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UNITED FUNDS, INC._ UNITED ACCUMULATIVE FUND
UNITED FUNDS, INC._ UNITED INCOME FUND
UNITED CONTINENTAL INCOME FUND, INC.
6300 Lamar Avenue _ Overland Park, Kansas 66202
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
November 21, 1994
To Shareholders:
Notice is hereby given that Special Meetings of the shareholders of United
Funds, Inc. United Accumulative Fund, United Funds, Inc. United Income Fund, and
United Continental Income Fund, Inc. (each, a "Fund" and collectively, the
"Funds"), respectively, will be held jointly at 6300 Lamar Avenue, Overland
Park, Kansas 66202, on the 21st day of November, 1994, at 10:00 a.m., local
time, or any adjournment(s) thereof, for the following purposes:
1. To ratify the selection of Price Waterhouse as independent accountants
of each Fund for its current fiscal year.
2. To eliminate each Fund's fundamental investment restriction
regarding investments in restricted securities.
3. To amend the Investment Management Agreement for each Fund to change
the "specific" fee paid by the Fund to Waddell & Reed Investment
Management Company.
4. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
The Board of Directors of each Fund has fixed the close of business on
September 23, 1994 as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. You are entitled to
vote at the meeting and any adjournment(s) thereof if you owned shares of any of
the Funds at the close of business on September 23, 1994. If you attend the
meeting, you may vote your shares in person. If you do not expect to attend the
meeting, please complete, date, sign and properly return the enclosed proxy card
in the enclosed postage paid envelope. If you do not sign and return your proxy
card(s), the Funds may incur the additional expense of subsequent mailings in
order to have a sufficient number of cards signed and returned.
You should retain this Notice and Proxy Statement. This is a combined
Notice and Proxy Statement for the above-named Funds in the United Group of
Mutual Funds. The shares you own in a particular Fund may only be voted with
respect to that Fund. If you own shares in more than one of the Funds listed,
please vote with respect to each Fund on the proxy card provided with respect to
that Fund. Please sign, date and return any and all proxy cards that are mailed
to you.
By Order of the Boards of Directors
Sharon K. Pappas, Secretary
October 4, 1994
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UNITED FUNDS, INC._ UNITED ACCUMULATIVE FUND
UNITED FUNDS, INC._ UNITED INCOME FUND
UNITED CONTINENTAL INCOME FUND, INC.
6300 Lamar Avenue _ Overland Park, Kansas 66202
PROXY STATEMENT
INTRODUCTION
This document is a proxy statement with respect to each Fund listed above
furnished in connection with the solicitation of proxies by the Board of
Directors of each Fund to be used at the Funds' joint special meeting of
shareholders ("Meeting") or any adjournment(s) thereof. (United Continental
Income Fund, Inc., and the separate series of United Funds, Inc., listed above
are referred to in this Proxy Statement collectively as the "Funds" and
individually as a "Fund.") The Meeting will be held on November 21, 1994, 10:00
a.m. local time, at 6300 Lamar Avenue, Overland Park, Kansas 66202, for the
purposes set forth in the attached Notice of the Meeting.
A majority of the shares outstanding on the record date, September 23,
1994, represented in person or by proxy, of a Fund must be present for the
transaction of business at that Fund's Meeting. In the event that a quorum is
present at the Meeting but sufficient votes to approve any one of the Proposals
are not received, the persons named as proxies (or their substitutes) may
propose one or more adjournments of the Meeting to permit the further
solicitation of proxies. Any such adjournment will require the affirmative vote
of a majority of those shares represented at the Meeting in person or by proxy.
The persons named as proxies will vote those proxies that they are entitled to
vote FOR such Proposal in favor of an adjournment and will vote those proxies
required to be voted AGAINST such Proposal against such adjournment. A
shareholder vote may be taken on one or more of the Proposals described in this
Proxy Statement prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
For each Proposal, the favorable vote of the holders of a majority of
the outstanding shares of each Fund present in person or by proxy at the
Meeting, provided a quorum is present, is required for approval as to that Fund.
Under the Investment Company Act of 1940, as amended ("1940 Act"), the vote of
the holders of a "majority" of the outstanding shares means the vote of holders
of the lesser of: (a) 67% or more of the Fund's shares present at the Meeting
or represented by proxy if holders of more than 50% of the Fund's outstanding
shares are so present or represented; or (b) more than 50% of the outstanding
shares of the Fund.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you own shares of more than one Fund or have multiple
accounts) will vote in accordance with your directions as indicated thereon if
your proxy is received properly executed. You may direct the proxy holders to
vote your shares on a Proposal by checking the appropriate box "For" or
"Against," or instruct them not to vote those shares on the Proposal by checking
the "Abstain" box. Alternatively, you may simply sign, date and return your
proxy card(s) with no specific instructions as to the Proposals. If you
properly execute your proxy and give no voting instructions with respect to a
Proposal, your shares will be voted for the Proposal.
The duly appointed proxies may, in their discretion, vote upon such
other matters as may properly come before the Meeting. Each full share issued
and outstanding is entitled to one vote and each fractional share issued and
outstanding is entitled to a proportionate share of one vote. The shareholders
of each Fund vote separately with respect to each Proposal.
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present, but do not represent votes
cast with respect to any Proposal. "Broker non-votes" are shares held by a
broker or nominee for which an executed proxy is received by a Fund, but are not
voted as to one or more Proposals because instructions have not been received
from the beneficial owners or persons entitled to vote and the broker or nominee
does not have discretionary voting power.
You may revoke your proxy with respect to a Fund: (a) at any time prior to
its exercise by written notice of its revocation to the Secretary of the Fund at
the above address prior to the Meeting; (b) by the subsequent execution and
return of another proxy prior to the Meeting; or (c) by being present and voting
in person at the Meeting and giving oral notice of revocation to the Chairman of
the Meeting. Attendance at the Meeting will not in and of itself constitute
revocation of your proxy.
The principal solicitation of proxies will be by the mailing of this
Proxy Statement on or about October 4, 1994. Proxies may also be solicited by
telephone, telegraph, telecopier and personal interviews by representatives of
each Fund, regular employees and sales representatives of Waddell & Reed, Inc.
("Waddell & Reed"), the principal underwriter of each Fund, Waddell & Reed's
affiliates, certain broker-dealers (who may be specifically compensated for such
services), and representatives of any independent proxy solicitation service
retained for the Meetings. Brokerage firms, banks and others may be requested
or required to forward the Notice and this Proxy Statement to beneficial owners
of shares so that the owners may authorize the voting of these shares. Each
Fund will pay these firms for its share of the out-of-pocket expenses for doing
so. Each Fund will pay a portion of the costs of the Meeting, including the
costs of solicitation, allocated on the basis of the number of shareholder
accounts of each Fund.
As of September 23, 1994, the Funds had the number of shares outstanding
listed below.
Fund Shares
Outstanding
United Funds, Inc.
United Accumulative Fund 138,266,826
United Income Fund 130,417,811
United Continental Income Fund, Inc. 20,374 170
To the knowledge of each Fund, as of September 23, 1994, no one
shareholder held of record or owned beneficially more than 5% of the outstanding
shares of the Fund. With respect to United Income Fund and United Continental
Income Fund, Inc., some shares were held of record by the custodian bank of
United Income Investment Programs and United Continental Income Investment
Programs. The beneficial ownership of shares held by the custodian bank as such
is in the planholders or programholders. These shares are voted as the
planholders or programholders instruct. If the custodian bank does not get
instructions on particular shares of a Fund, it votes them in the same ratio as
those shares of that Fund for which it did get instructions.
Each Fund's annual report for its most recent fiscal year has been sent to
shareholders of the Fund on or before the mailing of this Proxy Statement.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED EACH OF THE FOLLOWING PROPOSALS AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THEM.
PROPOSAL 1: RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE AS EACH FUND'S
INDEPENDENT ACCOUNTANTS
Price Waterhouse has been selected by the respective Boards of Directors as
each Fund's independent public accountants for the Fund's current fiscal year.
The shareholders of each Fund are entitled to vote for or against the
ratification of the selection of Price Waterhouse.
Price Waterhouse has advised each Fund that neither it nor any of its
partners has any direct or indirect financial interest or connection (other than
as independent accountants) in the Fund or any of its affiliates. Price
Waterhouse has been given the opportunity to make a statement at the Meeting if
it so desires. Price Waterhouse is not expected to have a representative
present at the Meeting but will be available should any matter arise requiring
its presence.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
PROPOSAL 2: ELIMINATION OF EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INVESTMENTS IN RESTRICTED SECURITIES
Each Fund is currently subject to a fundamental investment restriction that
provides that the Fund does not "invest in restricted securities" and that also
defines restricted securities as "securities which cannot freely be sold for
legal reasons." Because it is fundamental, a Fund's restriction against
purchasing restricted securities may be modified only with the approval of the
shareholders of the Fund.
Typically, restricted securities cannot be sold to the public without
registration under the Securities Act of 1933 ("1933 Act"). Unless registered,
these securities can only be sold in privately negotiated transactions or
pursuant to an exemption from registration. The Fund's restriction precludes
the Fund from investing in securities for which there is no public market or
which generally are not otherwise traded freely (i.e., illiquid securities).
However, the Fund's investment restriction does not expressly refer to
liquidity. As a result, the Fund may not invest in certain securities even if
they are liquid. For example, Rule 144A under the 1933 Act permits resales to
eligible institutional investors of restricted securities that, when issued,
were not of the same class as securities listed on a U.S. securities exchange or
NASDAQ. Rule 144A reflects recognition that, even though unregistered
securities may not be freely offered to the general public, in many cases an
active secondary market exists for unregistered securities and other
institutional buyers stand ready to purchase such securities at market value
from institutional holders such as the Funds in transactions exempt from
registration.
In view of changes that have occurred, and that may in the future occur, in
the 1933 Act requirements regarding the types of offers and sales that may be
made without an effective registration statement and the increased size and
liquidity of the institutional markets for unregistered securities, the Board of
Directors believes that the Fund's current restriction is unnecessarily
limiting, particularly since the Fund also has a non-fundamental policy which
limits its investments in illiquid securities. Under that policy, the Fund may
not make an investment if, as a result, more than 10% of the its net assets
would be invested in illiquid securities. (Under a current position of the
staff of the Securities and Exchange Commission, each Fund could invest up to
15% of its assets in illiquid securities, although the Board of Directors has no
present intention to change any Fund's current policy to reflect this higher
limit.)
If the shareholders of a Fund approve this Proposal to eliminate that
Fund's fundamental restriction regarding restricted securities, whether or not
the Fund could invest in an unregistered security would be determined by
reference to the Fund's investment objective and policies, including its policy
regarding illiquid investments, subject to the applicable requirements of the
1940 Act.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3: AMENDMENT OF THE INVESTMENT MANAGEMENT AGREEMENT FOR EACH FUND TO
CHANGE THE "SPECIFIC" FEE PAID BY THE FUND TO WADDELL & REED INVESTMENT
MANAGEMENT COMPANY
Waddell & Reed Investment Management Company currently serves as the
investment manager ("Manager") to United Funds, Inc. United Accumulative Fund
and United Funds, Inc. United Income Fund pursuant to the assignment to the
Manager by Waddell & Reed on January 8, 1992, of its investment management
duties under its Investment Management Agreement dated July 1, 1990 with United
Funds, Inc. Similarly, the Manager serves as the investment manager to United
Continental Income Fund, Inc., pursuant to the assignment to the Manager by
Waddell & Reed, on January 8, 1992, of its investment management duties under
its Investment Management Agreement dated August 1, 1990 with that Fund. (Each
Investment Management Agreement is referred to hereinafter as an "Agreement" and
its corresponding assignment to the Manager as the "Assignment.")
Each Fund's shareholders are being asked to approve an amendment to the fee
schedule of its Agreement that will increase the "Specific" fee payable by the
Fund as described below. The Agreement regarding United Funds, Inc. United
Accumulative Fund and United Funds, Inc. United Income Fund was last submitted
to shareholders of those Funds, respectively, on June 29, 1990, in connection
with the Agreement's initial approval by shareholders, and continuance of the
Agreement was last approved, along with the related Assignment, by the Board of
Directors on April 20, 1994. The Agreement regarding United Continental Income
Fund, Inc. was last submitted to shareholders of that Fund on June 29, 1990, in
connection with the Agreement's initial approval by shareholders, and
continuance of the Agreement was last approved, along with its related
Assignment, by the Board of Directors on June 29, 1994.
On August 31, 1994, the Board of Directors of each Fund, including those
Directors who are not parties to the Fund's Agreement or interested persons (as
such term is defined in the 1940 Act of any such party ("Independent
Directors"), unanimously approved, subject to the required shareholder approval
described herein, an amendment to the fee schedule of that Agreement to increase
the Specific fee payable by the Fund. (The form of each Agreement is attached
hereto as Exhibit A.) As of the date of this Proxy Statement, four of each
Fund's Directors are "interested persons," as defined in the 1940 Act, of the
Manager and Waddell & Reed. The Directors who are interested persons are John
F. Hayes, William T. Morgan, Ronald K. Richey and Keith A. Tucker. Each is an
interested person because he is a present or former officer, director and/or
shareholder of the Manager and/or certain of its affiliates. Each Director is
also a Director and/or officer (holding the same office) of TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc., each of which is a registered investment
company managed by the Manager.
Management Services and Current Fee Schedule
Under each Agreement, the Manager is employed to supervise the
investments of the applicable Fund. The Manager is to regularly provide
investment advice to the Fund and furnish continuously an investment program for
the Fund in accordance with the Fund's investment policies and goals, subject to
the direction and control of the Directors of the Fund. The Manager also
determines what securities will be bought and sold and places purchase and sale
orders regarding these securities for the Fund. For these services, the Manager
is paid a fee consisting of two elements: (1) a Specific fee computed on the
Fund's net asset value as of the close of each business day at the annual rate
shown in the table below; and (2) the Fund's pro rata participation, based on
the relative net asset size of the Fund, in a Group fee computed each day on the
combined net assets of all the funds in the United Group of Mutual Funds at the
annual rates shown in the second table below. The fee is accrued and paid
daily.
Pursuant to the Agreements, the Specific fees relating to each Fund
currently are as follows:
Specific Annual Fee
Name of Fund as % of Net Assets
United Funds, Inc. United Accumulative .05 of 1%
Fund
United Funds, Inc. United Income Fund .05 of 1%
United Continental Income Fund, Inc. .10 of 1%
Pursuant to the Agreements, the Group fee of which each Fund pays its pro
rata share is as follows:
Group Net Asset Level Annual Group Fee
(all Dollars in Millions) Rate for Each Level
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The total Specific and Group fees paid by each Fund to the Manager for
investment management services for its past fiscal year were as follows:
Fund Total Management
Fees
United Funds, Inc. United Accumulative
Fund $ 4,776,064
(fiscal year ended December 31, 1993)
United Funds, Inc. United Income Fund
(fiscal year ended December 31, 1993) $13,089,827
United Continental Income Fund, Inc.
(fiscal year ended March 31, 1994) $ 2,128,295
The Proposal: Change in Specific Fees
If the shareholders of a Fund approve this Proposal, then its Agreement
will be amended to increase that Fund's Specific fee as follows:
Name of Fund Specific Annual Fee
as % of Net Assets
United Funds, Inc. United Accumulative .15 of 1%
Fund
United Funds, Inc. United Income Fund .15 of 1%
United Continental Income Fund, Inc. .15 of 1%
No change is proposed to the Group fee or to any other provision of an
Agreement. If the shareholders of a Fund do not approve this Proposal, then the
current Specific fee applicable to that Fund will continue in effect, provided
that continuance of the Fund's Agreement is approved annually as required under
the 1940 Act.
The Manager
The address of the Manager is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217. The Manager is a wholly-owned subsidiary of Waddell
& Reed, the principal underwriter to each Fund, whose address is the same as
that of the Manager. Waddell & Reed is a direct wholly-owned subsidiary of
Waddell & Reed Financial Services, Inc., a holding company, and an indirect
subsidiary of Torchmark Corporation, a publicly held company. Waddell & Reed
Financial Services, Inc. is a wholly-owned subsidiary of United Investors
Management Company, a holding company which is wholly-owned by Torchmark
Corporation. The address of Torchmark Corporation and United Investors
Management Company is 2001 Third Avenue South, Birmingham, Alabama 35233.
Until January 8, 1992, Waddell & Reed or its predecessor served as the
investment manager to each of the funds within the United Group of Mutual Funds
since 1940 or the inception of the Fund, whichever was later, and to TMK/United
Funds, Inc. since its inception. On January 8, 1992, subject to the authority
of the respective Boards of Directors of these funds, Waddell & Reed assigned
its investment management duties for these funds (and the related professional
staff) to the Manager. The Manager also serves as the investment manager to
Waddell & Reed Funds, Inc., Torchmark Government Securities Fund, Inc., and
Torchmark Insured Tax-Free Fund, Inc.
For each of the funds in the United Group for which the Manager serves as
the investment manager, the approximate size of the fund as of August 31, 1994,
and the rate of compensation payable to the Manager are as follows:
Specific Annual Fee
Name of Fund and Approximate Size as % of Net Assets
United Funds, Inc.
United Income Fund
$3,335,375,593 .05 of 1%
United Accumulative Fund
$1,026,915,937 .05 of 1%
United Bond Fund
$555,975,661 .03 of 1%
United Science and Technology Fund
$459,216,481 .20 of 1%
United International Growth Fund, Inc.
$644,189,367 .30 of 1%
United Continental Income Fund, Inc.
$438,429,098 .10 of 1%
United Vanguard Fund, Inc.
$1,020,276,591 .30 of 1%
United Retirement Shares, Inc.
$483,458,428 .15 of 1%
United Municipal Bond Fund, Inc.
$974,778,481 .03 of 1%
United High Income Fund, Inc.
$954,577,174 .15 of 1%
United Cash Management, Inc.
$324,889,081 None
United Government Securities Fund, Inc.
$163,145,241 None
United New Concepts Fund, Inc.
$241,081,460 .35 of 1%
United Gold & Government Fund, Inc.
$43,603,553 .30 of 1%
United Municipal High Income Fund, Inc.
$347,208,026 .10 of 1%
United High Income Fund II, Inc.
$365,040,874 .15 of 1%
Each of the foregoing funds also pays its pro rata share, based on its relative
net assets, of the Group fee described above.
The Manager also acts as the investment manager for each of the Portfolios
of TMK/United Funds, Inc. The approximate size of each Portfolio as of August
31, 1994, and the rate of compensation payable to the Manager are as follows:
Name of Portfolio and Specific Annual Fee
Approximate Size as % of Net Assets
Income Portfolio
$213,412,769 .20 of 1%
Growth Portfolio
$274,889,115 .20 of 1%
High Income Portfolio
$76,488,093 .15 of 1%
Bond Portfolio
$78,220,872 .03 of 1%
Money Market Portfolio
$21,213,776 None
International Portfolio
$11,299,582 .30 of 1%
Small Cap Portfolio
$5,152,592 .35 of 1%
Balanced Portfolio
$3,782,239 .10 of 1%
Limited-Term Bond Portfolio
$1,201,981 .05 of 1%
Each of the Portfolios of TMK/United Funds, Inc. also pays its pro rata
share, based on its relative net assets, of a group fee for which the asset
levels and applicable fee rates are as follows:
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate for Each Level
From $ 0 to $ 750 .51 of 1%
From $ 750 to $1,500 .49 of 1%
From $1,500 to $2,250 .47 of 1%
Over $2,250 .45 of 1%
The Manager also serves as the investment manager for the following funds,
for each of which the approximate size as of August 31, 1994, and the rate of
compensation payable to the Manager are as follows:
Name of Fund and Annual Fee as
Approximate Size % of Net Assets
Waddell & Reed Funds, Inc.
Total Return Fund
$86,929,864 .71 of 1%
Limited-Term Bond Fund
$12,099,272 .56 of 1%
Global Income Fund
$10,755,095 .66 of 1%
Municipal Bond Fund
$26,172,586 .56 of 1%
Growth Fund
$62,125,479 .81 of 1%
Torchmark Government Securities Fund, Inc.
$1,420,365 .40 of 1%
Torchmark Insured Tax-Free Fund, Inc.
$2,255,631 .50 of 1%
The Manager's audited balance sheets as of December 31, 1993 and 1992
are attached to this Proxy Statement as Appendix B.
The Directors and the principal executive officers of the Manager and their
principal occupations are as follows:
Keith A. Tucker -- Chairman of the Board of Directors of the Manager, Waddell &
Reed, Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management
Company, and Torchmark Distributors, Inc.; Director and President of each of the
funds within the United Group of Mutual Funds, TMK/United Funds, Inc., Waddell &
Reed Funds, Inc., Torchmark Government Securities Fund, Inc., and Torchmark
Insured Tax-Free Fund, Inc.; President, Chief Executive Officer and Director of
Waddell & Reed Financial Services, Inc.; Vice Chairman of the Board of
Directors, Chief Executive Officer and President of United Investors Management
Company; and Vice Chairman of the Board of Directors of Torchmark Corporation.
Robert L. Hechler -- Executive Vice President, Principal Financial Officer,
Treasurer, and Director of the Manager; Vice President and Principal Financial
Officer of each of the funds within the United Group of Mutual Funds, TMK/United
Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc., and Torchmark Insured Tax-Free Fund, Inc.; Vice President, Chief
Operations Officer, Treasurer, and Director of Waddell & Reed Financial
Services, Inc.; President, Chief Executive Officer, Principal Financial Officer,
Treasurer, and Director of Waddell & Reed, Inc.; Director and Treasurer of
Waddell & Reed Asset Management Company; President, Treasurer, and Director of
Waddell & Reed Services Company; and Vice President, Treasurer and Director of
Torchmark Distributors, Inc.
Henry J. Herrmann -- President, Chief Executive Officer, Chief Investment
Officer and Director of the Manager and Waddell & Reed Asset Management Company;
Vice President of each of the funds within the United Group of Mutual Funds,
TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc., and Torchmark Insured Tax-Free Fund, Inc.; Vice
President, Chief Investment Officer, and Director of Waddell & Reed Financial
Services, Inc.; Director of Waddell & Reed, Inc.; and Senior Vice President and
Chief Investment Officer of United Investors Management Company.
Sharon K. Pappas -- Senior Vice President, Secretary and General Counsel of the
Manager, Waddell & Reed, Inc. and Waddell & Reed Services Company; Vice
President, Secretary and General Counsel of Waddell & Reed Financial Services,
Inc. and Torchmark Distributors, Inc.; Secretary and General Counsel of Waddell
& Reed Asset Management Company; and Vice President, Secretary and General
Counsel of each of the funds within the United Group of Mutual Funds, TMK/United
Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc., and Torchmark Insured Tax-Free Fund, Inc.
In addition the following are officers of a Fund as well as of the
Manager: James C. Cusser, Abel Garcia, John M. Holliday, Antonio Intagliata,
Carl E. Sturgeon and Russell E. Thompson are each a Vice President of United
Funds, Inc. and an officer of the Manager; and Cynthia P. Prince-Fox and Carl E.
Sturgeon are each a Vice President of United Continental Income Fund, Inc. and
also an officer of the Manager. The address of each officer and director of the
Manager is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-
9217.
Additional Terms of the Agreements
The terms of the respective Agreements between Waddell & Reed and each
Fund, as assigned to the Manager, are substantially identical with the exception
of the Specific fees, which are set forth above.
Each Agreement terminates automatically in the event of its "assignment"
(as defined in the 1940 Act). Each Agreement provides for termination upon a
minimum of 60 days' advance notice by the Fund and requires 120 days' advance
notice of termination from the Manager to the Fund.
Pursuant to each Agreement, the Manager provides investment advice and
supervises the investments of the applicable Fund. Under the terms of the
Agreement, the Manager has no obligation to provide accounting, shareholder
servicing and related services. The Agreement authorizes the Fund to enter into
an Accounting Services Agreement and/or Shareholder Servicing Agreement with the
Manager or an affiliate of the Manager under the terms and provisions stated in
the Agreement. Each Fund has entered into an Accounting Services Agreement with
Waddell & Reed Services Company ("WARSCO"), a subsidiary of Waddell & Reed,
pursuant to which agreement the Fund pays WARSCO a monthly fee, in arrears, of
one-twelfth of the annual fee shown in the following table:
Average Net Asset Level
(all Dollars Are In Millions) Annual Fee
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 above $100,000
Each Fund has also entered into a Shareholder Servicing Agreement with
WARSCO pursuant to which agreement the Fund pays WARSCO 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, in cash
or shares, had a record date in that month. The Fund also pays out-of-pocket
expenses including: long distance telephone communications costs; microfilm and
storage costs for certain documents; forms, printing and mailing costs; and
costs of legal and special services not provided by the Manager or WARSCO.
Recommendation of Board of Directors
At their meeting on August 31, 1994, the respective Boards of Directors of
the Funds, including a majority of the Independent Directors, authorized
submission of the proposed increase in the Funds' respective Specific fees to
the shareholders of the affected Fund. In connection with their consideration
of the proposed increase as described above, the Directors were advised by
independent counsel to the Funds that are not counsel to the Manager or Waddell
& Reed.
In their consideration of the proposed increase in the Specific fee as
it relates to each Fund, the Directors reviewed and analyzed a number of factors
that they deemed relevant, including but not limited to: the nature, quality
and scope of the services provided by the Manager under the Agreement;
management fees paid to other managers by comparable funds; the overall expense
ratio of the Fund under the current fee structure; the pro forma effect of the
proposed increase in the Specific fees on the Fund's overall expense ratio and
industry data regarding the overall expense ratios of comparable funds; the
revenues, expenses and profitability (actual and projected) of the Manager and
Waddell & Reed as to the Fund and with respect to all of the funds managed by
the Manager; and the indirect benefits afforded to the Manager and its
affiliates because of the Manager's relationship to the Fund. After full and
extensive consideration of these and other factors, the Board of Directors,
including a majority of the Independent Directors, approved the proposed
increase in the Specific fee for the Fund.
BROKERAGE AND PORTFOLIO TRANSACTIONS
One of the duties undertaken by the Manager pursuant to each Agreement
is to arrange the purchase and sale of securities for the portfolio of the
applicable Fund. Transactions in securities other than those for which an
exchange is the primary market are generally executed through dealers acting as
principal 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 applicable Fund may manage other advisory accounts
with similar investment objectives. It can be anticipated that the manager will
frequently place concurrent orders for all or most accounts for which the
manager has responsibility. Transactions effected pursuant to such combined
orders are averaged as to price and allocated in accordance with the purchase or
sale orders actually placed for each fund or advisory account.
To effect the portfolio transactions of a Fund, the Manager is authorized
to engage broker-dealers ("brokers") which, in the Manager's best judgment based
on all relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. The Manager need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
that provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by the Manager to be useful or desirable for its investment
management of the Fund and/or the other funds and accounts over which the
Manager or its affiliates have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than those commissions that another qualified broker would charge for
effecting comparable transactions if a good faith determination is made by the
Manager that the commission is reasonable in relation to the brokerage services
provided. Subject to the foregoing considerations, the Manager may also
consider the willingness of particular brokers and dealers to sell shares of the
Fund and other funds managed by the Manager and its affiliates as a factor in
their selection. No allocation of brokerage or principal business is made to
provide any other benefits to the Manager or its affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of the Manager or its affiliates,
and investment research received for the commissions of those other accounts may
be useful both to the Fund and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist the
Manager in making investment management decisions are used for administration or
other non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by the Manager.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic, or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons, and enables the Manager to obtain market information on the price
of securities held in the Fund's portfolio or being considered for purchase.
In placing transactions for a Fund's portfolio, the Manager may consider
sales of shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in the selection of brokers to execute portfolio
transactions. The Manager intends to allocate brokerage on the basis of this
factor only if the sale is $2 million or more and there is no sales charge.
This results in the consideration only of sales which by their nature would not
ordinarily be made by Waddell & Reed'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.
During the preceding fiscal year of each Fund, each Fund paid brokerage
commissions as shown below. These figures do not include principal transactions
or spreads or concessions on principal transactions, i.e., those in which a Fund
sells securities to a broker-dealer or buys from a broker-dealer firm securities
owned by it. During each fiscal year, no Fund paid any brokerage commissions to
the Manager or any affiliate of the Manager. The table below also shows for
each Fund's last fiscal year the transactions, other than principal
transactions, which were directed to broker-dealers who provided research as
well as execution and the brokerage commission paid on such transactions. These
transactions were allocated to these broker-dealers by the current internal
allocation procedures discussed above.
Transactions and
Commissions for Research
Fund Total Amount of Brokerage
Brokerage Transactions Commissions
Commissions
United Funds, Inc. United $5,230,858 $2,473,177,835 $3,972,853
Accumulative Fund
(fiscal year ended
December 31, 1993)
United Funds, Inc. United 2,078,626 867,643,246 1,489,827
Income Fund
(fiscal year ended
December 31, 1993)
United Continental Income 324,152 152,624,099 241,355
Fund, Inc.
(fiscal year ended March
31, 1994)
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
RECEIPT OF SHAREHOLDER PROPOSALS
As a general matter, the Funds do not hold regular annual or other meetings
of shareholders. Any shareholder who wishes to submit proposals to be
considered at a special meeting of a Fund's shareholders should send such
proposals to the Fund at 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
OTHER BUSINESS
No Fund knows of any other business to be presented at the Meetings other
than the matters set forth in this Proxy Statement. If any other matter or
matters are properly presented for action at the Meetings, the proxy holders
will vote the shares which the proxy cards entitle them to vote in accordance
with their judgment on such matter or matters. By signing and returning your
proxy card, you give the proxy holders discretionary authority as to any such
matter or matters.
By Order of the Boards of Directors
Sharon K. Pappas, Secretary
October 4, 1994
<PAGE>
APPENDIX A
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of July, 1990, by and between UNITED FUNDS, INC.
(hereinafter called "United"), and WADDELL & REED, INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed, Inc., agrees to act as investment adviser to United with
respect to the investment of its assets and in general to supervise the
investments of United, subject at all times to the direction and control of the
Board of Directors of United, all as more fully set forth herein.
II. Duties of Waddell & Reed, Inc., with respect to investment of assets of
United
A. Waddell & Reed Inc., shall regularly provide investment advice to
United and shall, subject to the succeeding provisions of this section,
continuously supervise the investment and reinvestment of cash, securities or
other property comprising the assets of the investment portfolios of United; and
in furtherance thereof, Waddell & Reed, Inc., shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or one or more of the
portfolios of United, and whether concerning the individual companies whose
securities are included in United's portfolios or the industries in which they
engage, or with respect to securities which Waddell & Reed, Inc., considers
desirable for inclusion in United's portfolios;
2. furnish continuously an investment program for each of the portfolios
of United;
3. determine what securities shall be purchased or sold by United;
4. take, on behalf of United, all actions which appear to Waddell & Reed,
Inc., necessary to carry into effect such investment programs and supervisory
functions as aforesaid, including the placing of purchase and sale orders.
B. Waddell & Reed, Inc., shall make appropriate and regular reports to the
Board of Directors of United on the actions it takes pursuant to Section II.A.
above. Any investment programs furnished by Waddell & Reed, Inc., under this
section, or any supervisory function taken hereunder by Waddell & Reed, Inc.,
shall at all times conform to and be in accordance with any requirements imposed
by:
1. the provisions of the Investment Company Act of 1940 and any rules or
regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of United as amended
from time to time;
4. the provisions of the Bylaws of United as amended from time to time;
5. the terms of the registration statements of United, as amended from
time to time, under the Securities Act of 1933 and the Investment Company Act of
1940.
C. Any investment programs furnished by Waddell & Reed, Inc., under this
section or any supervisory functions taken hereunder by Waddell & Reed, Inc.,
shall at all times be subject to any directions of the Board of Directors of
United, its Executive Committee, or any committee or officer of United acting
pursuant to authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of United and the expenses of Waddell & Reed, Inc., in
performing its functions under this Agreement shall be divided into two classes,
to wit:
(i) those expenses which will be paid in full by Waddell & Reed, Inc., as
set forth in subparagraph "A" hereof, and (ii) those expenses which will be paid
in full by United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed, Inc., under Section II
above, it shall pay in full, except as to the brokerage and research services
acquired through the allocation of commissions as provided in Section IV
hereinafter, for (a) the salaries and employment benefits of all employees of
Waddell & Reed, Inc. who are engaged in providing these advisory services; (b)
adequate office space and suitable office equipment for such employees; and (c)
all telephone and communications costs relating to such functions. In addition,
Waddell & Reed, Inc., shall pay the fees and expenses of all directors of United
who are employees of Waddell & Reed, Inc., or an affiliated corporation and the
salaries and employment benefits of all officers of United who are affiliated
persons of Waddell & Reed, Inc.
B. United shall pay in full for all of its expenses which are not
listed above (other than those assumed by Waddell & Reed, Inc., or its
affiliates in its capacity as principal underwriter of the shares of United, as
Shareholder Servicing Agent or as Accounting Services Agent for United),
including (a) the costs of preparing and printing prospectuses and reports to
shareholders of United including mailing costs; (b) the costs of printing all
proxy statements and all other costs and expenses of meetings of shareholders of
United; (c) interest, taxes, brokerage commission and premiums on fidelity and
other insurance; (d) audit fees and expenses of independent accountants and
legal fees and expenses of attorneys, but not of attorneys who are employees of
Waddell & Reed, Inc.; (e) fees and expenses of its directors; (f) custodian fees
and expenses; (g) fees payable by United under the Securities Act of 1933, the
Investment Company Act of 1940, and the securities or "Blue-Sky" laws of any
jurisdiction; (h) fees and assessments of the Investment Company Institute or
any successor organization; (i) such non recurring or extraordinary expenses as
may arise, including litigation affecting United and any indemnification by
United of its officers, directors, employees and agents with respect thereto;
(j) the costs and expenses provided for in any Shareholder Servicing Agreement
or Accounting Services Agreement, including amendments thereto, contemplated by
subsection C of this section III. In the event that any of the foregoing shall,
in the first instance, be paid by Waddell & Reed, Inc., United shall pay the
same to Waddell & Reed, Inc., on presentation of a statement with respect
thereto.
C. Waddell & Reed, Inc., or an affiliate of Waddell & Reed, Inc., may also
act as (i) transfer agent or shareholder servicing agent of United and/or as
(ii) accounting services agent of United if at the time in question there is a
separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between United and Waddell & Reed,
Inc., or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to either such Agreement with United is referred
to as the "Agent." Each such Agreement shall provide in substance that it shall
not go into effect, or may be amended, or a new agreement covering the same
topics between United and the Agent may be entered into only if the terms of
such Agreement, such amendment or such new agreement have been approved by the
Board of Directors of United, including the vote of a majority of the directors
who are not "interested persons" as defined in the Investment Company Act of
1940, of either party to the Agreement, such amendment or such new agreement
(considering Waddell & Reed, Inc., to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed, Inc.), cast in person at a
meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of United and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of United; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in light of the usual and customary charges made by others
for services of the same nature and quality. Any such Agreement may also
provide in substance that any disinterested director vote may be conditioned on
the favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class of
United. Each such Agreement shall also provide in substance that it may be
terminated by the Agent at any time without penalty upon giving United one
hundred twenty (120) days' written notice (which notice may be waived by United)
and may be terminated by United at any time without penalty upon giving the
Agent sixty (60) days' written notice (which notice may be waived by the Agent),
provided that such termination by United shall be directed or approved by the
vote of a majority of the Board of Directors of United in office at the time or
by the vote of the holders of a majority (as defined in or under the Investment
Company Act of 1940) of the outstanding shares of each class of United.
IV. Brokerage
(a) Waddell & Reed, Inc., may select brokers to effect the portfolio
transactions of United on the basis of its estimate of their ability to obtain,
for reasonable and competitive commissions, the best execution of particular and
related portfolio transactions. For this purpose, "best execution" means prompt
and reliable execution at the most favorable price obtainable. Such brokers may
be selected on the basis of all relevant factors including the execution
capabilities required by the transaction or transactions, the importance of
speed, efficiency, or confidentiality, and the willingness of the broker to
provide useful or desirable investment research and/or special execution
services. Waddell & Reed, Inc., shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed, Inc., shall have discretion,
in the interest of United, to direct the execution of its portfolio transactions
to brokers who provide brokerage and/or research services (as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934) for United
and/or other accounts for which Waddell & Reed, Inc., and its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Act of 1934); and in connection with such transactions, to pay
commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed, Inc., determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of Waddell & Reed, Inc.,
and its investment advisory affiliates with respect to the accounts for which
they exercise investment discretion. In reaching such determination, Waddell &
Reed, Inc., will not be required to attempt to place a specified dollar amount
on the brokerage and/or research services provided by such broker; provided that
Waddell & Reed, Inc., shall be prepared to demonstrate that such determinations
were made in good faith, and that all commissions paid by United over a
representative period selected by its Board of Directors were reasonable in
relation to the benefits to United.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell
& Reed, Inc., may also consider sales of United's shares and shares of other
investment companies distributed by Waddell & Reed, Inc., or its affiliates, and
portfolio valuation or pricing services as a factor in the selection of brokers
to execute brokerage and principal portfolio transactions.
V. Compensation of Waddell & Reed, Inc.
As compensation in full for services rendered and for the facilities and
personnel furnished under sections I, II, and IV of this Agreement, United will
pay to Waddell & Reed, Inc., for each day the fees specified in Exhibit A
hereto.
The amounts payable to Waddell & Reed, Inc., shall be determined as of
the close of business each day; shall, except as set forth below, be based upon
the value of net assets computed in accordance with the Articles of
Incorporation of United; and shall be paid in arrears whenever requested by
Waddell & Reed, Inc. In computing the value of the ent assets of United, there
shall be excluded the amount owed to United with respect to sahres which have
been sold but not yet paid to United by Waddell & Reed.
Notwithstanding the foregoing, if the laws, regulations or policies of any
state in which shares of United are qualified for sale limit the operation and
management expenses of United, Waddell & Reed, Inc., will refund to United the
amount by which such expenses exceed the lowest of such state limitations.
VI. Undertakings of Waddell & Reed, Inc.; Liabilities
Waddell & Reed, Inc., shall give to United the benefit of its best
judgment, efforts and facilities in rendering advisory services hereunder.
Waddell & Reed, Inc., shall at all times be guided by and be subject to
United's investment policies, the provisions of its Articles of Incorporation
and Bylaws as each shall from time to time be amended, and to the decision and
determination of United's Board of Directors.
This Agreement shall be performed in accordance with the requirements of
the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed, Inc., as an investment adviser and
affiliated person of United, Waddell & Reed, Inc., shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed, Inc., it shall not be subject to liability to United or to any stockholder
of United for any act or omission in the course of or connected with rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on the date
hereof and shall continue in effect, unless terminated as hereinafter provided,
for a period of one year and from year-to-year 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 this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of each class of United and
by the vote of a majority of the directors who are not parties to this Agreement
or "interested persons" (as so defined) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
VIII.Termination
This Agreement may be terminated by Waddell & Reed, Inc., at any time
without penalty upon giving United one hundred twenty (120) days' written notice
(which notice may be waived by United) and may be terminated by United at any
time without penalty upon giving Waddell & Reed, Inc. sixty (60) days' written
notice (which notice may be waived by Waddell & Reed, Inc.), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of United. 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 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) UNITED FUNDS, INC.
By:/s/Rodney O. McWhinney
Rodney O. McWhinney
Vice President
ATTEST:
/s/Sharon K. Pappas
Sharon K. Pappas, Secretary
(Seal) WADDELL & REED, INC.
By:/s/Robert L. Hechler
Robert L. Hechler
Executive Vice President
ATTEST:
/s/Rodney O. McWhinney
Rodney O. McWhinney, Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED FUNDS, INC.
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on United net asset value at the
annual rates listed below:
United Bond Fund .03 of 1%
United Science and Technology Fund .20 of 1%
Current Proposed
United Income Fund .05 of 1% .15 of 1%
United Accumulative Fund .05 of 1% .15 of 1%
2. A pro rata participation based on the relative net asset size of United
in a "Group" fee computed each day on the combined net asset values of all the
Funds in the United Group listed hereafter at the annual rates shown in the
following table:
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate For Each Level
------------------------- --------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Determined as of the close of business that day or, if not a business day, as of
the close of business the first business day preceding.
The Funds in the United Group are:
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc.
and such other funds for which Waddell & Reed, Inc., may now or hereafter act as
investment adviser, provided that the parties to this Agreement expressly agree
in writing that such fund shall be included in the present United Group for the
purpose of determining the group fee rate.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of August, 1990, by and between UNITED CONTINENTAL
INCOME FUND, INC. (hereinafter called "United"), and WADDELL & REED, INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed, Inc., agrees to act as investment adviser to United with
respect to the investment of its assets and in general to supervise the
investments of United, subject at all times to the direction and control of the
Board of Directors of United, all as more fully set forth herein.
II. Duties of Waddell & Reed, Inc., with respect to investment of assets of
United
A. Waddell & Reed Inc., shall regularly provide investment advice to
United and shall, subject to the succeeding provisions of this section,
continuously supervise the investment and reinvestment of cash, securities or
other property comprising the assets of the investment portfolios of United; and
in furtherance thereof, Waddell & Reed, Inc., shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the portfolio of United,
and whether concerning the individual companies whose securities are included in
United's portfolio or the industries in which they engage, or with respect to
securities which Waddell & Reed, Inc., considers desirable for inclusion in
United's portfolio;
2. furnish continuously an investment program for each of the portfolio of
United;
3. determine what securities shall be purchased or sold by United;
4. take, on behalf of United, all actions which appear to Waddell &
Reed, Inc., necessary to carry into effect such investment program and
supervisory functions as aforesaid, including the placing of purchase and sale
orders.
B. Waddell & Reed, Inc., shall make appropriate and regular reports to the
Board of Directors of United on the actions it takes pursuant to Section II.A.
above. Any investment program furnished by Waddell & Reed, Inc., under this
section, or any supervisory function taken hereunder by Waddell & Reed, Inc.,
shall at all times conform to and be in accordance with any requirements imposed
by:
1. the provisions of the Investment Company Act of 1940 and any rules or
regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of United as amended
from time to time;
4. the provisions of the Bylaws of United as amended from time to time;
5. the terms of the registration statements of United, as amended from
time to time, under the Securities Act of 1933 and the Investment Company Act of
1940.
C. Any investment program furnished by Waddell & Reed, Inc., under this
section or any supervisory functions taken hereunder by Waddell & Reed, Inc.,
shall at all times be subject to any directions of the Board of Directors of
United, its Executive Committee, or any committee or officer of United acting
pursuant to authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of United and the expenses of Waddell & Reed, Inc., in
performing its functions under this Agreement shall be divided into two classes,
to wit: (i) those expenses which will be paid in full by Waddell & Reed, Inc.,
as set forth in subparagraph "A" hereof, and (ii) those expenses which will be
paid in full by United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed, Inc., under Section II
above, it shall pay in full, except as to the brokerage and research services
acquired through the allocation of commissions as provided in Section IV
hereinafter, for (a) the salaries and employment benefits of all employees of
Waddell & Reed, Inc. who are engaged in providing these advisory services; (b)
adequate office space and suitable office equipment for such employees; and (c)
all telephone and communications costs relating to such functions. In addition,
Waddell & Reed, Inc., shall pay the fees and expenses of all directors of United
who are employees of Waddell & Reed, Inc., or an affiliated corporation and the
salaries and employment benefits of all officers of United who are affiliated
persons of Waddell & Reed, Inc.
B. United shall pay in full for all of its expenses which are not
listed above (other than those assumed by Waddell & Reed, Inc., or its
affiliates in its capacity as principal underwriter of the shares of United, as
Shareholder Servicing Agent or as Accounting Services Agent for United),
including (a) the costs of preparing and printing prospectuses and reports to
shareholders of United including mailing costs; (b) the costs of printing all
proxy statements and all other costs and expenses of meetings of shareholders of
United; (c) interest, taxes, brokerage commission and premiums on fidelity and
other insurance; (d) audit fees and expenses of independent accountants and
legal fees and expenses of attorneys, but not of attorneys who are employees of
Waddell & Reed, Inc.; (e) fees and expenses of its directors; (f) custodian fees
and expenses; (g) fees payable by United under the Securities Act of 1933, the
Investment Company Act of 1940, and the securities or "Blue-Sky" laws of any
jurisdiction; (h) fees and assessments of the Investment Company Institute or
any successor organization; (i) such non recurring or extraordinary expenses as
may arise, including litigation affecting United and any indemnification by
United of its officers, directors, employees and agents with respect thereto;
(j) the costs and expenses provided for in any Shareholder Servicing Agreement
or Accounting Services Agreement, including amendments thereto, contemplated by
subsection C of this section III. In the event that any of the foregoing shall,
in the first instance, be paid by Waddell & Reed, Inc., United shall pay the
same to Waddell & Reed, Inc., on presentation of a statement with respect
thereto.
C. Waddell & Reed, Inc., or an affiliate of Waddell & Reed, Inc., may also
act as (i) transfer agent or shareholder servicing agent of United and/or as
(ii) accounting services agent of United if at the time in question there is a
separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between United and Waddell & Reed,
Inc., or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to either such Agreement with United is referred
to as the "Agent." Each such Agreement shall provide in substance that it shall
not go into effect, or may be amended, or a new agreement covering the same
topics between United and the Agent may be entered into only if the terms of
such Agreement, such amendment or such new agreement have been approved by the
Board of Directors of United, including the vote of a majority of the directors
who are not "interested persons" as defined in the Investment Company Act of
1940, of either party to the Agreement, such amendment or such new agreement
(considering Waddell & Reed, Inc., to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed, Inc.), cast in person at a
meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of United and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of United; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in light of the usual and customary charges made by others
for services of the same nature and quality. Any such Agreement may also
provide in substance that any disinterested director vote may be conditioned on
the favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of United. Any such
Agreement shall also provide in substance that it may be terminated by the Agent
at any time without penalty upon giving United one hundred twenty (120) days'
written notice (which notice may be waived by United) and may be terminated by
United at any time without penalty upon giving the Agent sixty (60) days'
written notice (which notice may be waived by the Agent), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of the
holders of a majority (as defined in or under the Investment Company Act of
1940) of the outstanding shares of United.
IV. Brokerage
(a) Waddell & Reed, Inc., may select brokers to effect the portfolio
transactions of United on the basis of its estimate of their ability to obtain,
for reasonable and competitive commissions, the best execution of particular and
related portfolio transactions. For this purpose, "best execution" means prompt
and reliable execution at the most favorable price obtainable. Such brokers may
be selected on the basis of all relevant factors including the execution
capabilities required by the transaction or transactions, the importance of
speed, efficiency, or confidentiality, and the willingness of the broker to
provide useful or desirable investment research and/or special execution
services. Waddell & Reed, Inc., shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed, Inc., shall have discretion,
in the interest of United, to direct the execution of its portfolio transactions
to brokers who provide brokerage and/or research services (as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934) for United
and/or other accounts for which Waddell & Reed, Inc., and its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Act of 1934); and in connection with such transactions, to pay
commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed, Inc., determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of Waddell & Reed, Inc.,
and its investment advisory affiliates with respect to the accounts for which
they exercise investment discretion. In reaching such determination, Waddell &
Reed, Inc., will not be required to attempt to place a specified dollar amount
on the brokerage and/or research services provided by such broker; provided that
Waddell & Reed, Inc., shall be prepared to demonstrate that such determinations
were made in good faith, and that all commissions paid by United over a
representative period selected by its Board of Directors were reasonable in
relation to the benefits to United.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell
& Reed, Inc., may also consider sales of United's shares and shares of other
investment companies distributed by Waddell & Reed, Inc., or its affiliates, and
portfolio valuation or pricing services as a factor in the selection of brokers
to execute brokerage and principal portfolio transactions.
V. Compensation of Waddell & Reed, Inc.
As compensation in full for services rendered and for the facilities and
personnel furnished under sections I, II, and IV of this Agreement, United will
pay to Waddell & Reed, Inc., for each day the fees specified in Exhibit A
hereto.
The amounts payable to Waddell & Reed, Inc., shall be determined as of
the close of business each day; shall, except as set forth below, be based upon
the value of net assets computed in accordance with the Articles of
Incorporation of United; and shall be paid in arrears whenever requested by
Waddell & Reed, Inc. In computing the value of the net assets of United, there
shall be excluded the amount owed to United with respect to shares which have
been sold buy not yet paid to United by Waddell & Reed.
Notwithstanding the foregoing, if the laws, regulations or policies of any
state in which shares of United are qualified for sale limit the operation and
management expenses of United, Waddell & Reed, Inc., will refund to United the
amount by which such expenses exceed the lowest of such state limitations.
VI. Undertakings of Waddell & Reed, Inc.; Liabilities
Waddell & Reed, Inc., shall give to United the benefit of its best
judgment, efforts and facilities in rendering advisory services hereunder.
Waddell & Reed, Inc., shall at all times be guided by and be subject to
United's investment policies, the provisions of its Articles of Incorporation
and Bylaws as each shall from time to time be amended, and to the decision and
determination of United's Board of Directors.
This Agreement shall be performed in accordance with the requirements of
the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed, Inc., as an investment adviser and
affiliated person of United, Waddell & Reed, Inc., shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed, Inc., it shall not be subject to liability to United or to any stockholder
of United for any act or omission in the course of or connected with rendering
services thereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on the
date hereof and shall continue in effect, unless terminated as hereinafter
provided, for a period of one year and from year-to-year 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 this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of United and by the vote
of a majority of the directors who are not parties to this Agreement or
"interested persons" (as so defined) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
VIII.Termination
This Agreement may be terminated by Waddell & Reed, Inc., at any time
without penalty upon giving United one hundred twenty (120) days' written notice
(which notice may be waived by United) and may be terminated by United at any
time without penalty upon giving Waddell & Reed, Inc. sixty (60) days' written
notice (which notice may be waived by Waddell & Reed, Inc.), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of United. 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 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) UNITED CONTINENTAL INCOME FUND, INC.
By:/s/Rodney O. McWhinney
Rodney O. McWhinney
Vice President
ATTEST:
/s/Sharon K. Pappas
Sharon K. Pappas, Secretary
(Seal) WADDELL & REED, INC.
By:/s/Robert L. Hechler
Robert L. Hechler
Executive Vice President
ATTEST:
/s/Rodney O. McWhinney
Rodney O. McWhinney, Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED CONTINENTAL INCOME FUND, INC.
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on net asset value at the annual
rate of .10 of 1% [.10 of 1% - current; .15 of 1% - proposed] of net assets; and
2. A pro rata participation based on the relative net asset size of United
in a "Group" fee computed each day on the combined net asset values of all the
Funds in the United Group listed hereafter at the annual rates shown in the
following table:
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate For Each Level
------------------------- --------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Determined as of the close of business that day or, if not a business day, as of
the close of business the first business day preceding.
The Funds in the United Group are:
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc.
and such other funds for which Waddell & Reed, Inc., may now or hereafter act as
investment adviser, provided that the parties to this Agreement expressly agree
in writing that such fund shall be included in the present United Group for the
purpose of determining the group fee rate.
<PAGE>
APPENDIX B
WADDELL & REED INVESTMENT MANAGEMENT COMPANY
(A wholly-owned subsidiary of Waddell & Reed, Inc.)
Balance Sheets
December 31, 1993 and 1992
Assets 1993 1992
Current assets:
Cash and cash equivalents (note 2) $ 7,044,996 $ 3,437,725
Other receivables:
Due from mutual fund groups (note 5) 446,179 342,899
Due from affiliates (note 5) 160,587 272,052
Accrued interest 7,223 11,787
Prepaid expenses and other 6,387 4,671
Deferred income taxes (note 6) - 22,664
----------- -----------
Total current assets 7,665,372 4,091,798
----------- -----------
Investments (note 3) 1,015,477 1,657,002
Note receivable (note 4) 930,667 930,667
Due from the Waddell & Reed Funds, Inc. 189,913 157,160
(note 5)
Furniture, fixtures and equipment, at cost 766,250 753,042
(note 5)
Less accumulated depreciation 465,094 344,007
----------- -----------
Net furniture, fixtures and 301,156 409,035
equipment ----------- -----------
Deferred income taxes (note 6) 282,902 62,373
----------- -----------
Total assets $10,385,487 $ 7,308,035
=========== ===========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued expenses $ 137,009 $ 123,414
Payable to affiliates (note 5) 221,810 1,054,372
Accrued compensation 819,659 678,659
Accrued pension contributions and
postretirement benefits 664,834 161,270
Income taxes payable 555,287 1,111,629
Deferred income taxes (note 6) 20,050 -
----------- -----------
Total liabilities 2,418,649 3,129,344
----------- -----------
Stockholder's equity (notes 5 and 6):
Common stock, par value $1 per share;
authorized, issued and outstanding
1,000 shares 1,000 1,000
Additional paid-in capital 2,174,533 433,981
Retained earnings 5,791,305 3,743,710
----------- -----------
Total stockholder's equity 7,966,838 4,178,691
----------- -----------
Total liabilities and stockholder's
equity $10,385,487 $ 7,308,035
=========== ===========
See accompanying notes to balance sheets.
<PAGE>
WADDELL & REED INVESTMENT MANAGEMENT COMPANY
(A wholly-owned subsidiary of Waddell & Reed, Inc.)
Notes to Balance Sheets
December 31, 1993 and 1992
(1) Summary of Accounting Policies
(a)Ownership
Waddell & Reed Investment Management Company (the Company) is a wholly-
owned subsidiary of Waddell & Reed, Inc. At December 31, 1992,
Waddell & Reed, Inc. was a wholly-owned, first-tier subsidiary of
United Investors Management Company (UIMCO), which was an 84%-owned
subsidiary of Torchmark Corporation. Pursuant to an Agreement and Plan
of Merger dated June 2, 1993 and approved by shareholders of UIMCO on
September 29, 1993. Torchmark purchased the remaining outstanding
stock (16%) of UIMCO on October 1, 1993, thereby making UIMCO a wholly-
owned subsidiary of Torchmark Corporation. Effective May 1, 1993,
UIMCO contributed its investment in Waddell & Reed, Inc. to Waddell &
Reed Financial Services, Inc., a wholly-owned first-tier subsidiary of
UIMCO, which will serve as Waddell & Reed, Inc.'s parent.
(b)Cash and Cash Equivalents
Cash and cash equivalents in the accompanying financial statements include
cash-on-hand and short-term investments with original maturities of
less than ninety days (note 2).
(c)Income Taxes
The accounts of the Company are included in a consolidated federal income
tax return filed by Waddell & Reed, Inc.'s parent. The Company's
provision for income taxes has been made on the same basis as if the
Company filed a separate return. As discussed in note 6, effective
January 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 109.
(d)Employee Benefit Plans
The Company, together with certain affiliated companies, participates in a
noncontributory retirement plan and sponsors an unfunded deferred
benefit postretirement medical plan that cover substantially all
employees. As discussed in note 7, effective January 1, 1993 the
Company adopted Statement of Financial Accounting Standards No. 106.
(e)Savings and Investment Plan
The Company participates in a savings and investment plan of Waddell &
Reed, Inc.'s parent covering substantially all employees. The plan
provides for a matching Company contribution of 50% of the employee's
investment in mutual fund shares and/or Torchmark Corporation stock not
to exceed 3% of the employee's qualifying compensation, including
salary, bonuses and commissions.
(f)Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are carried at cost. The Company
provides for depreciation using the straight-line method or an
accelerated method over the estimated useful lives of the assets,
generally three to ten years.
(2) Cash and Cash Equivalents
At December 31, 1993 and 1992, cash and cash equivalents consisted of cash,
commercial paper and a short-term repurchase agreement. Marketable
securities are recorded at cost which approximates market. As of
December 31, 1993 and 1992, cash and cash equivalents consisted of the
following:
1993 1992
Cash $ 179,818 $ 143,801
Marketable securities:
Commercial paper 6,240,178 2,743,924
Short-term repurchase 625,000 550,000
agreement ---------- ----------
Total cash and cash
equivalents $7,044,996 $3,437,725
Investments
Investments at December 31, 1993 and 1992 consist of investments in pools
of U. S. government mortgage-backed securities, with various maturities
through April 2022, and are recorded at cost which approximates market.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which is effective for fiscal years beginning after
December 15, 1993 (the Company's 1994 fiscal year). Statement 115
expands the use of fair value accounting and the reporting for certain
investments in debt and equity securities. Management expects the
adoption of Statement 115 will not have a significant impact on the
Company's financial statements.
Note Receivable (4)
Notes receivable consists of a 7.25% note receivable, with accrued interest
due in annual installments, principal due December 31, 1997 and is
secured by a Deed of Trust to certain real estate and improvements.
Transactions With Related Parties (5)
The Company serves as investment manager for United Funds and Waddell &
Reed Funds, Inc. At December 31, 1993 and 1992, $446,179 and $342,899,
respectively, was due from the fund groups for investment management
fees and billings for preparation and printing of annual and semiannual
reports. The Company was also owed $189,913 and $157,160,
respectively, from the Waddell & Reed Funds, Inc., principally for
start-up costs which will be repaid over a five year period.
The following table summarizes amounts due from affiliates as of
December 31, 1993 and 1992:
1993 1992
Waddell & Reed Asset Management $ 160,587 $137,837
Company
United Investors Management - 128,283
Company
Torchmark Corporation - 5,932
--------- --------
$ 160,587 $272,052
========= ========
Payable to affiliates at December 31, 1993 and 1992 of $221,810 and
$1,054,372, respectively, relates primarily to amounts owed to the
Company's parent for operating expenses.
During the years ended December 31, 1993 and 1992, the Company paid
dividends to its parent totaling $29,500,000 and $22,800,000,
respectively.
On January 8, 1992, the Company's parent contributed assets, principally
fixed assets and receivables aggregating $901,076 and liabilities
aggregating $861,076, to the Company.
Income Taxes (6)
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Statement 109 required a change from the deferred
method of accounting for income taxes of Accounting Principles Board
(APB) Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Effective January 1, 1993, the Company adopted Statement 109. The
cumulative effect of this change in accounting for income taxes on
January 1, 1993 was not significant. The December 31, 1992 balance
sheet has not been restated to apply the provisions of Statement 109.
The Company accounted for taxes using the deferred method under APB
Opinion 11 in 1992 and prior years.
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at January 1, 1993 and
December 31, 1993 are as follows:
January 1, December 31,
1993 1993
---------- -----------
Deferred tax assets:
Accrued pension liability $ 58,716 $150,133
Accrued retirement and
postretirement benefit
other than pension 85,314 99,052
Fixed assets - 33,717
-------- --------
Total gross deferred 144,030 282,902
assets -------- --------
Deferred tax liabilities:
Fixed assets 11,132 -
Other 67,806 20,050
Total gross deferred -------- --------
liabilities 78,938 20,050
-------- --------
Net deferred tax asset $ 65,092 $262,852
======== ========
A valuation allowance for deferred tax assets was not necessary at
January 1, 1993 or at December 31, 1993.
During 1993 and 1992, the parent company contributed $1,740,552 and
$384,981, respectively, to the paid-in capital of the Company in the
form of a reduction of federal income tax payable.
Employee Benefit Plans (7)
(a) Retirement Plan
The Company, together with certain affiliated companies, participates in a
noncontributory retirement plan which covers substantially all
employees. Benefits payable under the plan are based on years of
service and an employee's compensation during the highest five of the
final ten years of employment. Certain employees from the Company's
parent were transferred to the Company effective January 1, 1992. The
Company's parent has established a liability for accrued pension for
the transferred employees for services rendered prior to January 1,
1992.
At December 31, 1993 and 1992, the assumed discount rate, the rate at which
the plan benefit obligations could be settled, was 7.25% and 8.5%,
respectively. The estimated rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation was 4.25% and 5.5% at December 31, 1993 and 1992,
respectively. The expected long-term rate of return on plan assets was
8.0% and 8.5% at December 31, 1993 and 1992, respectively.
The Company's funding policy is to contribute annually the maximum amount
that can be deducted for federal income tax purposes. Contributions
are intended to provide not only for benefits attributed to service to
date but also for those expected to be earned in the future.
Substantially all of the plan's assets are invested in mutual funds
managed by the Company and the Company's parent, Waddell & Reed, Inc.
The following table sets forth the plan's funded status for all member
companies as of December 31, 1993 and 1992:
1993 1992
Actuarial present value of benefit
obligations:
Vested benefits $14,568,000 $10,004,000
Nonvested benefits 1,851,000 1,385,000
----------- -----------
Accumulated benefit obligation 16,419,000 11,389,000
Increase in benefits due to future
compensation increases 7,580,000 5,974,000
----------- -----------
Projected benefit obligation 23,999,000 17,363,000
Estimated fair market value of plan 17,613,000 16,815,000
assets ----------- -----------
Projected benefit obligation in
excess of plan assets 6,386,000 548,000
Unrecognized net gain from past
experience different from that assumed
and effect changes in assumptions 1,578,000 7,438,000
Unrecognized net transition obligation
being recognized over 21.57 years (295,000) (306,000)
Unrecognized prior service cost
attributable to plan amendments (134,000) (145,000)
--------- ----------
Pension liability as of $7,535,000 $7,535,000
December 31 ========== ==========
Company portion of liability $ 400,957 $ 161,270
========== ==========
(b) Postretirement Benefits Other Than Pensions
The Company, together with certain affiliated companies, sponsor an
unfunded defined benefit postretirement medical plan that covers
substantially all its employees. The plan is contributory with retiree
contributions adjusted annually.
The FASB has issued Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." This statement significantly changed the prevalent practice
of accounting for postretirement benefits on a pay-as-you-go (cash)
basis by requiring accrual, during the years that the employee renders
the necessary service, of the expected cost of providing those benefits
to an employee and the employee's beneficiaries and covered dependents.
Effective January 1, 1993, the Company implemented Statement 106. The
Company elected immediate recognition of the transition obligation
which amounted to $233,000 and has recorded such, net of $79,000 income
tax benefit, as a cumulative effect of change in accounting principle
on that date.
The following table sets forth the plans' funded status for Waddell & Reed,
Inc. and subsidiaries as of December 31, 1993 and January 1, 1993:
January 1, December 31,
1993 1993
---------- ------------
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 562,000 $ 502,000
Fully eligible active plan
participants 175,000 143,000
Other active plan participants 507,000 449,000
---------- ----------
1,244,000 1,407,000
Plan assets at fair value - -
Unrecognized effects of changes in
assumptions - 313,000
---------- ----------
Accumulated postretirement benefit
obligation in excess of plan
assets $1,244,000 $1,407,000
========== ==========
Company portion of accumulated post-
retirement benefit obligation in
excess of plan assets $ 233,271 $ 263,877
========== ==========
The significant assumptions used in computing the APBO as of December 31,
1993 and January 1, 1993 are as follows:
Assumed health care cost trend rate used to measure the expected cost
of benefits covered by the plan:
January 1, 1993 December 31, 1993
--------------- -----------------
Current year 14% 13%
Thereafter Decrease Decrease
annually annually
to 5.5% by to 5.5% by
2018 2018
Discount rate 8% 7.25%
The effect of a 1% increase each year in the assumed health care cost trend
rate on the Company's APBO as of December 31, 1993 would be an increase
of approximately $50,000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Waddell & Reed Investment
Management Company:
We have audited the accompanying balance sheets of Waddell & Reed Investment
Management Company (a wholly-owned subsidiary of Waddell & Reed, Inc.) as of
December 31, 1993 and 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheets are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Waddell & Reed Investment
Management Company at December 31, 1993 and 1992 in conformity with generally
accepted accounting principles.
As described in note 1 to the balance sheets, the Company adopted Statement
of Financial Accounting Standards No. 106, "Accounting for Postretirement
Benefits Other Than Pensions," in 1993.
KPMG Peat Marwick LLP
February 4, 1994
<PAGE>
PROXY/AUTHORIZATION AND DIRECTION
FOR EXECUTION OF PROXY SOLICITED
ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Keith A. Tucker and Sharon K. Pappas, or
either of them (or their substitutes), as attorneys and proxies of the
undersigned, with full power of substitution to represent and vote all of the
shares of the Fund set forth above in which the undersigned own shares
(including all shares of the Fund that the undersigned owns beneficially through
the Custodian under a periodic investment program) and which are entitled to be
voted at the Special Meeting of Shareholders of the Fund to be held November 21,
1994, at 10:00 a.m. local time, at 6300 Lamar Avenue, Overland Park, Kansas
66202, and any adjournment(s) thereof, and revoking all proxies heretofore
given, as designated on the reverse side of this card. As to any other matter,
the attorneys and proxies shall be authorized to vote in accordance with their
best judgment. This proxy shall remain in effect for a period of one year from
its date.
SIGN BELOW - Please sign exactly as your name
appears hereon. If shares are registered in
more than one name, all should sign, but if
one signs, it binds the others. When signing
as attorney, executor, administrator, agent,
trustee or guardian, please give full title
as such. If a corporation, please sign in
full corporate name by an authorized person.
If a partnership, please sign in partnership
name by an authorized person.
Dated_____________________________, 1994
Signature_______________________________
Signature_______________________________
(over)
<PAGE>
THIS PROXY/AUTHORIZATION AND DIRECTION FOR EXECUTION OF PROXY, IF PROPERLY
EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS MADE
FOR A PROPOSAL, THE SHARES WILL BE VOTED "FOR" THAT PROPOSAL. Receipt of the
Proxy Statement is hereby acknowledged.
TO VOTE, MARK BOXES BELOW IN BLUE OR BLACK INK. __X__
PROPOSAL 1. To ratify the selection of Price Waterhouse as
independent accountants of the Fund for its
current fiscal year.
For_________ Against_____ Abstain______
PROPOSAL 2. To eliminate the Fund's fundamental investment
restriction regarding investments in restricted
securities.
For_________ Against _____ Abstain _____
PROPOSAL 3. To amend the Fund's Investment Management
Agreement to change the "specific" fee paid by the
Fund to Waddell & Reed Investment Management
Company.
For ________ Against _____ Abstain _____
(over)
<PAGE>
IMPORTANT NOTICE
To avoid the expense of multiple mailings to the same shareholder, we
have, whenever possible, included proxy cards for all your accounts in the funds
involved in this proxy in one envelope.
PLEASE BE SURE TO SIGN AND RETURN ALL PROXIES RECEIVED.
