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Preliminary Copy
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 the 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 10, 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 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, except that the
shareholders of United Accumulative Fund and United Income Fund vote together
with respect to the ratification of independent accountants (Proposal 1).
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 10, 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.
Shares
Fund Outstanding
United Funds, Inc.
United Accumulative Fund
United Income Fund
United Continental Income Fund, Inc.
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, _____ shares were held of record
by the custodian bank of United Income Investment Programs. These shares were
___% of the outstanding shares of United Income Fund. 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 continue to 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 the applicable Agreement, the Manager is employed to supervise the
investments of the 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 for
the Fund. For these services, the Manager is paid a fee consisting of two
elements: (1) a Specific Fund fee computed on the Fund's net asset value as of
the close of each day; 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 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 the 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 the
Agreements. 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 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.
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, 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, 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; 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.
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 Fund 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; and the
revenues and expenses (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.
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. When
possible, concurrent orders to purchase or sell the same security by more than
one of the funds or other advisory accounts managed by the Manager or its
affiliates are combined. 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. Such policies
include the selection of brokers that provide execution and/or research services
("brokerage services") considered by the Manager to be useful or desirable for
its investment management of the Funds and advisory accounts for 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
request of a broker) includes information on particular companies and industries
as well as market, economic, or institutional activity areas. It serves to
broaden the scope and supplement the research activities of 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
sell 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 Brokerage Amount of Brokerage
Commissions Transactions 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 10, 1994
<PAGE>
APPENDIX A
[INVESTMENT MANAGEMENT AGREEMENT]
<PAGE>
APPENDIX B
WADDELL & REED INVESTMENT MANAGEMENT COMPANY
BALANCE SHEET
<PAGE>
To avoid the expense of adjourning the meeting to a subsequent date, please
sign, date and return this proxy/authorization and direction for execution of
proxy in the enclosed postage-paid envelope.
NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED
[Please fold and detach before mailing]
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>
PLEASE NOTE
To save the expense of multiple mailings to the same shareholder, we have,
whenever possible, included proxy cards for all your accounts in one envelope.
PLEASE BE SURE TO SIGN AND RETURN ALL PROXIES RECEIVED.
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.
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 Investment Management Agreement for
each Fund to change the "specific" fee paid by the
Fund to Waddell & Reed Investment Management
Company.
For ________ Against _____ Abstain _____
(over)
