount exceeding 33 1/3% of its total assets.
Lending. The Fund may lend securities to broker-dealers and institutions on a
short-term or long-term basis for the purpose of increasing income. This
practice could result in a loss or a delay in recovering the Fund's securities.
Loans will be made only to parties deemed by WRIMCO to be creditworthy.
Restrictions: Securities loans, in the aggregate, may not exceed 10% of the
Fund's total assets.
Fundamental Investment Policies and Restrictions
Some of the policies and restrictions discussed on the preceding pages are
fundamental, that is, subject to change only by shareholder approval. The
following paragraph restates all those that are fundamental. All policies
stated throughout this Prospectus, other than those identified in the following
paragraph, can be changed by the Fund's Board of Directors without shareholder
approval.
The Fund seeks high total return with reduced risk over the long term by
allocating its assets among stocks, bonds, and short-term instruments. With
respect to 75% of total assets, the Fund may not invest more than 5% of its
total assets in any one issuer and may not own more than 10% of the outstanding
voting securities of a single issuer. The Fund may not invest more that 25% of
its total assets in any one industry. The Fund may borrow only for temporary or
emergency purposes, but not in an amount exceeding 33 1/3% of its total assets.
Securities loans, in the aggregate, will be limited to 10% of total assets.
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- ----------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
- -----------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions,
or other groups
- -----------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70/
with earned income to invest up to $2,000 per tax year. The maximum is $2,250
if the investor's spouse has less than $250 of earned income in the taxable
year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -----------------------------------------------------
Gifts or Transfers to a Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
- -----------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use
a trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- ------------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price (price to buy one share) is the Fund's net asset value
("NAV") plus the sales charge shown in the table to the right.
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- --------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's NAV is the value of a single share. The NAV is computed by adding up
the value of the Fund's investments, cash, and other assets, subtracting its
liabilities, and then dividing the result by the number of shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds which offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open. The Fund normally calculates its net asset value as of the later of the
close of business of the NYSE, normally 4 p.m. Eastern time, or the close of the
regular session of any other securities or commodities exchange on which an
option or future held by the Fund is traded
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
The Fund does not issue certificates representing shares of the Fund.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of any of
the funds in the United Group, to the extent otherwise permitted, except United
Municipal Bond Fund, Inc., United Cash Management, Inc., United Government
Securities Fund, Inc. and United Municipal High Income Fund, Inc., with the net
asset value of shares already held ("rights of accumulation") and by grouping
all purchases made during a thirteen-month period ("Statement of Intention").
Shares of another fund purchased through a "contractual plan" may not be
included unless the plan has been completed. Purchases by certain related
persons may be grouped. Additional information and applicable forms are
available from Waddell & Reed account representatives.
Fund shares may be purchased at net asset value by the Directors and officers of
the Fund, employees of Waddell & Reed, Inc., employees of their affiliates,
account representatives of Waddell & Reed, Inc. and the spouse, children,
parents, children's spouses and spouse's parents of each such Director, officer,
employee and account representative. Purchases in certain retirement plans and
certain trusts for these persons may also be made at net asset value. Purchases
in a 401(k) plan having 100 or more eligible employees and purchases in a 457
plan having 100 or more eligible employees may be made at net asset value.
Shares may also be issued at net asset value in a merger, acquisition or
exchange offer made pursuant to a plan of reorganization to which the Fund is a
party.
Minimum Investments
To Open an Account $500
For certain
exchanges $100
For certain
retirement
accounts and
accounts opened
through Automatic
Investment Service $50
For certain
retirement
accounts and
accounts opened
through payroll
deductions for or
by employees of
WRIMCO, Waddell &
Reed, Inc. and
their affiliates $25
To Add to an Account
For certain
exchanges $100
For Automatic
Investment
Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement, or
a letter showing your account number, the account registration, and stating
that you wish to purchase shares of United Asset Strategy Fund, Inc.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share) is the Fund's NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell & Reed
account representative, or write a "letter of instruction" with:
the name on the account registration,
the Fund's name,
the Fund account number,
the dollar amount or number of shares to be redeemed, and
any other applicable requirements listed in the table on the next page.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special Requirements
- ------------------ -------------------------------
Individual or The written instructions must be
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, UTMA The custodian must sign the
written instructions indicating
capacity as custodian.
Retirement account The written instructions must be
signed by a properly authorized
person.
Trust The trustee must sign the written
instructions indicating capacity
as trustee. If the trustee's
name is not in the account
registration, provide a currently
certified copy of the trust
document.
Business or At least one person authorized by
Organization corporate resolution to act on
the account must sign the written
instructions.
Conservator, The written instructions must be
Guardian or other signed by the person properly
fiduciary authorized by court order to act
in the particular fiduciary
capacity.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after your request is received and accepted. Note the following:
Written requests for redemption must be in good order, which requires that if
more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a federally
chartered savings and loan or a member firm of a national stock exchange or
other eligible guarantor in accordance with procedures of the Fund's transfer
agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned or
held by you having an aggregate NAV of less than $500. The Fund will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
You may reinvest in the Fund without charge all or part of the amount you
redeemed by sending to the Fund the amount you want to reinvest. The reinvested
amounts must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in shares of any of the funds in the
United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Fund shares and buy shares of other funds in the United
Group without payment of an additional sales charge. You may exchange only into
funds that are legally registered for sale in your state of residence. Note
that exchanges out of the Fund may have tax consequences for you. Before
exchanging into a fund, read its prospectus.
Subject to certain conditions, exchanges of shares of certain other funds in the
United Group and automatic monthly exchanges of shares of United Cash
Management, Inc. may be made into the Fund.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions
Flexible Withdrawal Service lets you set up monthly, quarterly, semiannual or
annual redemptions from your account.
Regular Investment Plans
allow you to transfer money into your Fund account, 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 Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an
existing account with the United Group
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc.
to another fund in the United Group, whether in
the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions, and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed in March, June,
September and December from the Fund's net investment income, which includes
accrued interest, earned discount, dividends and other income earned on
portfolio assets less expenses. Capital gains (and any net realized gains from
foreign currency transactions) ordinarily are distributed in December. The Fund
may make additional distributions if necessary to avoid Federal income or excise
taxes on its undistributed income and capital gains.
Distribution Options.
When you open an account, specify on your application how you want to receive
your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional shares of the Fund. If you do not indicate a
choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in shares, but you will be sent a check for each dividend
distribution.
3. Cash Option. You will be sent a check for your dividends and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in shares.
Taxes
The Fund intends to qualify for treatment as a regulated investment company
under the Internal Revenue Code of 1986 so that it will be relieved of Federal
income tax on that part of its investment company taxable income (consisting
generally of net investment income, net short-term capital gains and net gains
from certain foreign currency transactions) and net capital gains (the excess of
net long-term capital gain over net short term capital loss) that are
distributed to its shareholders.
There are tax requirements that all funds must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid in
additional Fund shares. Distributions of the Fund's realized net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or reinvested in additional Fund shares and regardless of the
length of time you have owned your shares. The Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year.
A portion of the dividends paid by the Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other Fund
in the United Group generally will have similar tax consequences. However,
special rules apply when you dispose of Fund shares through a redemption or
exchange within ninety days after your purchase thereof and subsequently
reacquire Fund shares or acquire shares of another fund in the United Group
without paying a sales charge due to the thirty-day reinvestment privilege or
exchange privilege. See "About Your Account." In these cases, any gain on the
disposition of the Fund shares would be increased, or loss decreased, by the
amount of the sales charge you paid when those shares were acquired, and that
amount will increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares at a loss, part or all of that loss will not be
deductible and will increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
About the Fund's Management and Expenses
United Asset Strategy Fund, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end diversified management investment company organized as a
corporation under Maryland law on August 25, 1994.
The Fund is governed by a Board of Directors, which has overall responsibility
for the management of the Fund's affairs. The majority of directors are not
affiliated with Waddell & Reed, Inc.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended, ("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.
The Fund only has one class of shares. Each share has the same rights to
dividends and to vote. Shares are fully paid and nonassessable when bought.
As of March 9, 1995, Waddell & Reed, Inc. owned of record and beneficially
100% of the Fund's outstanding shares.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds since 1940 or the inception of the company, whichever was
later, and to TMK/United Funds, Inc. since that fund's inception, until January
8, 1992, when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO has
also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. since each commenced operations in
February 1993.
James D. Wineland is primarily responsible for the day-to-day management of
the portfolio of the Fund. Mr. Wineland has held his Fund responsibilities
since the inception of the Fund. He is Vice President of WRIMCO, Vice President
of the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. Mr. Wineland has served as the portfolio manager
of investment companies managed by Waddell & Reed, Inc. and its successor,
WRIMCO, since January 1988 and has been an employee of Waddell & Reed, Inc. and
its successor, WRIMCO, since November 1984. Other members of WRIMCO's
investment management department provide input on market outlook, economic
conditions, investment research and other considerations relating to the Fund's
investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds, Waddell & Reed
Funds, Inc., and TMK/United Funds, Inc. Waddell & Reed Services Company acts as
transfer agent ("Shareholder Servicing Agent") for the Fund and processes the
payments of dividends. Waddell & Reed Services Company also acts as agent
("Accounting Services Agent") in providing bookkeeping and accounting services
and assistance to the Fund and pricing daily the value of shares of the Fund.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company and an indirect subsidiary of United Investors
Management Company, a holding company, and Torchmark Corporation, a holding
company.
WRIMCO places transactions for the Fund's portfolio and in doing so may consider
sales of shares of the Fund and other funds it manages as a factor in the
selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained on the next page.
Management Fee
The management fee is calculated by adding a group fee to a specific fee. It
is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .30 of 1% of net assets. The group fee
is a pro rata participation based on the relative net asset size of the Fund in
the group fee computed each day on the combined net asset values of all the
funds in the United Group at the annual rates shown in the following table.
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
------------ ---------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate. When
the group net asset level is less than $750,000,000, the management fee for the
Fund is higher than that of most funds. For example, when the group net asset
level is less than $750,000,000, the Fund will pay a total management fee of .81
of 1% of net assets (a specific fee of .30 of 1% of net assets plus a group fee
of .51 of 1% of net assets).
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. The Fund pays the Shareholder
Servicing Agent a monthly fee for each account that was in existence at any time
during the month and a fee for each account on which a dividend or distribution
had a record date during the month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act.
The Plan became effective as of the date of this prospectus. Under the Plan,
the Fund may pay monthly a fee to Waddell & Reed, Inc. in an amount not to
exceed .25% of the Fund's average annual net assets. The fee is to be paid to
reimburse Waddell & Reed, Inc. for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts. In particular, the Service Plan and a related Service
Agreement between the Fund and Waddell & Reed, Inc. contemplate that these
expenditures may include costs and expenses incurred by Waddell & Reed, Inc. and
its affiliates in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Fund shareholders and/or maintaining shareholder accounts;
increasing services provided to Fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
services to Fund shareholders and/or the maintenance of shareholder accounts;
and in compensating broker-dealers who may regularly sell Fund shares, and other
third parties, for providing shareholder services and/or maintaining shareholder
accounts.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
it is anticipated that the annual turnover rate for the common stock portion of
its portfolio will not exceed 200% and that the annual turnover rate for the
other potion of its portfolio will not exceed 200%. A turnover rate in excess
of 100% could be considered high. A higher turnover will increase transaction
and commission costs and could generate taxable income or loss.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
February 24, 1995
Assets
Cash held by the Custodian ...................... $100,000
Unamortized organization expenses (Note 1) ...... 48,800
--------
Total assets .................................. 148,800
Liabilities
Accrued liabilities (Note 1) .................... (48,800)
--------
Total net assets .............................. $100,000
............................................... ========
Net Assets
$0.01 par value capital stock
Capital stock ................................. $ 200
Additional paid-in capital .................... 99,800
--------
Net assets applicable to outstanding units
of capital ................................. $100,000
========
Net asset value, redemption and offering
price per share ................................. $5.00
======
Capital shares outstanding ......................... 20,000
Capital shares authorized ........................ 1,000,000,000
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
NOTE 1 -- Organization
United Asset Strategy Fund, Inc. (the "Fund"), a Maryland corporation, was
organized on August 25, 1994 and has been inactive since that date except for
matters relating to its organization and registration as an investment company
under the Investment Company Act of 1940 and the registration of its shares
under the Securities Act of 1933.
On February 23, 1995, Waddell & Reed, Inc. ("W&R") purchased for investment
20,000 shares of the Fund at their net asset value of $5.00 per share.
Organizational expenses estimated to be $48,800, which have been advanced
by W&R, have been accrued as deferred organizational expenses. These costs will
be amortized and are payable evenly over the 60-month period following the date
of the Prospectus. In the event that all or any part of W&R's initial
investment in the Fund's shares is redeemed prior to the full reimbursement of
these organizational expenses, the Fund's obligation to make further
reimbursement will cease.
Waddell & Reed Investment Management Company ("WRIMCO"), investment manager
to the Fund, and Waddell & Reed Services Company, shareholder servicing agent
and accounting services agent for the Fund, are each wholly-owned subsidiaries
of W&R. W&R is an indirect subsidiary of Torchmark Corporation, a publicly held
company whose address in 2001 Third Avenue South, Birmingham, Alabama 35233.
W&R is an indirect subsidiary of United Investors Management Company, of which
Torchmark Corporation is the parent company. W&R is a direct subsidiary of
Waddell & Reed Financial Services, Inc., a holding company. Torchmark
Corporation is also the parent company of Liberty National Life Insurance
Company, Globe Life & Accident Insurance Company, American Insurance Company,
United Investors Life Insurance Company and others.
INDEPENDENT ACCOUNTANT'S REPORT
To the Shareholder and Board of Directors of
United Asset Strategy Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of United Asset
Strategy Fund, Inc. ("the Fund") at February 24, 1995, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
February 27, 1995
<PAGE>
United Asset Strategy Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C.
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
Shawnee Mission, Kansas
66201-9217 Accounting Services
(913) 236-2000 Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
<PAGE>
United Asset Strategy Fund, Inc.
PROSPECTUS
March 9, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1017(3-95)
printed on recycled paper
<PAGE>
APPENDIX TO ELECTRONIC FILING ONLY
DESCRIBING GRAPH IN PROSPECTUS
SECTION "AN OVERVIEW OF THE FUND"
FOLLOWING THE PARAGRAPH BEGINNING "STRATEGY"
A pie chart divided into three parts, reflecting the mix "Stocks," "Bonds," and
Short-term." The stocks and bonds slices are each 40% of the pie and the short-
term slice is 20% of the pie.
<PAGE>
UNITED ASSET STRATEGY FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
March 9, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the prospectus
(the "Prospectus") of United Asset Strategy Fund, Inc. (the "Fund") dated March
9, 1995, which may be obtained from the Fund or its underwriter, Waddell & Reed,
Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Investment Policies and Limitations ................ _
Portfolio Transactions and Brokerage ............... _
Purchase, Redemption and Pricing of Shares ......... __
Performance Information ............................ _
Payments to Shareholders ........................... __
Taxes .............................................. __
Investment Management and Other Services ........... __
Directors and Officers ............................. __
Organization of the Fund ........................... __
Appendix A ......................................... __
<PAGE>
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Fund's investment policies and limitations.
The Fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940) of the Fund. However, except
for the fundamental investment limitations set forth below, the investment
policies and limitations of the Fund are not fundamental and may be changed by
the Board of Directors without shareholder approval.
The following are the Fund's fundamental investment limitations set forth
in their entirety. The Fund may not:
(1) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
United States government, or any of its agencies or instrumentalities) if, as a
result thereof, (a) more than 5% of the Fund's total assets would be invested in
the securities of such issuer, or (b) the Fund would hold more than 10% of the
outstanding voting securities of such issuer;
(2) issue bonds or any other class of securities preferred over shares of
the Fund in respect of the Fund's assets or earnings, provided that the Fund may
issue additional series and classes of shares in accordance with its Articles of
Incorporation;
(3) sell securities short, provided that transactions in futures
contracts, options and other financial instruments are not deemed to constitute
short sales;
(4) purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that the Fund may make initial and variation margin payments in
connection with transactions in futures contracts, options and other financial
instruments;
(5) borrow money, except that the Fund may borrow money for emergency or
extraordinary purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of its total assets (less liabilities other than
borrowings). Any borrowings that come to exceed 33 1/3% of the value of the
Fund's total assets by reason of a decline in net assets will be reduced within
three days to the extent necessary to comply with the 33 1/3% limitation. For
purposes of this limitation, "three days" means three days, exclusive of Sundays
and holidays;
(6) underwrite securities issued by others, except to the extent that the
Fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities;
(7) purchase the securities of any issuer (other than obligations issued
or guaranteed by the United States government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's total assets
(taken at current value) would be invested in the securities of issuers having
their principal business activities in the same industry;
(8) invest in real estate limited partnerships or purchase or sell real
estate unless acquired as a result of ownership of securities (but this shall
not prevent the Fund from purchasing and selling securities issued by companies
or other entities or investment vehicles that deal in real estate or interests
therein, nor shall this prevent the Fund from purchasing interests in pools of
real estate mortgage loans);
(9) purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this shall not prevent the Fund from purchasing and
selling currencies, futures contracts, options, forward currency contracts or
other financial instruments);
(10) make loans, except (a) by lending portfolio securities provided that
no securities loan will be made if, as a result thereof, more than 10% of the
Fund's total assets (taken at current value) would be lent to another party; (b)
through the purchase of a portion of an issue of debt securities in accordance
with its investment objective, policies, and limitations; and (c) by engaging in
repurchase agreements with respect to portfolio securities; or
(11) purchase or retain the securities of an issuer if the officers and
directors of the Fund and of Waddell & Reed Investment Company, the Fund's
investment manager ("WRIMCO"), owning beneficially more than / of 1% of the
securities of an issuer together own beneficially more than 5% of the securities
of that issuer.
The following investment limitations are not fundamental and may be changed
by the Board of Directors without shareholder approval.
(i) The Fund may borrow money only from a bank. The Fund will not
purchase any security while borrowings representing more than 5% of its total
assets are outstanding.
(ii) The Fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in illiquid
investments.
(iii) The Fund does not currently intend to lend assets other than
securities to other parties, except by acquiring loans, loan participations, or
other forms of direct debt instruments. (This limitation does not apply to
purchases of debt securities or to repurchase agreements.)
(iv) The Fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission except
the ordinary broker's commission is paid and if, as a result of such purchase,
the Fund does not have more than 10% of its total assets invested in such
securities, or (b) purchase or retain securities issued by other open-end
investment companies. Limitations (a) and (b) do not apply to securities
received as dividends, through offers of exchange, or as a result of a
reorganization, consolidation, or merger. As a shareholder in an investment
company, the Fund would bear its pro rata share of that investment company's
expenses, which could result in duplication of certain fees, including
management and administrative fees. However, in the event that the Fund
purchases or retains securities issued by any other open-end investment company,
WRIMCO will waive its advisory fee on that portion of the Fund's assets invested
in such securities and the Fund will only purchase securities of no-load, open-
end investment companies.
(v) The Fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivision thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation. This restriction does not apply to any obligations issued
or guaranteed by the U.S. government, its agencies or instrumentalities, or to
collateralized mortgage obligations, other mortgage-related securities, asset-
backed securities or indexed securities.
(vi) The Fund does not currently intend to purchase warrants, valued at
the lower of cost or market, in excess of 5% of the Fund's net assets. Included
in that amount, but not to exceed 2% of the Fund's net assets, may be warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the Fund in units or attached to securities are
not subject to these restrictions.
(vii) The Fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
For the Fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions."
Asset Allocation. The short-term class includes all types of domestic and
foreign securities and money market instruments with remaining maturities of
three years or less. Short-term instruments may include corporate debt
securities, such as commercial paper and notes; government securities issued by
U.S. or foreign governments or their agencies or instrumentalities; bank
deposits and other financial institution obligations; repurchase agreements
involving any type of security; and other similar short-term instruments. These
instruments may be denominated in U.S. dollars or foreign currency.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. Securities in this class
may include bonds, notes, adjustable-rate preferred stocks, convertible bonds,
mortgage-related and asset-backed securities, domestic and foreign government
and government agency securities, zero coupon bonds, and other intermediate and
long-term securities. As with the short-term class, these securities may be
denominated in U.S. dollars or foreign currency. The Fund may also invest in
lower quality, high-yielding debt securities (commonly referred to as "junk
bonds"). The Fund currently intends to limit its investments in these
securities to 20% of its assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks which are included in the
bond class). Securities in the stock class may include common stocks, fixed-
rate preferred stocks (including convertible preferred stocks), warrants,
rights, depositary receipts, securities of closed-end investment companies, and
other equity securities issued by companies of any size, located anywhere in the
world.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Illiquid Investments are investments that cannot be sold or disposed of
in the ordinary course of business within seven days at approximately the prices
at which they are valued. Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days, over-the-counter options, non-
government stripped fixed-rate mortgage-backed securities, direct debt
instruments, restricted securities and swap agreements. However, certain
restricted securities, such as securities eligible for resale under Rule 144A of
the Securities Act of 1933 and commercial paper which is exempt from
registration under Section 4(2) of the Securities Act of 1933, will not be
considered by the Fund to be illiquid if WRIMCO has made a determination of
liquidity pursuant to procedures adopted by the Fund's Board of Directors. With
respect to over-the-counter options the Fund writes, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets held
to cover the option and the nature and terms of any agreement the Fund may have
to close out the option before expiration. In the absence of market quotations,
illiquid investments are priced at fair value as determined in good faith by a
committee appointed by the Board of Directors. If through a change in values,
net assets, or other circumstances, the Fund were in a position where more than
15% of its net assets were invested in illiquid securities, it would seek to
take appropriate steps to protect liquidity.
Restricted Securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, 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.
Securities Lending. The Fund may lend securities to creditworthy parties
such as broker-dealers or institutional investors.
Securities lending allows the Fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by WRIMCO to be creditworthy. Furthermore, securities
loans will only be made if, in WRIMCO's judgment, the consideration to be earned
from such loans would justify the risk.
WRIMCO understands that it is the current view of the Securities and
Exchange Commission ("SEC") Staff that the Fund may engage in loan transactions
only under the following conditions: (1) the Fund must receive 100% collateral
in the form of cash or cash equivalents (e.g., U.S. Treasury bills or notes)
from the borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis) rises above
the value of the collateral; (3) after giving notice, the Fund must be able to
terminate the loan at any time; (4) the Fund must receive reasonable interest on
the loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to any
increase in market value; (5) the Fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Directors must be able to vote
proxies on the securities loaned, either by terminating the loan or by entering
into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the Fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
Repurchase Agreements. In a repurchase agreement, the Fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date. The resale price reflects the
purchase price plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked to market daily) of the underlying
security. The Fund may engage in a repurchase agreement with respect to any
security in which it is authorized to invest. While it does not presently
appear possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delays and costs to the Fund in connection with bankruptcy proceedings),
it is the Fund's current policy to limit repurchase agreement transactions to
those parties whose creditworthiness has been reviewed and found satisfactory by
WRIMCO on the basis of criteria established by the Board of Directors.
Variable or Floating Rate Instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries. 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.
Delayed-Delivery Transactions. The Fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
by the Fund to purchase or sell specific securities at a predetermined price or
yield, with payment and delivery taking place after the customary settlement
period for that type of security (and more than seven days in the future).
Typically, no interest accrues to the purchaser until the security is delivered.
The Fund may receive fees for entering into delayed-delivery transactions.
Warrants. Warrants basically are options to purchase equity securities at
specific prices valid for a specific period of time. The prices do not
necessarily move parallel to the prices of the underlying securities. Warrants
have no voting rights, receive no dividends and have no rights with respect to
the assets of the issuer.
Mortgage-Backed Securities. The Fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. A mortgage-backed security
may be an obligation of the issuer backed by a mortgage or pool of mortgages or
a direct interest in an underlying pool of mortgages. Some mortgage-backed
securities, such as collateralized mortgage obligations ("CMOs"), make payments
of both principal and interest at a variety of intervals; others make semiannual
interest payments at a predetermined rate and repay principal at maturity (like
a typical bond). Mortgage-backed securities are based on different types of
mortgages including those on commercial real estate or residential properties.
Other types of mortgage-backed securities will likely be developed in the
future, and the Fund may invest in them if WRIMCO determines they are consistent
with the Fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment occurs when unscheduled or early payments are made on the underlying
mortgages.
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.
Asset-Backed Securities. Asset-backed securities represent interest in
pools of consumer loans (generally unrelated to mortgage loans) and most often
are structured as pass-through securities. Interest and principal payments
ultimately depend upon payment of the underlying loans by individuals, although
the securities may be supported by letters of credit or other credit
enhancements. The value of asset-backed securities may also depend on the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans, or the financial institution providing the credit enhancement.
Zero Coupon Bonds. A broker-dealer creates a derivative zero by separating
the interest and principal components of a U.S. Treasury security and selling
them as two individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
government, a government agency, or a corporation in zero coupon form.
Swap Agreements. Swap agreements, including caps, collars and floors, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the Fund's exposure to long- or short-
term interest rates (in the U.S. or abroad), foreign currency values, mortgage-
backed security values, corporate borrowing rates, or other factors such as
security prices or inflation rates.
Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options.
The creditworthiness of firms with which the Fund enters into interest rate
swaps, caps or floors will be monitored by WRIMCO in accordance with procedures
adopted by the Fund's Board of Directors. 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, U.S. Government Securities or other liquid high grade debt
obligations having an aggregate net asset value at least equal to the accrued
excess will be maintained in an account by a custodian that satisfies the
requirements of the Investment Company Act of 1940, as amended ("1940 Act").
The Fund will also establish and maintain such segregated accounts 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 swaps, caps and floors do not constitute senior
securities under the 1940 Act and, accordingly, will not treat them as being
subject to the Fund's borrowing restrictions.
Indexed Securities. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators. 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. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting in a
security whose price tends to rise and fall together with gold prices.
Currency-indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer higher
yields than U.S. dollar-denominated securities of equivalent issuers. Currency-
indexed securities may be positively or negatively indexed; that is, their
maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also have
prices that depend on the values of a number of different foreign currencies
relative to each other.
Recent issuers of indexed securities have included banks, corporations,
and certain U.S. government agencies. WRIMCO will use its judgment in
determining whether indexed securities should be treated as short-term
instruments, bonds, stocks, or as a separate asset class for purposes of the
Fund's investment allocations, depending on the individual characteristics of
the securities. Certain indexed securities that are not traded on an
established market may be deemed illiquid.
Loans and Other Direct Debt Instruments. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower to
lenders or lending syndicates (loans and loan participations), to suppliers of
goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments are subject to the Fund's policies regarding the quality
of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally recognized
rating service. If the Fund does not receive scheduled interest or principal
payments on such indebtedness, the Fund's share price could be adversely
affected. Loans that are fully secured offer the Fund more protections than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities responsible for
the repayment of the debt may be unable, or unwilling, to pay interest and
principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund. For
example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the Fund could be held liable as a co-
lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to the Fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
the Fund relies on WRIMCO's research in an attempt to avoid situations where
fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of the Fund were determined to be
subject to the claims of the agent's general creditors, the Fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the Fund to pay additional cash on demand. These commitments may have the
effect of requiring the Fund to increase its investment in a borrower at a time
when it would not otherwise have done so, even if the borrower's condition makes
it unlikely that the amount will ever be repaid. The Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments.
The Fund limits the amount of total assets that it will invest in any
one issuer or in issuers within the same industry (see limitations (1) and (7)).
For purposes of these limitations, the Fund generally will treat the borrower as
the "issuer" of indebtedness held by the Fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between the Fund and the borrower, if the participation does not
shift to the Fund the direct debtor-creditor relationship with the borrower, SEC
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict the Fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Foreign Investments. American Depositary Receipts and European Depositary
Receipts (ADRs and EDRs) are certificates evidencing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in U.S. and European securities markets, respectively, ADRs and
EDRs are alternatives to the purchase of the underlying securities in their
national markets and currencies and are not subject to the currency risk as in
the case of foreign denominated securities.
Foreign Currency Transactions. The Fund may hold foreign currency deposits
from time to time, and may convert dollars and foreign currencies in the foreign
exchange markets. Currencies may be exchanged on a spot (i.e., cash) basis, or
by entering into forward contracts to purchase or sell foreign currencies at a
future date, at a price set when the contract is entered into. Forward
contracts generally are traded in an interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated currency exchange.
The Fund may use forward currency contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Fund.
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into forward currency contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." WRIMCO expects to enter into settlement hedges in the normal course of
managing the Fund's foreign investments. The Fund could also enter into forward
contracts to hedge an anticipated dividend or interest payment denominated in a
foreign currency or in anticipation of future purchases or sales of securities
denominated in foreign currency, even if the specific investments have not yet
been selected by WRIMCO.
The Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutschemarks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
The Fund may also use forward currency contracts to shift the Fund's
exposure to foreign currency exchange rate changes from one foreign currency to
another. For example, if the Fund owns securities denominated in a foreign
currency and WRIMCO believes that currency will decline relative to another
currency, it might enter into a forward contract to sell the appropriate amount
of the first foreign currency with payment to be made in the second foreign
currency. Transactions that use two foreign currencies are sometimes referred
to as "cross hedging." Use of a different foreign currency magnifies the Fund's
exposure to foreign currency exchange rate fluctuations. The Fund may also
purchase forward currency contracts to enhance income when WRIMCO anticipates
that the foreign currency will appreciate in value, but securities denominated
in that currency do not present attractive investment opportunities.
Successful use of forward currency contracts will depend on WRIMCO's skill
in analyzing and predicting currency values. Forward contracts may
substantially change the Fund's investment exposure to changes in currency
exchange rates, and could result in losses to the Fund if currencies do not
perform as WRIMCO anticipates. There is no assurance that WRIMCO's use of
forward currency contracts will be advantageous to the Fund or that it will
hedge at an appropriate time.
At the maturity of a forward contract that the Fund has sold, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate the obligation to deliver the foreign
currency by purchasing an "offsetting" forward contract with the same currency
trader obligating the Fund to purchase, on the same maturity date, the same
amount of the foreign currency. However, the currency trader is not obligated
to enter into such an offsetting forward contract. It is impossible to forecast
with absolute precision the market value of portfolio securities at the
expiration of the forward contract. Accordingly, if the Fund determines to sell
the portfolio security and make delivery of the underlying foreign currency, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in forward contract prices. Should forward prices decline during the
period between the Fund's entering into a forward contract for the sale of a
foreign currency and the date it enters into the offsetting forward contract,
the Fund will realize a gain to the extent the price at which it has agreed to
sell the foreign currency exceeds the price at which it has agreed to purchase
the foreign currency. Should forward prices increase, it will suffer a loss to
the extent the price at which it has agreed to purchase the foreign currency
exceeds the price at which it has agreed to sell the foreign currency. The
policies described in this section are non-fundamental policies of the Fund.
Limitations of Futures and Options Transactions. The Fund must operate
within certain restrictions as to positions in futures contracts, options on
futures contracts and options on a foreign currency traded on an exchange
regulated by the Commodity Futures Trading Commission ("CFTC") under a rule
("CFTC Rule") adopted by the CFTC under the Commodity Exchange Act ("CEA") to be
eligible for the exclusion provided by the CFTC Rule from regulation by the Fund
with the CFTC as a "commodity pool operator" (as defined under the CEA), and
must represent to the CFTC that it will operate within such restrictions. Under
these restrictions, to the extent that the Fund enters into futures contracts,
options on futures contracts and options on foreign currencies traded on a CFTC-
regulated exchange, in each case that are not for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the amount by which options are "in-the-
money") may 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.)
In addition, the Fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the Fund's
total assets would be hedged with futures and options under normal conditions;
or (b) purchase futures contracts or write put options if, as a result, the
Fund's total obligations upon settlement or exercise of purchased futures
contracts and written put options would exceed 25% of its total assets. These
limitations do not apply to options attached to or acquired or traded together
with their underlying securities, and do not apply to securities that
incorporate features similar to options. The Fund will not invest in puts,
calls, straddles, spreads, and any combination thereof if by reason thereof the
value of its aggregate investment in such classes of securities will exceed 5%
of its total assets. For as long as required by applicable state securities
regulation, (1) the aggregate value of securities underlying put options written
by the Fund, determined as of the date the put options are written, will not
exceed 50% of the Fund's net assets, (2) the Fund will only buy or sell (a)
options on securities, indices or futures contracts, or (b) futures contracts,
in each case that are offered through the facilities of a national securities
association or that are listed on a national securities or commodities exchange,
other than the permitted OTC options described under "Investment Policies and
Limitations -- OTC Options" below, (3) the aggregate premiums paid on all
options on securities, indices or futures contracts purchased by the Fund that
are held at any time will not exceed 20% of the Fund's total net assets, and (4)
the aggregate margin deposits on all futures and options thereon held at any
time by the Fund will not exceed 5% of the Fund's total assets.
The above limitations on the Fund's investments in futures contracts and
options, and the Fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, may be changed
as regulatory agencies permit.
Futures Contracts. When the Fund purchases a futures contract, it agrees
to purchase a specified underlying instrument or commodity at a specified future
date. When the Fund sells a futures contract, it agrees to sell the underlying
instrument or commodity at a specified future date. The price at which the
purchase and sale will take place is fixed when the Fund enters into the
contract. Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on indices
of securities prices, such as the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). Futures contracts are also traded on commodities, such as
precious metals, foreign currencies, and other financial instruments. Futures
can be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument or commodity. Therefore, purchasing
futures contracts will tend to increase the Fund's exposure to positive and
negative price fluctuations in the underlying instrument or commodity, much as
if it had purchased the underlying instrument or commodity directly. When the
Fund sells a futures contract, in contrast, the value of its futures position
will tend to move in a direction contrary to the market. Selling futures
contracts, therefore, will tend to offset both positive and negative market
price changes, much as if the underlying instrument or commodity had been sold.
Purchasing Put and Call Options. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the underlying instrument at
a fixed strike price. In return for this right, the Fund pays the current
market price for the option (known as the option premium). Options have various
types of underlying instruments, including specific securities, indices of
securities prices, currencies, and futures contracts. The Fund may terminate
its position in a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the Fund will lose
the entire premium it paid. If the Fund exercises the option, it completes the
sale of the underlying instrument at the strike price. The Fund may also
terminate a put option position by closing it out in the secondary market at its
current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if the
underlying instrument's price falls substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing the
option, a put buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in a potential price
increase in the underlying instrument with risk limited to the cost of the
option if the instrument's price falls. At the same time, the buyer can expect
to suffer a loss if the instrument's price does not rise sufficiently to offset
the cost of the option.
Writing Put and Call Options. When the Fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. The Fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid, however, the Fund must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to set aside assets to cover its
position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This
loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
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 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.
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 it has
been assigned until the next business day at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a covered call
on a specific underlying security, such as 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.
Options on Futures Contracts. When the Fund writes an option on a futures
contract, it becomes obligated, in return for the premium paid, to assume a
position in the futures contract at a specified exercise price at any time
during the term of the option. If the Fund has written a call, it becomes
obligated to assume a "short" position in the futures contract, which means that
it is required to deliver the underlying securities. If it has written a put,
it becomes obligated to assume a "long" position in the futures contract, which
means that it is required to take delivery of the underlying securities. When
the Fund purchases an option on a futures contract, it acquires the right, in
return for the premium it paid, to assume a position in the futures contract, a
"long" position if the option is a call and a "short" position if the option is
a put.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to adjust
the risk and return characteristics of the 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.
Correlation of Price Changes. Because there are 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.
The risk of imperfect correlation between movements in the price of an
index future and movements in the price of the securities that are the subject
of the hedge increases as the composition of the Fund's portfolio diverges from
the securities included in the applicable index. The price of the index futures
may move more than or less than the price of the securities being hedged. If
the price of the index future moves less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, 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 security, 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 futures contracts to hedge its
portfolio 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.
Margin Requirements and Daily Limits. Unlike when the Fund purchases or
sells securities, no price is paid or received by it when it purchases or sells
a futures contract. Initially, the Fund will be required to deposit an amount
of cash or U.S. Treasury Bills equal to a varying specified percentage of the
contract amount. This amount is known as initial margin. Cash held in the
margin account is not income producing. Subsequent payments, called variation
margin, to and from the futures commission merchant ("FCM") will be made on a
daily basis as the price of the underlying instrument fluctuates making the
futures contract more or less valuable, a process known as "marking-to-market."
If the Fund writes an option on a futures contract, it will be required to
deposit initial and variation margin pursuant to the requirements similar to
those applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in the initial margin deposit.
Changes in variation margin are recorded by the Fund as unrealized gains or
losses. If required by the SEC, initial margin payments will be deposited with
the Fund's custodian bank in an account registered in the FCM's name; access to
the assets in that account may be made by the FCM only under specified
conditions. At any time prior to expiration of a futures contract or option
thereon, the Fund may elect to close the position by taking an opposite
position, which will operate to terminate its position in the futures contract
or option. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund and the Fund realizes a
loss or a gain. Although futures contracts by their terms call for the actual
delivery or acquisition of the underlying obligation, in most cases the
contractual obligation is fulfilled without having to make or take delivery.
The Fund does not generally intend to make or take delivery of the underlying
obligation. All transactions in futures contracts and options thereon are made,
offset or fulfilled through a clearing house associated with the exchange on
which the contracts are traded. Although the Fund intends to buy and sell
futures contracts and options thereon only on exchanges where there appears to
be an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular futures contract or option thereon at any
particular time. In such event, it may not be possible to close a futures
contract or options position.
Liquidity of Options and Futures Contracts. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a futures contract or option
thereon 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 the liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or option thereon
due to 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, the Fund would 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 securities in a segregated account.
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 over-the-counter ("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 an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
Generally, the OTC foreign currency options used by the Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
For so long as required by applicable state securities regulation, the Fund
will only trade OTC options (a) if exchange-traded options are not available,
(b) there is an active OTC market in such options, and (c) transactions are all
through a broker-dealer with a minimum net worth of $20 million. This guideline
may be modified by the Fund's Board of Directors without a shareholder vote.
Options and Futures Relating to Foreign Currencies. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The Fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. The Fund
may also purchase and write currency options in conjunction with each other or
with currency futures or forward contracts. Currency futures and options values
can be expected to correlate with exchange rates, but may not reflect other
factors that affect the value of the Fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in the Yen,
but will not protect the Fund against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of the Fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the Fund's investments exactly over time.
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.
Asset Coverage for Forward Contract, Futures and Options Positions.
Transactions using forward contracts, futures contracts and options (other than
options that the Fund has purchased) expose the Fund to an obligation to another
party. The Fund will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities, currencies, or other
options, futures contracts or forward contracts, or (2) cash, receivables and
short-term debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. The Fund will
comply with SEC guidelines regarding cover for these instruments and, if the
guidelines so require, set aside cash, U.S. Government Securities or other
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of the Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
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 cannot precisely predict what its portfolio turnover rate will be,
but it is anticipated that its annual turnover rate for the common stock portion
of its portfolio will not exceed 200% and that the annual turnover rate for the
other portion of its portfolio will not exceed 200%. A high turnover rate will
increase transaction costs and commission costs that will be borne by the Fund
and could generate taxable income or loss.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Investment
Management Agreement between the Fund and WRIMCO is to arrange the purchase and
sale of securities for the portfolio of the Fund. Transactions in securities
other than those for which an exchange is the primary market are generally done
with dealers acting as principals or market makers. Brokerage commissions are
paid primarily for effecting transactions in securities traded on an exchange
and otherwise only if it appears likely that a better price or execution can be
obtained. The individual who manages the Fund may manage other Funds or
advisory accounts with similar investment objectives. It can be anticipated
that the manager will frequently place concurrent orders for all or most
accounts for which the manager has responsibility. Transactions effected
pursuant to such combined orders are averaged as to price and allocated in
accordance with the purchase or sale orders actually placed for each Fund or
advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other Funds and accounts over which WRIMCO or its affiliates
have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the Fund and other Funds managed by WRIMCO
and its affiliates as a factor in their selection. No allocation of brokerage
or principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider sales
of shares of the Fund and other Funds managed by WRIMCO and its affiliates as a
factor in the selection of brokers to execute portfolio transactions. WRIMCO
intends to allocate brokerage on the basis of this factor only if the sale is $2
million or more and there is no sales charge. This results in the consideration
only of sales which by their nature would not ordinarily be made by Waddell &
Reed, Inc.'s direct sales force and is done in order to prevent the direct sales
force from being disadvantaged by the fact that it cannot participate in Fund
brokerage.
The fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling with Other Funds
The Fund and one or more of the other funds in the United Group, Waddell
& Reed Funds, Inc., TMK/United Funds, Inc., Torchmark Government Securities
Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. or accounts over which
Waddell & Reed Asset Management Company exercises investment discretion
frequently buy or sell the same securities at the same time. If this happens,
the amount of each purchase or sale is divided. This is done on the basis of
the amount of securities each Fund or account wanted to buy or sell. Sharing in
large transactions could affect the price the Fund pays or receives or the
amount it buys or sells. However, sometimes a better negotiated commission is
available.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each of the shares of the Fund is the value of the
Fund's assets, less what it owes, divided by the total number of shares
outstanding. For example, if on a particular day the Fund owned securities
worth $100 and had cash of $15, the total value of the assets would be $115. If
it owed $5, the net asset value would be $110 ($115 minus $5). If it had 11
shares outstanding, the net asset value of one share would be $10 ($110 divided
by 11).
The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge described in the
Prospectus.
The number of shares you receive for your purchase depends on the next
offering price after Waddell & Reed, Inc., the Fund's underwriter, receives and
accepts your order at its principal business office at the address shown on the
cover of this SAI. You will be sent a confirmation after your purchase which
will indicate how many shares you have purchased.
Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily computed
daily on each day that The New York Stock Exchange, Inc. (the "Exchange") is
open for trading as of the later of the close of the regular session of the
Exchange or the close of the regular session of any other securities or
commodities exchange on which an option or future held by the Fund is traded.
The Exchange annually announces the days on which it will not be open for
trading. The most recent announcement indicates that it will not be open on the
following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is
possible that the Exchange may close on other days. The net asset value will
change every business day, since the value of the Fund's assets and the number
of shares outstanding changes every business day.
The Fund's portfolio securities, except as otherwise noted, listed or
traded on a stock exchange, are valued on the basis of the last sale on that day
or, lacking any sales, at a price which is the mean between the closing bid and
asked prices. Other securities that are traded over-the-counter are priced
using National Association of Securities Dealers Automated Quotations
("NASDAQ"), which provides information on bid and asked prices quoted by major
dealers in such stocks. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale reported.
Short-term debt securities are valued at amortized cost, which approximates
market. When market quotations are not readily available, securities are valued
at fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Fund's Board of
Directors.
Options and futures contracts purchased and held by the Fund are valued at
the last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session for option trading
on national securities exchanges is 4:10 p.m. Eastern time and the close of the
regular session for commodities exchanges is 4:15 p.m. Eastern time. Futures
contracts will be valued with reference to established futures exchanges. The
value of a futures contract purchased by the Fund will be either the closing
price of that contract or the bid price. Conversely, the value of a futures
contract sold by the Fund will be either the closing price or the asked
price.
When the Fund writes a put or call, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is marked-to-market to reflect the current market value of the
put or call. If a call the Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
the Fund received. If the Fund exercised a call it purchased, the amount paid
to purchase the related investment is increased by the amount of the premium
paid. If a put written by the Fund is exercised, the amount that the Fund pays
to purchase the related investment is decreased by the amount of the premium it
received. If the Fund exercises a put it purchased, the amount the Fund
receives from the sale of the related investment is reduced by the amount of the
premium it paid. If a put or call written by the Fund expires, it has a gain in
the amount of the premium; if it enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less than
the cost of the closing transaction.
Foreign currency exchange rates are generally determined prior to the
close of the trading of the regular session of the Exchange. Occasionally,
events affecting the value of foreign investments and such exchange rates occur
between the time at which they are determined and the close of the regular
session of trading on the Exchange, which events will not be reflected in a
computation of the Fund's net asset value on that day. If events materially
affecting the value of such investments or currency exchange rates occur during
such time period, the investments will be valued 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. The foreign currency
exchange transactions of the Fund conducted on a spot basis are valued at the
spot rate for purchasing or selling currency prevailing on the foreign exchange
market. Under normal market conditions, this rate differs from the prevailing
exchange rate by an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Fund's Board of Directors. They
are accounted for in the same manner as exchange-listed puts.
Minimum Initial and Subsequent Investments
Initial investments must be at least $500 with the exceptions described
in this paragraph. A $100 minimum initial investment pertains to certain
exchanges of shares from another Fund in the United Group. A $50 minimum
initial investment pertains to purchases for certain retirement plan accounts
and to accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account by having regular
monthly withdrawals of $25 or more made from a bank account. A minimum initial
investment of $25 is applicable to purchases made through payroll deduction for
or by employees of WRIMCO, Waddell & Reed, Inc., their affiliates, or certain
retirement plan accounts. Except with respect to certain exchanges and
automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
Reduced Sales Charges
Account Grouping
For the purpose of taking advantage of the lower sales charges available
for large purchases, a purchase in any of categories 1 through 7 listed below
made by an individual or deemed to be made by an individual may be grouped with
purchases in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes purchases under the United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchases by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;
6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), Section 457 of the Code salary reduction plan
account 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).
All purchases made for a participant in a multi-participant Keogh plan may
be grouped only with other purchases made under the same plan; a multi-
participant Keogh plan is defined as a plan in which there is more than one
participant where one or more of the participants is other than the spouse of
the owner/employer.
All purchases made under a "qualified" employee benefit plan of an
incorporated business will be grouped. A "qualified" employee benefit plan is
established pursuant to Section 401 of the Code. All qualified employee benefit
plans of any one employer or affiliated employers will also be grouped. An
affiliate is defined as an employer that directly, or indirectly, controls or is
controlled by or is under control with another employer.
All purchases made under a simplified employee pension plan ("SEP"),
payroll deduction plan or similar arrangement adopted by an employer or
affiliated employers (as defined above) may be grouped provided that the
employer elects to have all such purchases grouped at the time the plan is set
up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above.
Account grouping as described above is available under the following
circumstances.
One-time Purchases. A one-time purchase in accounts eligible for grouping
may be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Rights of Accumulation. If shares are held in any account and an
additional purchase is made in that account or in any account eligible for
grouping with that account, the additional purchase is combined with the net
asset value of the existing account as of the date the new purchase is accepted
by Waddell & Reed, Inc. for the purpose of determining the availability of a
reduced sales charge.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under an investment
program ("contractual plan") the shares held under the plan may be combined with
the additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases is also
available under a Statement of Intention. By signing a Statement of Intention
form, which is available from Waddell & Reed, Inc., the purchaser indicates an
intention to invest, over a 13-month period, a dollar amount which is sufficient
to qualify for a reduced sales charge. The 13-month period begins on the date
the first purchase made under the Statement is accepted by Waddell & Reed, Inc.
Each purchase made from time to time under the Statement is treated as if the
purchaser were buying at one time the total amount which he or she intends to
invest. The sales charge applicable to all purchases made under the terms of
the Statement will be the sales charge in effect on the beginning date of the
13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's rights of accumulation (see above) will be taken into account; that
is, shares already held in the same account in which the purchase is being made
or in any account eligible for grouping with that account, as described above,
will be included.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount which must be purchased within the 13-month period in order to
qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the Statement only if the contractual
plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement. An amount equal to 5%
of the purchase required under the Statement will be held "in escrow." If a
purchaser does not, during the period covered by the Statement, invest the
amount required to qualify for the reduced sales charge under the terms of the
Statement, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge owed on
purchases made under a Statement which is not completed will be collected by
redeeming part of the shares purchased under the Statement and held "in escrow"
unless the purchaser makes payment of this amount to Waddell & Reed, Inc. within
20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement will be deducted in computing the aggregate purchases under the
Statement.
Statements of Intention are not available for purchases made under a SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases apply to purchases of any of the
funds in the United Group which are subject to a sales charge. A purchase of,
or shares held, in any of the funds in the United Group which are subject to the
same sales charge as the Fund will be treated as an investment in the Fund for
the purpose of determining the applicable sales charge. The following funds in
the United Group are subject to a maximum 5.75% ("full") sales charge as
described in the prospectus of each fund: United Funds, Inc., United
International Growth Fund, Inc., United Continental Income Fund, Inc., United
Vanguard Fund, Inc., United Retirement Shares, Inc., United High Income Fund,
Inc., United New Concepts Fund, Inc., United Gold & Government Fund, Inc.,
United High Income Fund II, Inc., and United Asset Strategy Fund, Inc. The
following funds in the United Group are subject to a "reduced" sales charge as
described in the prospectus of each fund: United Municipal Bond Fund, Inc.,
United Government Securities Fund, Inc. and United Municipal High Income Fund,
Inc. For the purposes of obtaining the lower sales charge which applies to
large purchases, purchases in a fund in the United Group which is subject to a
full sales charge may not be grouped with purchases in a fund in the United
Group which is subject to a reduced sales charge; conversely, purchases made in
a fund with a reduced sales charge may not be grouped or combined with purchases
of a fund which is subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases
As stated in the Prospectus, Fund shares may be purchased at net asset
value by the Directors and officers of the Fund, employees of Waddell & Reed,
Inc., employees of their affiliates, account representatives of Waddell & Reed,
Inc. and the spouse, children, parents, children's spouses and spouse's parents
of each such Director, officer, employee and account representative. "Child"
includes stepchild; "parent" includes stepparent. Purchases in an IRA sponsored
by Waddell & Reed, Inc. established for any of these eligible purchasers may
also be at net asset value. Purchases in any tax qualified retirement plan
under which the eligible purchaser is the sole participant may also be made at
net asset value. Trusts under which the grantor and the trustee or a co-trustee
are each an eligible purchaser are also eligible for net asset value purchases.
"Employees" includes retired employees. A retired employee is an individual
separated from service from Waddell & Reed, Inc. or affiliated companies with a
vested interest in any Employee Benefit Plan sponsored by Waddell & Reed, Inc.
or its affiliated companies. "Account representatives" includes retired account
representatives. A "retired account representative" is any account
representative who was, at the time of separation from service from Waddell &
Reed, Inc., a Senior Account Representative. A custodian under the Uniform
Gifts (or Transfers) to Minors Act purchasing for the child or grandchild of any
employee or account representative may purchase at net asset value whether or
not the custodian himself is an eligible purchaser.
Purchases in a 401(k) plan having 100 or more eligible employees and
purchases in a 457 plan having 100 or more eligible employees may be made at net
asset value.
Reinvestment Privilege
The Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount you redeem from the Fund by
sending to the Fund the amount you wish to reinvest. The amount you return will
be reinvested at the net asset value next determined after the Fund receives the
returned amount. Your written request to reinvest and the amount to be
reinvested must be received within 30 days after your redemption request was
received, and the Fund must be offering shares of the Fund at the time your
reinvestment request is received. You can do this only once as to shares of the
Fund; however, you do not use up this privilege by redeeming shares to invest
the proceeds at net asset value in a Keogh plan or an IRA.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number of instances
in which the Fund's shares are sold or issued on a basis other than the maximum
public offering price, that is, the net asset value plus the highest sales
charge. Some of these relate to lower or eliminated sales charges for larger
purchases, whether made at one time or over a period of time as under a
Statement of Intention or right of accumulation. See the table of sales charges
in the Prospectus. The reasons for these quantity discounts are, in general,
that (i) they are traditional and have long been permitted in the industry and
are therefore necessary to meet competition as to sales of shares of other funds
having such discounts; (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and distributions); and (iii)
they are designed to avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses. Quantity discounts
are made available to certain related persons for reasons of family unity and to
provide a benefit to tax exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares exchanged.
Sales without sales charge are permitted to Directors, officers and certain
others due to reduced or eliminated selling expenses and since such sales may
aid in the development of a sound employee organization, encourage incentive,
responsibility and interest in the United Group and an identification with its
aims and policies. Limited reinvestments of redemptions at no sales charge are
permitted to attempt to protect against mistaken or not fully informed
redemption decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted by the Investment Company Act of 1940 from the
otherwise applicable restrictions as to what sales charge must be imposed. In
no case in which there is a reduced or eliminated sales charge are the interests
of existing shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or issued.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers prototype documents for the following
retirement plans. All of these plans involve investment in shares of the Fund
(or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Exchanges for Shares of Other Funds in the United Group
Once a sales charge has been paid on shares of a fund in the United
Group, you may exchange these shares and any shares acquired through payment of
dividends or distributions from these shares for shares of another fund in the
United Group. The shares you exchange must be worth at least $100 or you must
already own shares of the fund in the United Group into which you want to
exchange.
You may exchange shares you own in another fund in the United Group for
shares of the Fund without charge if (i) the shares of the fund you are
exchanging from are subject to a full sales charge and a sales charge was paid
on these shares, or (ii) the shares were received in exchange for shares of a
fund that are subject to a full sales charge and for which a sales charge was
paid, or (iii) the shares were acquired from payment of dividends and
distributions paid or shares subject to a full sales charge and for which a
sales charge was paid. The shares you are exchanging may have been involved one
or more such exchanges so long as a sales charge was paid on the shares
originally purchased. Also, shares acquired without a sales charge because the
purchase was $2 million or more will be treated the same as shares on which a
sales charge was paid.
Shares of funds subject to a reduced sales charge (United Municipal Bond
Fund, Inc., United Government Securities Fund, Inc. and United Municipal High
Income Fund, Inc.) may be exchanged for shares of the Fund only if (i) you have
received those shares as a result of one or more exchanges of shares on which a
sales charge was originally paid, or (ii) the shares have been held from the
date of the original purchase for at least six months.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of shares of United Cash Management, Inc. automatically exchanged
each month into the Fund or any other fund in the United Group. The shares of
United Cash Management, Inc. which you designate for automatic exchange must be
worth at least $100 or you must own shares of the fund in the United Group into
which you want to exchange. The minimum value of shares which you may designate
for automatic exchange is $100, which may be allocated among different funds in
the United Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your written exchange request is received in good
order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time,
upon notice in certain circumstances, and any such exchange may not be accepted.
Redemptions
Redemption payments are made within seven days, unless delayed because of
emergency conditions determined by the SEC, when the New York Stock Exchange is
closed (other than on weekends and holidays) or when trading on the Exchange is
restricted. Payment is made in cash, although under extraordinary conditions,
redemptions may be made in portfolio securities. Redemptions may be made in
portfolio securities if the Fund's Board of Directors decides that conditions
exist making cash payments undesirable. The securities would be valued at the
value used in determining net asset value. There would be brokerage costs to
the redeeming shareholder in selling such securities. The Fund, however, has
elected to be governed by Rule 18f-1 under the Investment Company Act, pursuant
to which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder.
Flexible Withdrawal Service
If you qualify, you may arrange to receive through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming on a regular basis shares that you own of the Fund or any
of the funds in the United Group. It would be a disadvantage to an investor to
make additional purchases of shares while a withdrawal program is in effect
because it would result in duplication of sales charges. Applicable forms are
available from Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
shares which you still own of any of the Funds in the United Group; or, you must
own shares having a value of at least $10,000. The value for this purpose is
the value at the offering price.
You can choose to have your shares redeemed to receive:
(1) a monthly, quarterly, semiannual or annual payment of $50 or more;
(2) a monthly payment, which will change each month, equal to one-twelfth
of a percentage of the value of the shares in the Account (you select the
percentage); or
(3) a monthly or quarterly payment, which will change each month or
quarter, by redeeming a fixed number of shares (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement Plan Accounts may be subject to a fee imposed by the Plan
Custodian for use of their service.
The dividends and distributions on shares you have made available for the
Service are paid in additional shares. All payments under the Service are made
by redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments exceed dividends and distributions, the number of shares
you own will decrease. When all of the shares in your account are redeemed, you
will not receive any more payments. Thus, the payments are not an annuity or an
income or return on your investment.
You may at any time change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. You
can at any time redeem part or all of the shares in your account; if you redeem
all of the shares, the Service is terminated. The Fund can also terminate the
Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board of Directors 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 the redemption is processed.
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return and/or performance information in
advertisements and sales materials.
Total Return
The Fund's average annual total return quotation is computed according
to a standardized method prescribed by SEC rules. The average annual total
return for the Fund for a specific period is found by taking a hypothetical
$1,000 investment in Fund shares on the first day of the period and computing
the "redeemable value" of that investment at the end of the period.
Standardized total return information is calculated by assuming an initial
$1,000 investment from which the maximum sales load of 5.75% is deducted. All
dividends and distributions are assumed to be reinvested at net asset value as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions. The formula used to calculate the total
return is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented and it may
not reflect the sales charge. For example, a Fund may also compute total return
without deduction of the sales load in which case the same formula noted above
will be used but the entire amount of the $1,000 initial payment will be assumed
to have been invested. If the sales charge were reflected, it would reduce the
performance quoted.
Calculation of cumulative total return is not subject to a prescribed
formula. The Fund's cumulative total return for a specific period is calculated
by first taking a hypothetical initial investment in Fund shares on the first
day of the period and computing the "redeemable value" of that investment at the
end of the period. The cumulative total return percentage is then determined by
subtracting the initial investment from the redeemable value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The calculation assumes that all income and capital gains distributions of the
Fund have been reinvested at net asset value on the reinvestment dates during
the period. Cumulative total return may also be shown as the increased dollar
value of the hypothetical investment over the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. The Fund may also compare its performance to that of other selected
mutual funds or selected recognized market indicators such as the Standard &
Poor's 500 Stock Index and the Dow Jones Industrial Average. Performance
information may be quoted numerically or presented in a table, graph or other
illustration.
All performance information which the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or
less than their original cost.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder, other than payments when you redeem your shares. The first source
is the Fund's net investment income, which is derived from the dividends,
interest and earned discount on the securities it holds, less its expenses. The
second source is realized capital gains, which are derived from the proceeds
received from the sale of securities at a price higher than the Fund's tax basis
(usually cost) in such securities; these gains can be either long-term or short-
term, depending on how long the Fund has owned the securities before it sells
them. The third source is net realized gains from foreign currency
transactions. The payments made to shareholders from net investment income, net
short-term capital gains, and net realized gains from certain foreign currency
transactions are called dividends. Payments, if any, from long-term capital
gains are called distributions.
The Fund pays distributions only if it has net capital gain (the excess of
net long-term capital gains over net short-term capital losses). It may or may
not have such gains, depending on whether securities are sold and at what price.
If the Fund has net capital gains, it will pay distributions once each year, in
the latter part of the fourth calendar quarter. Even if it has net capital
gains for a year, the Fund does not pay out the gains if it has applicable prior
year losses to offset the gains.
Choices you Have on your Dividends and Distributions
In your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in Fund shares or (iii) you want cash for your dividends and
want your distributions paid in Fund shares. You can change your instructions
at any time. If you give no instructions, your dividends and distributions will
be paid in Fund shares. All payments in Fund shares are at net asset value
without any sales charge. The net asset value used for this purpose is that
computed as of the record date for the dividend or distribution, although this
could be changed by the Board of Directors.
Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in Fund shares at net asset value next
determined after receipt by Waddell & Reed, Inc. of the amount clearly
identified as a reinvestment. The reinvestment must be within 45 days after the
payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986 (the "Code"), the Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and must meet several additional requirements. These requirements
include the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) the Fund must derive less than 30%
of its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three months -
- - (i) options, futures contracts, or forward contracts or (ii) foreign
currencies (or options, futures contracts or forward contracts thereon) that are
not directly related to the Fund's principal business of investing in securities
(or options and futures contracts with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government Securities, securities of other RICs and other securities
that are limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Fund's total assets and that does not represent
more than 10% of the outstanding voting securities of the issuer; and (4) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its total assets may be invested in securities (other than U.S. Government
Securities or the securities of other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in one of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors also should
be aware that if shares are purchased shortly before the record date for a
dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gains net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its shareholders.
Income from Options, Futures Contracts and Currencies
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses the Fund realizes in connection
therewith. Income from foreign currencies (except certain gains therefrom that
may be excluded by future regulations), and income from transactions in options,
futures contracts and forward contracts derived by the Fund with respect to its
business of investing in securities will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
will be subject to the Short-Short Limitation if they are held for less than
three months. Income from the disposition of foreign currencies and forward
contracts thereon that are not directly related to the Fund's principal business
of investing in securities (or options and futures with respect to securities)
also will be subject to the Short-Short Limitation if they are held for less
than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gains (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of options, futures and certain forward contracts beyond the time
when it otherwise would be advantageous to do so, in order for the Fund to
continue to qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and thus the Fund sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gains or losses on the sale. The Fund will not write so many
options that it could fail to continue to qualify as a RIC.
Certain options and futures in which the Fund may invest will be "section
1256 contracts." Section 1256 contracts held by the Fund at the end of each
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance is
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If the Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Fund are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
The Fund may acquire zero coupon or other securities issued with original
issue discount. As the holder of those securities, the Fund must include in its
income the original issue discount that accrues on the securities during the
taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Similarly, the Fund must include in its gross
income securities it receives as "interest" on payment-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other non-cash
income, in order to satisfy the distribution requirement described above and to
avoid imposition of the Excise Tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions will be made from the Fund's cash
assets or from the proceeds of sales of portfolio securities, if necessary. The
Fund may realize capital gains or losses from those sales, which would increase
or decrease its investment company taxable income and/or net capital gains. In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce the Fund's ability to sell other securities, or options or
futures, held for less than three months that it might wish to sell in the
ordinary course of its portfolio management.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Fund and provide investment advice to the Fund.
The address of WRIMCO is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds
since 1940 or the company's inception date, whichever was later, and to
TMK/United Funds, Inc. since that Fund's inception, until January 8, 1992, when
it assigned the Management Agreement for these Funds and all related investment
management duties (and the related professional staff) to WRIMCO, subject to the
authority of the fund's Board of Directors. WRIMCO has also served as
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. since they each commenced operations in February
1993. Waddell & Reed, Inc. serves as principal underwriter for the Fund and the
investment companies in the United Group of Mutual Funds, TMK/United Funds, Inc.
and Waddell & Reed Funds, Inc.
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.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, as compensation for WRIMCO's management
services, the Fund pays WRIMCO a fee as described in the Prospectus. The Fund
accrues and pays this fee daily. For purposes of calculating the daily fee the
Fund does not include money owed to it by Waddell & Reed, Inc. for shares which
it has sold but not yet paid to the Fund.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account which was in existence at
any time during the prior month, plus $0.30 for each account on which a dividend
or distribution, of cash or shares, had a record date in that month. The Fund
also pays certain out-of-pocket expenses of the Agent, including long distance
telephone communication costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and legal and special services not
provided by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
- ------------------------- --------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $ 1,000 $ 85,000
$1,000 and Over $100,000
The State of California imposes limits on the amount of certain expenses
the Fund can pay by requiring WRIMCO to reduce its fee to the extent any
included expenses exceed 2.5% of the Fund's first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of any
remaining average net assets during a fiscal year. The limit does not include
interest, taxes, brokerage commissions and extraordinary expenses, such as
litigation, that usually do not arise in the normal operations of a mutual fund.
The Fund's other expenses, including its management fee, are included. The Fund
will notify shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for the 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 its 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 Underwriting Agreement separate from the
Management Agreement, Shareholder Servicing Agreement and Accounting Services
Agreement, acts as the Fund's underwriter. Waddell & Reed, Inc. offers and
sells the Fund's shares on a continuous basis. It is not required to sell any
particular number of shares and thus sells shares only for purchase orders
received. Under this Underwriting 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 prospectuses furnished to it by
the Fund.
A major portion of the sales charge is paid to account representatives
and sales managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate
its account representatives as to purchases for which there is no sales
charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Service Plan (the "Plan") adopted by the Fund pursuant to Rule 12b-
1 under the Investment Company Act of 1940, the Fund may pay Waddell & Reed,
Inc., a fee not to exceed .25% of the Fund's average annual net assets, paid
monthly, to reimburse Waddell & Reed, Inc. for its costs and expenses in
connection with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered sales
representatives, sales managers and/or other appropriate personnel in providing
personal services to Fund shareholders and/or maintaining shareholder accounts;
increasing services provided to Fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
service to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers who may regularly sell Fund shares, and other third
parties, for providing shareholder services and/or maintaining shareholder
accounts.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by Waddell & Reed, Inc. as the sole shareholder of
the shares of the Fund at the time.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding shares of the Fund, and (iv) while the
Plan remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The custodian for the Fund is UMB Bank, n.a., Kansas City, Missouri. In
general, the custodian is responsible for holding the Fund's cash and
securities. If Fund assets are held in foreign countries, the Fund will comply
with Rule 17f-5 under the Investment Company Act of 1940. Price Waterhouse LLP,
Kansas City, Missouri, the Fund's independent accountants, audits the Fund's
financial statements.
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. The Board has the benefit of
advice and reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer of the Fund is given below. Each of the persons listed
through and including Mr. Wright is a member of the Fund's Board of Directors.
The other persons are officers but not Board members. For purposes of this
section, the term "Fund Complex" includes each of the registered investment
companies in the United Group of Mutual Funds, Waddell & Reed Funds, Inc.,
TMK/United Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. Each of the Fund's Directors is also a Director of
each of the Funds in the Fund Complex and each of the Fund's officers is also an
officer of one or more of the Funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc.
KEITH A. TUCKER*
President of the Fund and each of the other Funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.
DODDS I. BUCHANAN
University of Colorado
Campus Box 419
Boulder, Colorado 80309
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and related subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of each
fund in the United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc.,
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. (Mr. Morgan retired as Chairman of the Board of Directors and President of
these funds on April 30, 1993); formerly, President, Director and Chief
Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman of the
Board of Directors of Waddell & Reed Services Company; formerly, Director of
Waddell & Reed Asset Management Company, United Investors Management Company and
United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
FREDERICK VOGEL, III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of
the other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell &
Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Vice President, Secretary and General
Counsel of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of the Manager and Waddell & Reed, Inc.; Director,
Senior Vice President, Secretary and General Counsel of Waddell & Reed Services
Company; Director, Secretary and General Counsel of Waddell & Reed Asset
Management Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly Assistant General Counsel of Waddell & Reed, Inc.,
the Manager, Waddell & Reed Financial Services, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
James D. Wineland
Vice President of the Fund and Vice President of one other fund in the Fund
Complex; Vice President of WRIMCO; formerly Vice President of Waddell & Reed,
Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, four of the Fund's Directors may be deemed to
be "interested persons" as defined in the Investment Company Act of 1940 of its
underwriter, Waddell & Reed, Inc. or of its manager, WRIMCO. The Directors who
may be deemed to be "interested persons" are indicated as such by an asterisk.
The Board has created an honorary position of Director Emeritus, which
position a director may elect after resignation from the Board provided the
director has attained the age of 75 and has served as a director of the funds in
the United Group for a total of at least five years. A Director Emeritus
receives fees in recognition of his past services whether or not services are
rendered in his capacity as Director Emeritus, but has no authority or
responsibility with respect to management of the Fund. Currently, no person
serves as a Director Emeritus.
The Fund will pay annual fees to each Director, other than Directors who
are affiliates of Waddell & Reed, Inc., and to each Director Emeritus in an
amount to be determined by the Board of Directors after the public sale of
shares of the Fund commences. No fees are currently paid to Directors or
Directors Emeritus. The Director's fees will be allocated among the funds in
the United Group, Waddell & Reed Funds, Inc. and TMK/United Funds, Inc. based on
their relative size. The officers will be paid by Waddell & Reed, Inc. or its
affiliates.
Shareholdings
As of March 9, 1995, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date,
Waddell & Reed, Inc. owned of record and beneficially 100% of the Fund's
outstanding shares. See "Organization of the Fund."
ORGANIZATION OF THE FUND
The Fund was organized on August 25, 1994, and has no prior history.
The Shares of the Fund
The Fund presently has only one class of shares. Each full and fractional
share has the same rights to dividends, to vote and to receive assets if the
Fund liquidates (winds up). Shares are fully paid and nonassessable when
bought.
Those shares held by Waddell & Reed, Inc. (as described below) will be
voted in proportion to the voting instructions which are received on any matter.
Voting instructions to abstain on any item to be voted upon will be applied to
reduce the votes eligible to be cast by Waddell & Reed, Inc.
Initial Investment and Organizational Expenses
On February 23, 1995, Waddell & Reed, Inc. purchased for investment
20,000 shares of the Fund at a net asset value of $5.00 per share. As of the
date of this SAI, it was the sole shareholder of the Fund.
The Fund's organizational expenses in the amount of $48,800 have been
advanced by Waddell & Reed, Inc. and are an obligation to be paid by the Fund.
These expenses are being amortized over the 60-month period following the date
of the initial public offering of the Fund's shares. In the event that all or
part of Waddell & Reed, Inc.'s initial investment in the Fund's shares is
redeemed prior to the full reimbursement of the organizational expenses, the
Fund's obligation to make reimbursement will cease.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate bond rating
is a current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's preferred stock
rating is an assessment of the capacity and willingness of an issuer to pay
preferred stock dividends and any applicable sinking fund obligations. A
preferred stock rating differs from a bond rating inasmuch as it is assigned to
an equity issue, which issue is intrinsically different from, and subordinated
to, a debt issue. Therefore, to reflect this difference, the preferred stock
rating symbol will normally not be higher than the debt rating symbol assigned
to, or that would be assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of Moody's familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's Rating's Group. A Standard & Poor's note rating
reflects the liquidity factors and market access risks unique to notes. Notes
maturing in 3 years or less will likely receive a note rating. Notes maturing
beyond 3 years will most likely receive a long-term debt rating. The following
criteria will be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. Moody's Short-Term Loan Ratings -- Moody's
ratings for state and municipal short-term obligations will be designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in short-
term borrowing, while various factors of major importance in bond risk are of
lesser importance over the short run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Group commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. Ratings are graded into several categories, ranging from
"A-1" for the highest quality obligations to D for the lowest. Issuers rated A
are further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are regarded
as having the greatest capacity for timely payment. An A-1 designation
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
with a plus sign (+) designation. An A-2 rating indicates that capacity for
timely payment is satisfactory; however, the relative degree of safety is not as
high as for issues designated A-1. Issues rated A-3 have adequate capacity for
timely payment; however, they are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. A C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default, which occurs when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.
DOLLAR-WEIGHTED AVERAGE MATURITY
Dollar-Weighted Average Maturity is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding these
calculations, and then dividing the total by the value of the Fund's portfolio.
An obligation's maturity is typically determined on a stated final maturity
basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be called,
refunded, or redeemed may be considered to be its maturity date. Also, the
maturities of mortgage-backed securities and some asset-backed securities, such
as collateralized mortgage obligations, are determined on a weighted average
life basis, which is the average time for principal to be repaid. For a
mortgage security, this average time is calculated by assuming a constant
prepayment rate for the life of the mortgage. The weighted average life of
these securities is likely to be substantially shorter than their stated final
maturity.
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Asset Strategy Fund, Inc.
Included in Part B:
-------------------
As of February 24, 1995
Statement of Assets and Liabilities
Report of Independent Accountants
Included in Part C:
-------------------
Underwriting Agreement, attached hereto as EX-99.B6-asua
Fund NAV application, attached hereto as EX-99.B9-asnavapp
Agreement with initial shareholder, Waddell & Reed, Inc., attached
hereto as EX-99.B13-iniagr
Financial data schedule, attached hereto as EX-27.B17-asfds
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Pre-
Effective Amendment No. 2 to the Registration Statement on Form N-1A of our
report dated February 27, 1995 relating to the financial statement of United
Asset Strategy Fund, Inc., which appears in such Prospectus. We further consent
to the reference to us under the heading "Custodial and Accounting Services" in
the Statement of Additional Information constituting part of this Pre-Effective
Amendment.
Price Waterhouse LLP
Kansas City, Missouri
March 7, 1995
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation filed October 3, 1994 as EX-99.B1-
ASArticles to the initial Registration Statement on Form N-1A*
(2) Bylaws filed October 3, 1994 as EX-99.B2-ASBylaws to the initial
Registration Statement on Form N-1A*
(3) Not applicable
(4) Article FIFTH, Article SEVENTH and Article TENTH of the Articles
of Incorporation of the Registrant, filed October 3, 1994 as EX-
99.B1-ASArticles to the initial Registration Statement on Form N-
1A*; Article II, Article VIII and Article XI of the Bylaws of the
Registrant, filed October 3, 1994 as EX-99.B2-Bylaws to the
initial Registration Statement on Form N-1A*
(5) Investment Management Agreement filed October 3, 1994 as EX-
99.B5-ASIMA to the initial Registration Statement on Form N-1A*
(6) Underwriting Agreement
(7) Not applicable
(8) Custodian Agreement including Schedule of Remuneration filed
October 3, 1994 as EX-99.B8-ASCA to the initial Registration
Statement on Form N-1A*
(9) Shareholder Servicing Agreement filed December 16, 1994 as EX-
99.B9-asssa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A*
Accounting Services Agreement filed October 3, 1994 as EX-99.B9-
ASASA to the initial Registration Statement on Form N-1A*
Service Agreement filed October 3, 1994 as EX-99.B9-ASSA to the
initial Registration Statement on Form N-1A*
Fund application filed December 16, 1994 as EX-99.B9-asapp to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A*
Fund NAV application
(10) Opinion and Consent of Counsel filed December 16, 1994 as EX-
99.B10-asopin to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A*
(11) Not applicable
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc.
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A *
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
- ---------------------------------
*Incorporated herein by reference
Amendment No. 1 to the Registration Statement on Form N-1A*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-s401gis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A*
15. Standardized Money Purchase pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-smppgis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A*
17. Standardized Profit Sharing Plan-summary Plan Description
field December 16, 1994 as EX-99.B14-17-spspgis to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A*
- ---------------------------------
*Incorporated herein by reference
(15) Service Plan filed October 3, 1994 as EX-99.B15-ASSP to the
initial Registration Statement on Form N-1A*
(16) Not applicable
(17) Financial Data Schedule
25. Persons Controlled by or under common control with Registrant
------------------------------------------------------------
All of Registrant's outstanding shares are owned by Waddell & Reed, Inc., a
Delaware corporation. Waddell & Reed, Inc. is a wholly-owned subsidiary of
Waddell & Reed Financial Services, Inc., a holding company. Waddell & Reed
Financial Services, Inc. is a wholly-owned subsidiary of United Investors
Management Company, a holding company. United Investors Management Company
is a wholly-owned subsidiary of Torchmark Corporation. Torchmark
Corporation, a Delaware corporation and the ultimate controlling
corporation, is a publicly held company. The principal subsidiaries of
Waddell & Reed, Inc. are Waddell & Reed Investment Management Company, a
Kansas Corporation and a wholly-owned subsidiary of Waddell & Reed, Inc;
Waddell & Reed Services Company and Waddell & Reed Asset Management
Company, each a Missouri corporation and a wholly-owned subsidiary of
Waddell & Reed, Inc. Registrant has no subsidiaries.
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class February 24, 1995
-------------- ------------------------------
Capital Stock One
27. Indemnification
---------------
Reference is made to Article X of the Articles of Incorporation of
Registrant filed October 3, 1994 as EX-99.B1-ASArticles to the initial
Registration Statement on Form N-1A*, Article IX of the By-Laws filed
October 3, 1994 as EX-99.B2-ASBylaws to the initial Registration Statement
on Form N-1A*; and to Article II of the Underwriting Agreement filed
October 3, 1994 as EX-99.B6-ASUA to the initial Registration Statement on
Form N-1A*, each of which provides indemnification. Also refer to Section
2-418 of the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the Investment Manager of
the Registrant under the terms of an Investment Management Agreement
whereby it provides investment management services to the Registrant.
Waddell & Reed Investment Management Company is not engaged in any business
other than the provision of investment management services to those
registered investment companies as described in Part A and Part B of this
Registration Statement.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to Part A and Part B of this Registration
Statement.
29. Principal Underwriter
-------------------------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
- ---------------------------------
*Incorporated herein by reference
companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Retirement Shares, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United Science
and Technology Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There are no service contracts other than as discussed in Part A and B of
this Registration Statement and listed in response to Items (b)(9) and
(b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which may or may not be certified, within four to
six months of the effective date of Registrant's Registration
Statement under the Securities Act of 1933.
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, the Registrant has duly caused this Pre-
Effective Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Overland Park, and State of Kansas, on the 7th
day of March, 1995.
UNITED ASSET STRATEGY FUND, INC.
(Registrant)
By /s/ Keith A. Tucker
------------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
/s/Ronald K. Richey* Chairman of the Board March 7, 1995
- ---------------------- --------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director March 7, 1995
- ---------------------- (Principal Executive -------------------
Keith A. Tucker Officer)
/s/Theodore W. Howard* Vice President, March 7, 1995
- ---------------------- Treasurer and Principal --------------------
Theodore W. Howard Accounting Officer
/s/Robert L. Hechler* Vice President and March 7, 1995
- ---------------------- Principal Financial --------------------
Robert L. Hechler Officer
/s/ Henry L. Bellmon* Director March 7, 1995
- ---------------------- --------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director March 7, 1995
- --------------------- --------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director March 7, 1995
- -------------------- --------------------
Jay B. Dillingham
/s/John F. Hayes* Director March 7, 1995
- ------------------- --------------------
John F. Hayes
/s/Glendon E. Johnson* Director March 7, 1995
- ------------------- --------------------
Glendon E. Johnson
/s/William T. Morgan* Director March 7, 1995
- ------------------- --------------------
William T. Morgan
/s/Doyle Patterson* Director March 7, 1995
- ------------------- --------------------
Doyle Patterson
/s/Frederick Vogel, III* Director March 7, 1995
- ------------------- --------------------
Frederick Vogel, III
/s/Paul S. Wise* Director March 7, 1995
- ------------------- --------------------
Paul S. Wise
/s/Leslie S. Wright* Director March 7, 1995
- ------------------- --------------------
Leslie S. Wright
*By
/s/Sharon K. Pappas
- --------------------
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
/s/Amy D. Eisenbeis
- --------------------
Amy D. Eisenbeis
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, 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; 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: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
- -------------------- ------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
- -------------------- (Principal Executive Officer) ------------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
- -------------------- and Principal Accounting ------------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
- -------------------- Principal Financial ------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
- -------------------- ------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
- -------------------- ------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
- -------------------- ------------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
- -------------------- ------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 1, 1994
- -------------------- ------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
- -------------------- ------------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
- -------------------- ------------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
- -------------------- ------------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
- -------------------- ------------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
- -------------------- ------------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B6-asua
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 9th day of March, 1995, by and between United
Asset Strategy Fund, Inc. (hereinafter the "Company"), a Maryland corporation,
and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) the shares of each of its classes of shares ("Fund") and of
each sub-class thereof (Class"), if any, are, as of the date of the
effectiveness of this Agreement as to each such Fund or Class, registered with
the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Company in all states in which the shares are
currently qualified or otherwise authorized for offer of sale;
2) it is a member of the National Association of Securities
Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance sales
organization consisting in part of a number of representatives authorized under
Federal and state securities laws to solicit as representatives of W&R orders
for Company shares and other securities;
4) it maintains and enforces procedures to enable it to
supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for compliance
with applicable securities laws, rules and regulations all sales literature and
promotional materials used by it and authorized to be used by its
representatives in solicitation of orders to buy Company shares, and it files,
when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to act,
as the Company's principal underwriter under the terms and provisions of this
Agreement.
A. Company agrees
1) to use its best efforts to register from time to time under
the Securities Act of 1933 (the "Securities Act") adequate amounts of its shares
for sale by W&R to the public and to qualify or to permit W&R to qualify such
shares for offering to the public in such states as may from time to time be
agreed upon;
2) to immediately advise W&R (i) when any post-effective
amendment to its registration statement or any further amendment or supplement
thereto or any further registration statement or amendment or supplement thereto
becomes effective, (ii) of any request by the SEC for amendments to the
registration statement(s) or any then effective prospectus or for additional
information, (iii) of the issuance by the SEC of any stop-order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, and (iv) of the happening of any event which makes untrue any
material statement made in the registration statement or any then effective
prospectus or which, in the opinion of counsel for the Company, requires the
making of a change in the registration statement or any then effective
prospectus in order to make the statements therein not misleading; in case of
the happening at any time of any event which materially affects the Company or
its securities and which should be set forth in a supplement to or an amendment
of any then effective prospectus in order to make the statements therein not
misleading, to prepare and furnish to W&R such amendment or amendments to that
prospectus as will correct the prospectus so that as corrected it will not
contain, or such supplement or supplements to that prospectus which when read in
conjunction with that prospectus will make the combined information not contain
any untrue statement of a material fact or any omission to state any material
fact necessary in order to make the statements in that prospectus not
misleading; if any time the SEC shall issue any stop-order suspending the
effectiveness of the registration statement, to make every reasonable effort to
obtain the prompt lifting of such order; and, before filing any amendment to the
registration statement or to any then effective prospectus, to furnish W&R with
a copy of the proposed amendment;
3) to advise W&R of the net asset value of the shares of each of
its Funds and Classes, as applicable, as often as computed and to furnish to W&R
as soon as practical such information as may be reasonably requested by W&R in
order that it may know all of the facts necessary to sell shares of the Company;
4) to make delivery of its shares subject to the provisions of
its Articles of Incorporation and Bylaws to W&R as ordered by W&R as soon as
reasonably possible after receipt of the orders and against payment of the
consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses incident to the
issuance, transfer, registration and delivery of its shares, all taxes in
connection therewith, costs and expenses incident to preparing and filing any
registration statements and prospectuses and any amendments or supplements to a
registration statement or a prospectus, statutory fees incidental to the
registration of additional shares with the SEC, statutory fees and expenses
incurred in connection with any Blue Sky law qualifications undertaken by or at
the request of W&R, and the fees and expenses of the Company's counsel,
accountants or any other experts used in connection with the foregoing; and
6) not without the consent of W&R to offer any of its shares for
sale directly or to any persons or corporations other than W&R, except only
a) the reinvestment of dividends and/or distributions or
their declaration in shares of the Company, in optional form or otherwise;
b) the issuance of additional shares to stock splits or
stock dividends;
c) sale of shares to another investment or securities
holding company in the process of purchasing all or a portion of its assets;
d) in connection with an exchange of shares of the Company
for shares in another investment or securities holding company;
e) the sale of shares to registered unit investment trusts;
or
f) in connection with the exchange of one Fund's shares for
shares of another Fund of the Company.
B. W&R agrees
1) to offer Company shares in such states as may be agreed upon
through its retail account representatives and, at its sole discretion, through
broker-dealers which are members of the NASD on such terms as are not
inconsistent with this Agreement;
2) to order shares from the Company only after it has received a
purchase order therefor;
3) to pay to the Company the net asset value of shares sold
within two business days after the day payment is received by W&R at its
principal place of business from the investor or broker-dealer, or pay the
Company at such other time as may be agreed upon hereafter by the Company and
W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the provisions of the
Articles of Incorporation and Bylaws of the Company and with the provisions
stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or proceeding to
terminate, revoke or suspend W&R's registration as a broker-dealer with the SEC,
membership in the NASD, or authority with any state securities commission to
offer Company shares; and
6) to pay the cost of all sales literature, advertising and
other materials which it may at its discretion use in connection with the sale
of Company shares, including the cost of reports to the shareholders of the
Company in excess of the cost of reports to existing shareholders and the cost
of printing the prospectus(es) furnished to it by the Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters relating to
promotion and sale of Company shares, including the preparation and use of all
advertising, sales literature and other promotional materials, and shall make
and enter into all other arrangements, agreements and contracts as principal on
its own account and not as agent for the Company. Title to shares issued and
sold by the Company through W&R shall pass directly from the Company to the
dealer or investor, or shall first pass to W&R as it may from time to time be
determined by W&R and the Company; except provided, however, that W&R may, if so
agreed by W&R and the Company, act as agent of the Company without commission on
repurchase of shares of the Company;
2) certificates for shares shall not be created or delivered by
the Company in any case in which the purchase is pursuant to any provisions of
the Company described in its applicable then current prospectus under the terms
of which certificates are not to be issued to the shareholder. Shares sold by
W&R shall be registered in such name or names and amounts as W&R may request
from time to time, and all shares when so paid for and issued shall be fully
paid and non-assessable;
3) the offering price at which shares of the Company may be sold
by W&R shall include such selling commission as may be applicable to that Class
and as may be fixed from time to time by W&R but shall not be in excess of 8.5
percent of the offering price. W&R shall retain any such sales commission and
may re-allow all or any part of the sales commission to its account
representatives and to selected brokers and dealers who sell shares of the
Company; and
4) W&R may designate, reduce or eliminate its selling
commissions in certain sales or exchanges to the extent described in the
applicable then current prospectus of the Company and in accordance with Section
22(d) of the Investment Company Act of 1940 and any rules, regulations or orders
of the SEC thereunder.
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (a
"Plan"), which Plan is applicable to certain shares and that the Company may in
the future adopt Plans applicable to certain Funds and Classes, respectively.
B. With respect to any Fund or Class as to which the Company has
adopted a Plan, pursuant to that Plan, each day the Company shall pay to W&R a
distribution fee and/or a service fee at the maximum rates and under the terms
and conditions set forth in the applicable Plan, as amended from time to time,
or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption proceeds
that portion represented by the reinvestment of dividends and distributions and
the appreciation of the value of Fund shares being redeemed, promptly pay W&R an
amount, if any, equal to the percent of the amount invested as determined by W&R
and as is then stated in the Company's current prospectus applicable to the
shares redeemed (the "contingent deferred sales charge"). For purposes of
determining the applicable contingent deferred sales charge, if any: the
redemptions shall be deemed in order of investment made when more than one
investment has been made; and when the shares being redeemed were acquired by
exchange of shares of another Fund or Class of the Company, or corresponding
class of another registered investment company for which W&R or its affiliate
serves as principal underwriter, the investment shall be deemed as if it had
been made when the Company's shares were first purchased, and the applicable
contingent deferred sales charges, if any, shall be with respect to the amount
originally invested in Company shares; and provided that any contingent deferred
sales charge shall be determined in accordance with and in the manner set forth
in the applicable then current prospectus and any applicable Order or Rule
issued by the SEC.
D. It is contemplated that W&R may pay commissions to its field sales
force at the time of sale of the Company's shares and may incur other expenses
substantially in advance of receiving the distribution fee, if any, that may be
applicable to the payment of such commissions and expenses. W&R recognizes that
such payments are at its risk and that this Agreement may be terminated or not
continued as hereinafter provided without the payment to it of any further
distribution fees or service fees whatsoever and without the payment of any
penalty. The contingent deferred sales charges, if any, shall, however, be
payable to W&R with respect to all subject sales made prior to the termination
of this Agreement.
E. W&R shall at least quarterly provide to the Company's board of
directors a written report with respect to each Fund or Class, as applicable, of
the amounts of the distribution and/or service fees expended and the purposes
for which these expenditures were made. W&R shall in addition furnish to the
board of directors of the Company such information as may be requested or as may
be necessary to an informed determination by the directors of whether or not the
directors should continue the Company's Plan(s) and continue this Agreement and
to determine whether there is reasonable likelihood that the Plan(s) and this
Agreement will benefit the Company and its shareholders affected by such
Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and each
person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold harmless
W&R and any such controlling person from and against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, under any other statute, at common law
or otherwise, and to reimburse the underwriter and such controlling persons, if
any, for any legal or other expenses (including the cost of any investigation
and preparation) reasonably incurred by them or any of them in connection with
any litigation whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any prospectus or any amendment
thereof or supplement thereto or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that this indemnity agreement shall not apply to amounts paid in settlement of
any such litigation if such settlement is effected without the consent of the
Company or to any such losses, claims, damages, liabilities or litigation
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or prospectus or any
amendment thereof or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon information furnished in writing
to the Company by W&R for inclusion in any registration statement or any
prospectus or any amendment thereof or supplement thereto. W&R and each such
controlling person shall promptly, after the complaint shall have been served
upon W&R or such controlling person in any litigation against W&R or such
controlling person in respect of which indemnity may be sought from the Company
on account of its agreement contained in this paragraph, notify the Company in
writing of the commencement thereof. The omission of W&R or such controlling
person so to notify the Company of any such litigation shall relieve the Company
from any liability which it may have to W&R or such controlling person on
account of the indemnity agreement contained in this paragraph but shall not
relieve the Company from any liability which it may have to W&R or controlling
person otherwise than on account of the indemnity agreement contained in this
paragraph. In case any such litigation shall be brought against W&R or any such
controlling person and the underwriter or such controlling person shall notify
the Company of the commencement thereof, the Company shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense but such defense shall be conducted by counsel of
good standing and satisfactory to W&R or such controlling person or persons,
defendant or defendants in the litigation. The indemnity agreement of the
Company contained in this paragraph shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of W&R or any such
controlling person and shall survive any delivery of shares of the Company. The
Company agrees to notify W&R promptly of the commencement of any litigation or
proceeding against it or any of its officers or directors of which it may be
advised in connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the agreement in
Section A of this article, insofar as it constitutes a basis for reimbursement
by the Company for liabilities (other than payment by the Company of expenses
incurred or paid in the successful defense of any action, suit or proceeding)
arising under the Securities Act, shall not extend to the extent of any interest
therein of any person who is an underwriter or a partner or controlling person
of an underwriter within the meaning of Section 15 of the Securities Act or who,
at the date of this Agreement, is a director of the Company, except to the
extent that an interest of such character shall have been determined by a court
of appropriate jurisdiction the question of whether or not such interest is
against public policy as expressed in the Securities Act.
C. W&R agrees to indemnify and hold harmless the Company and its
directors and such officers as shall have signed any registration statement from
and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such directors or officers may become subject
under the Securities Act, under any other statute, at common law or otherwise,
and will reimburse the Company or such directors or officers for any legal or
other expenses (including the cost of any investigation and preparation)
reasonably incurred by it or them or any of them in connection with any
litigation, whether or not resulting in any liability insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
which statement or omission was made in reliance upon information furnished in
writing to the Company by W&R for inclusion in any registration statement or any
prospectus, or any amendment thereof or supplement thereto, or which statement
was made in, or the alleged omission was from, any advertising or sales
literature (including any reports to shareholders used as such) which relate to
the Company.
W&R shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. The Company and
its directors and such officers, defendant or defendants, in any such litigation
shall, promptly after the complaint shall have been served upon the Company or
any such director or officer in any litigation against the Company or any such
director or officer in respect of which indemnity may be sought from W&R on
account of its agreement contained in this paragraph, notify W&R in writing of
the commencement thereof. The omission of the Company or such director or
officer so to notify the underwriter of any such litigation shall relieve W&R
from any liability which it may have to the Company or such director or officer
on account of the indemnity agreement contained in this paragraph, but shall not
relieve W&R from any liability which it may have to the Company or such director
or officer otherwise than on account of the indemnity agreement contained in
this paragraph. In case any such litigation shall be brought against the
Company or any such officer or director and notice of the commencement thereof
shall have been so given to W&R, W&R shall be entitled to participate in (and,
to the extent that it shall wish, to direct) the defense thereof at its own
expense, but such defense shall be conducted by counsel of good standing and
satisfactory to the Company. The indemnity agreement of W&R contained in this
paragraph shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company and shall survive any delivery
of shares of the Company. W&R agrees to notify the Company promptly of the
commencement of any litigation or proceeding against it or any of its officers
or directors or against any such controlling person of which it may be advised,
in connection with the issue and sale of the Company's shares.
D. Notwithstanding any provision contained in this Agreement, no
party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Company or its security holders to which
they would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of their duties or by reason of their
reckless disregard of their obligations and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from acting as
underwriter and/or dealer for any other mutual fund, from engaging in any other
aspects of the securities business, whether or not such may be deemed in
competition with the sale of shares of the Company, and to carry on any other
lawful business whatsoever.
B. Except as expressly provided in Article V and hereinabove, the
agreements herein set forth have been made and are made solely for the benefit
of the Company and W&R, and the persons expressly provided for in Article V,
their respective heirs and successors, personal representatives and assigns, and
except as so provided, nothing expressed or mentioned herein is intended or
shall be construed to give any person, firm or corporation other than the
Company, W&R and the persons expressly provided for in Article V any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
representation, warranty or agreement herein contained. Except as so provided,
the term "heirs, successors, personal representatives and assigns" shall not
include any purchaser of shares merely because of such purchase.
C. This Agreement shall continue in effect, unless terminated as
hereinafter provided, for a period of one (1) year and thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to the Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) or any such party and who have no direct or indirect financial
interest in the operation of any Plan or any agreement relating to that Plan
(hereafter the "Plan directors"), cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by W&R at
any time without penalty upon giving the Company sixty (60) days' written notice
(which notice may be waived by the Company) and may be terminated by the Company
at any time without penalty upon giving W&R sixty (60) days' written notice
(which notice may be waived by W&R), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Plan
directors, or by the vote of a majority (as defined in the Investment Company
Act of 1940) of the outstanding voting securities of a Fund with respect to that
Fund. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940.
D. This Agreement shall be governed and construed in accordance with
the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers and their corporate seals to be
affixed as of the day and year first above written.
United Asset Strategy Fund, Inc.
By:
----------------------------------
Sharon K. Pappas, Vice President
and Secretary
ATTEST:
By:
- ------------------
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By:
------------------------------
Robert L. Hechler, President
ATTEST:
By:
- ---------------------------
Sharon K. Pappas, Secretary
EX-99.B9-asnavapp
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P.O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
________________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
________________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
________________________________________________________________________________
RETIREMENT PLAN
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant* (Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant* (Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name _____________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
________________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
________________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction Authorization
(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain CR=Cash Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vice
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service from Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at net
asset value will be permitted provided the new registration maintains owner-
ship by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
________________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
________________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement Plan
and Custody Agreement and agree to the terms and conditions set forth therein,
and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am wait-
ing for a number to be issued to me) and (strike the following if not true)
that I am not subject to backup withholding because (a) I am exempt fro backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to back-
up withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________ _______________________________________
Name of Waddell & Reed Employee or Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment as
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
EX-99.B13-asinagr
AGREEMENT
Waddell & Reed, Inc., in consideration of the issuance and sale to it by United
Asset Strategy Fund, Inc. (Fund) of 20,000 shares of the Fund's common stock for
the total payment of $100,000.00, the receipt of which is acknowledged by the
Fund, hereby recognizes that said amount was paid to the Fund in order for the
Fund to comply with Section 14 of the Investment Company Act of 1940, and agrees
that it shall hold said shares for investment and not with a view toward resale
or requesting their redemption.
In the event that all or any part of this investment in Fund shares is redeemed
prior to the full reimbursement by the Fund to Waddell & Reed, Inc. of certain
organization expenses advanced by Waddell & Reed, Inc. to the Fund, the Fund's
obligation to make further reimbursement will cease.
Dated this 23rd day of February, 1995.
WADDELL & REED, INC.
By /s/Robert L. Hechler
Robert L. Hechler, President
Accepted:
UNITED ASSET STRATEGY FUND, INC.
By /s/Sharon K. Pappas
Sharon K. Pappas, Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET
CONTAINTED IN THE INITIAL PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000929922
<NAME> UNITED ASSET STRATEGY FUND, INC.
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> FEB-24-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 48,800
<OTHER-ITEMS-ASSETS> 100,000
<TOTAL-ASSETS> 148,800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,800
<TOTAL-LIABILITIES> 48,800
<SENIOR-EQUITY> 200
<PAID-IN-CAPITAL-COMMON> 99,800
<SHARES-COMMON-STOCK> 20,000
<SHARES-COMMON-PRIOR> 0
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 5
<PER-SHARE-NII> 0
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<PER-SHARE-DIVIDEND> 0
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<PER-SHARE-NAV-END> 5
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
