<PAGE>
File No. 811-2263
File No. 2-42885
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ______
Post-Effective Amendment No. 45
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 28
UNITED RETIREMENT SHARES, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66201-2917
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
============================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f(a)(1). Notice for the
Registrant's fiscal year ended June 30, 1995, will be filed on or about
August 29, 1995.
============================================================================
<PAGE>
UNITED RETIREMENT SHARES, INC.
==============================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
--------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Fund; About
the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund; About
the Management and Expenses of the Fund
(c) ..................... About the Investment Principles of the Fund; About
the Management and Expenses of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b)...................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(d) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... About the Management and Expenses of the Fund
(g)(i)................... *
(g)(ii).................. About the Management and Expenses of the Fund
5A........................ **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... About the Management and Expenses of the Fund
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ...................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
--------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goal and Investment Policies
(b) ..................... Goal and Investment Policies
(c) ..................... Goal and Investment Policies
(d) ..................... Goal and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. *
(b)(iii) ................ *
(b)(iv).................. Performance Information
23 ........................ Financial Statements
---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Included in Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated October 6, 1995. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United Retirement Shares, Inc.
Class A Shares
This Fund seeks to provide the highest long-term total investment return as is,
in the opinion of the Fund's investment manager, consistent with reasonable
safety of capital. The Fund will attempt to achieve its objective through a
fully-managed investment policy.
This Prospectus describes one class of shares of the Fund -- Class A Shares.
Prospectus
October 6, 1995
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................3
EXPENSES........................................4
FINANCIAL HIGHLIGHTS............................5
PERFORMANCE.....................................6
EXPLANATION OF TERMS............................6
ABOUT WADDELL & REED............................7
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND.....8
INVESTMENT GOALS AND PRINCIPLES.................8
Risk Considerations ...........................8
SECURITIES AND INVESTMENT PRACTICES.............8
ABOUT YOUR ACCOUNT.............................14
WAYS TO SET UP YOUR ACCOUNT....................14
BUYING SHARES..................................16
MINIMUM INVESTMENTS............................17
ADDING TO YOUR ACCOUNT.........................17
SELLING SHARES.................................18
SHAREHOLDER SERVICES...........................19
Personal Service .............................19
Reports ......................................19
Exchanges ....................................19
Automatic Transactions .......................20
DIVIDENDS, DISTRIBUTIONS, AND TAXES............20
Distributions ................................20
Taxes ........................................20
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..22
WRIMCO AND ITS AFFILIATES......................22
BREAKDOWN OF EXPENSES..........................23
Management Fee ...............................23
Other Expenses ...............................24
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United Retirement
Shares, Inc., an open-end, diversified management investment company.
Goals and Strategies: United Retirement Shares, Inc. (the "Fund") seeks to
provide the highest long-term total investment return as is, in the opinion of
the Fund's investment manager, consistent with reasonable safety of capital.
The Fund seeks to achieve this goal through a fully-managed investment policy.
The Fund invests primarily in common stock, preferred stock or debt securities.
See "About the Investment Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of the Fund
is the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Who May Want to Invest: The Fund is designed for investors seeking a high total
return with reasonable safety of principal through a diversified portfolio that
may include stocks, bonds and other securities. You should consider whether the
Fund fits your particular investment objectives.
Risk Considerations: Because the Fund owns different types of investments, its
performance will be affected by a variety of factors. The value of the Fund's
investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions, and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Fund" for information
about the risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases 5.75%
(as a percentage of offering price)
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.57%
12b-1 fees 0.12%
Other expenses 0.20%
Total Fund operating expenses1 0.89%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return2 and (2) redemption at the end of each time period:
1 year $ 66
3 years $ 84
5 years $104
10 years $161
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class A shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
1Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
2Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended June 30,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .... $7.64 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39 $6.66 $7.42 $6.05
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income .. .24 .18 .22 .21 .26 .26 .26 .25 .24 .30
Net realized and
unrealized gain (loss)
on investments ....... .86 .22 .73 .91 .05 .51 .67 (0.48) .16 1.41
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ............. 1.10 .40 .95 1.12 .31 .77 .93 (0.23) .40 1.71
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income .... (0.22) (0.18) (0.23) (0.22) (0.26) (0.26) (0.28) (0.30) (0.22) (0.33)
Distributions from
capital gains ........ (0.26) (0.28) (0.22) (0.11) (0.05) (0.13) (0.01) (0.74) (0.94) (0.01)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ...... (0.48) (0.46) (0.45) (0.33) (0.31) (0.39) (0.29) (1.04) (1.16) (0.34)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period .......... $8.26 $7.64 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39 $6.66 $7.42
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ........... 15.07% 5.03% 13.45% 17.93% 5.07% 13.06% 17.88% -1.72% 6.46% 29.54%
Net assets, end of
period (000 omitted) ... $528,062 $452,836 $379,933 $258,862 $195,330 $161,263 $125,987 $103,768 $109,405 $99,478
Ratio of expenses to
average net assets ..... 0.89% 0.87% 0.80% 0.82% 0.88% 0.87% 0.87% 0.91% 0.87% 0.92%
Ratio of net investment
income to average net
assets ................. 3.04% 2.32% 2.98% 3.12% 4.20% 4.21% 4.77% 4.26% 3.90% 4.73%
Portfolio turnover
rate ................... 48.62% 27.10% 30.62% 38.26% 29.05% 53.20% 52.19% 113.34% 161.24% 128.32%
*On October 6, 1995, the Fund began offering Class Y shares to the public. Fund shares outstanding prior to that date were
designated Class A shares.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may also
advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may not reflect deduction
of the applicable sales charge or may be for periods other than those required
to be presented or may otherwise differ from standardized total return. Total
return quotations that do not reflect the applicable sales charge will reflect a
higher rate of return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is to achieve the highest long-term total investment return
as is, in the opinion of WRIMCO, consistent with reasonable safety of capital.
Total return is the aggregate of income and changes in the capital value of the
shares of the Fund. The Fund seeks to achieve this goal through a fully-managed
investment policy in which it may invest substantially all of its assets in
equity securities, preferred stock, or convertible securities, or may invest
varying proportions of its assets in these types of securities, depending on
WRIMCO's analysis of what types of securities, or what proportions, are most
likely to achieve the Fund's goal. There is no assurance that the Fund will
achieve its goal. When deemed advisable, as a temporary measure, the Fund may
make defensive investments in either cash or money market instruments with
respect to up to all its assets.
Since the Fund's goal is long-term total investment return, WRIMCO will not
attempt to make quick shifts between the type of securities to take advantage of
what it considers to be short-term market or economic trends, but will, rather,
attempt to find investment opportunities based on its analysis of long-term
prospects for capital growth, capital stability and income. This policy differs
from that of many mutual funds, which either stress capital appreciation or
current income, because, under this policy, the Fund will seek the highest long-
term total investment return.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk, and in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate that
the share price of the Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of the Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security with
a high stated interest rate will be prepaid prior to its expected maturity date.
The Fund may also invest in certain derivative instruments, including options,
futures contracts, options on futures contracts, indexed securities, stripped
securities and mortgage-backed securities. The use of derivative instruments
involves special risks. See "Risks of Derivative Instruments" for further
information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of instruments
in which the Fund may invest, and strategies WRIMCO may employ in pursuit of the
Fund's investment goal. A summary of risks associated with these instrument
types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted by the Fund's investment policies and restrictions
unless it believes that doing so will help the Fund achieve its goal. As a
shareholder, you will receive annual and semiannual reports detailing the Fund's
holdings.
Certain of the investment policies and restrictions of the Fund are also stated
below. A fundamental policy of the Fund may not be changed without the approval
of the shareholders of the Fund. Operating policies may be changed by the Board
of Directors without the approval of the affected shareholders. The goal of the
Fund and the types of securities in which the Fund may invest are fundamental
policies. Unless otherwise indicated, the types of other assets in which the
Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Fund's investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The debt securities in which the Fund invests
may include debt securities whose performance is linked to a specified equity
security or securities index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
U.S. Government Securities are high-quality instruments issued or guaranteed as
to principal or interest by the U.S. Treasury or by an agency or instrumentality
of the U.S. Government. Not all U.S. Government Securities are backed by the
full faith and credit of the United States. Some are backed by the right of the
issuer to borrow from the U.S. Treasury; others are backed by discretionary
authority of the U.S. Government to purchase the agencies' obligations; while
others are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Subject to its investment restrictions, the Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by
Standard & Poor's Ratings Group ("S&P") and C by Moody's Investors Service, Inc.
("MIS")). In addition, the Fund will treat unrated securities judged by WRIMCO
to be of equivalent quality to a rated security to be equivalent to securities
having that rating. Debt securities rated at least BBB by S&P or Baa by MIS are
considered to be investment grade debt securities. Securities rated BBB or Baa
may have speculative characteristics. Debt securities rated in the lower rating
categories of the established rating services (BB or lower by S&P or Ba or lower
by MIS), or comparable unrated securities (commonly called "junk bonds"), have
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Debt securities rated D by S&P or C by MIS are in payment default or are
regarded as having extremely poor prospects of ever attaining any real
investment standing. S&P and MIS ratings are described in Appendix A to the
SAI. Credit ratings for individual securities may change from time to time, and
the Fund may retain a portfolio security whose rating has been changed.
Preferred Stock. The Fund may invest in preferred stock rated in any rating
category by an established rating service and unrated preferred stock judged by
WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: The Fund does not intend to invest more than 10% of
its total assets in debt securities rated lower than BBB by S&P or Baa by MIS.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
Certain foreign securities impose restrictions on transfer within the U.S. or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase securities of foreign issuers
only if not more than 10% of the Fund's total assets are invested in foreign
securities.
Options, Futures and Other Strategies. The Fund may use certain options to
attempt to enhance income or yield or may attempt to reduce the overall risk of
its investments by using certain options, futures contracts and certain other
strategies described herein. The strategies described below may be used in an
attempt to manage certain risks of the Fund's investments that can affect
fluctuation in its net asset value.
Except as to covered call writing, the Fund intends to limit purchase and sale
of options and futures contracts to buying and selling futures contracts on
broadly-based stock indices ("Stock Index Futures") and options thereon for the
purposes of hedging not more than 10% of its total assets.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. The Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed. The risks associated with such strategies are described below. Also
see the SAI for more information on these instruments and strategies and their
risk considerations.
Options. The Fund may engage in certain strategies involving options to attempt
to enhance the Fund's income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities, or cash in the case of an option on an index, subject to the
call or the collateral underlying the put until a closing purchase transaction
can be entered into or the option expires. Because index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Fund bears the risk that the value of the securities it holds
will vary from the value of the index.
Policies and Restrictions: The Fund may purchase and sell only options on
securities that are issued by the Options Clearing Corporation except that the
Fund may write unlisted put options and purchase unlisted put and call options
on U.S. Government Securities, and except for optional delivery standby
commitments.
The Fund will write a put only when it has determined that it would be willing
to purchase the underlying security at the exercise price.
As a fundamental policy, the Fund may write listed covered calls (i.e., the Fund
must own the securities that are subject to the call or have the right to
acquire them without additional payment) on securities on up to 50% of its total
assets and may purchase calls and write and purchase puts on securities in which
the Fund may invest.
As a fundamental policy, the Fund may, for non-speculative purposes, write and
purchase options on domestic stock indices that are not limited to stocks of any
industry or group of industries ("broadly-based stock indices"). The Fund may
write and purchase only listed options on broadly-based stock indices.
Futures Contracts and Options on Futures Contracts. When the Fund purchases a
futures contract, it incurs an obligation to take delivery of a specified amount
of the obligation underlying the contract at a specified time in the future for
a specified price. When the Fund sells a futures contract, it incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
When the Fund writes an option on a futures contract it becomes obligated, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: As a fundamental policy, the Fund may, for non-
speculative purposes, buy and sell futures contracts on debt securities ("Debt
Futures"), Stock Index Futures and options on Debt Futures and Stock Index
Futures.
Indexed Securities. The Fund may purchase and sell indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the United States and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage-backed securities, and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage-backed securities and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if the Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. Accelerated prepayments on securities purchased by the Fund
at a premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association) is guaranteed by the
full faith and credit of the United States. This is not a guarantee against
market decline of the value of these securities or shares of the Fund. It is
possible that the availability and marketability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities, stripped
securities and mortgage-backed securities, involve special risks, including: (i)
possible imperfect or no correlation between price movements of the portfolio
investments (held or intended to be purchased) involved in the transaction and
price movements of the instruments involved in the transaction; (ii) possible
lack of a liquid secondary market for any particular instrument at a particular
time; (iii) the need for additional portfolio management skills and techniques;
(iv) losses due to unanticipated market price movements; (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction; (vi) incorrect forecasts
by WRIMCO concerning interest rates or direction of price fluctuations of the
investment involved in the transaction, which may result in the strategy being
ineffective; (vii) loss of premiums paid by the Fund on options it purchases;
and (viii) the possible inability of the Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with such transactions and the possible inability of
the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instrument may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to adjust
the return characteristics of the Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose return
of principal or interest, in part, is determined by reference to something that
is not intrinsic to the security itself. The use of derivative instruments for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate or
stock market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various interest
rate movements or stock market movements or the time span within which the
movements take place.
Options and futures contracts may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transactions costs
and may result in certain tax consequences.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment goal and regulatory requirements applicable to investment
companies.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period, which could affect the
Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss. The Fund may purchase securities in which
it may invest on a when-issued or delayed-delivery basis or sell them on a
delayed-delivery basis.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Illiquid Investments. Illiquid investments may be difficult to sell promptly at
an acceptable price. Difficulty in selling securities may result in a loss or
may be costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting securities or
of any class of securities of an issuer, or if more than 5% of the Fund's total
assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result, more
than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow money
only from banks, only as a temporary measure or for extraordinary or emergency
purposes and only up to 5% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. This practice could result in a
loss or a delay in recovering the Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend more
than 10% of its assets at any one time.
As a fundamental policy, such loans must be on a collateralized basis in
accordance with applicable regulatory requirements.
Other Instruments may include securities of closed-end investment companies. As
a shareholder in an investment company, the Fund would bear its pro rata share
of that investment company's expenses, which could result in duplication of
certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may buy shares of
other investment companies that do not redeem their shares only if it does so in
a regular transaction in the open market and only if not more than 10% of the
Fund's total assets would be invested in these shares. The Fund does not
currently intend to invest more than 5% of its assets in such securities.
The Fund may not invest its assets in companies, including predecessors, with
less than three years' continuous operation.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
----------------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
----------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions,
or other groups
----------------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
o Individual Retirement Accounts (IRAs) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o Simplified Employee Pension Plans (SEP - IRAs) provide small business
owners or those with self-employed income (and their eligible employees) with
many of the same advantages as a Keogh, but with fewer administrative
requirements.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
o 401(k) Programs allow employees of corporations of all sizes to contribute
a percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a tax-
deferred basis.
----------------------------------------------------------
Gifts or Transfers to a Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
----------------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
----------------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a Class A share (price to buy one Class A share) is the
Fund's Class A net asset value ("NAV") plus the sales charge shown in the table
below.
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
-------- -------- --------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding with respect to that Class the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds that offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open. The Fund normally calculates the net asset values of its shares as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on customary U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of Fund shares may be significantly affected on
days when the Fund does not price its shares and when you have no access to the
Fund.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be delayed
for up to ten days to ensure that your previous investment has cleared.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and whether you are
subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of shares of
a corresponding class of any of the funds in the United Group, to the extent
otherwise permitted, except United Municipal Bond Fund, Inc., United Cash
Management, Inc., United Government Securities Fund, Inc. and United Municipal
High Income Fund, Inc., with the net asset value of Class A shares already held
("rights of accumulation") and by grouping all purchases of Class A shares made
during a thirteen-month period ("Statement of Intention"). Shares of a
corresponding class of another fund purchased through a contractual plan may not
be included unless the plan has been completed. Purchases by certain related
persons may be grouped. Additional information and applicable forms are
available from Waddell & Reed account representatives.
Class A shares may be purchased at net asset value by the Directors and officers
of the Fund, employees of Waddell & Reed, Inc., employees of their affiliates,
account representatives of Waddell & Reed, Inc. and the spouse, children,
parents, children's spouses and spouse's parents of each such Director, officer,
employee and account representative. Purchases of Class A shares in certain
retirement plans and certain trusts for these persons may also be made at net
asset value. Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100 or
more eligible employees may be made at net asset value. Shares may also be
issued at net asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Fund is a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates
$25
To Add to an Account
For certain exchanges $100
For Automatic Investment
Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check along with:
o the detachable form that accompanies the confirmation of a prior purchase
by you or your year-to-date statement, or
o a letter showing your account number, the account registration and stating
the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class A
NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell & Reed
account representative, or write a letter of instruction with:
o the name on the account registration,
o the Fund's name,
o the Fund account number,
o the dollar amount or number of shares to be redeemed, and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account representative,
or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint Tenant The written instructions must be signed by all
persons required to sign for transactions, exactly
as their names appear on the account.
Sole Proprietorship The written instructions must be signed by the
individual owner of the business.
UGMA, UTMA The custodian must sign the written instructions
indicating capacity as custodian.
Retirement account The written instructions must be signed by a
properly authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name is not in the account registration, provide a
currently certified copy of the trust document.
Business or Organization At least one person authorized by corporate
resolution to act on the account must sign the
written instructions.
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by court order to act
in the particular fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after your request is received and accepted by Waddell & Reed, Inc.
at its home office. Note the following:
o Written requests for redemption must be in good order, which requires that
if more than one person owns the shares, each owner must sign the written
request.
o If you hold a certificate, it must be properly endorsed and sent to the
Fund.
o If you recently purchased the shares by check, the Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares will
be delayed until the earlier of 10 days or the date the Fund is able to verify
that your purchase check has cleared and been honored.
o Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
o the request for redemption is made by a corporation, partnership or
fiduciary,
o the request for redemption is made by someone other than the owner of
record, or
o the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a federally
chartered savings and loan or a member firm of a national stock exchange or
other eligible guarantor in accordance with procedures of the Fund's transfer
agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned or
held by you having an aggregate NAV of less than $500. The Fund will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested amounts
must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in shares of a corresponding class of
any of the funds in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, exchange, transfer or
redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class A shares and buy corresponding shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of the Fund may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual or
annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit and
will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses, and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed account representative for
more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the same
or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions, and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed from the Fund's
net investment income, which includes accrued interest, earned discount,
dividends and other income earned on portfolio assets less expenses, quarterly
in March, June, September and December. Net capital gains (and any net realized
gains from foreign currency transactions) ordinarily are distributed in
December. The Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on undistributed income and capital gains.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class A shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class A
shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), so that it will be relieved of Federal income tax on that part of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gain
over net short-term capital loss) that are distributed to its shareholders.
There are tax requirements that the Fund must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid in
additional Fund shares. Distributions of the Fund's realized net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or reinvested in additional Fund shares and regardless of the
length of time you have owned your shares. The Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year. Under certain circumstances, the Fund may
elect to permit shareholders to take a credit or deduction for foreign income
taxes paid by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other fund
in the United Group generally will have similar tax consequences. However,
special rules apply when you dispose of Fund shares through a redemption or
exchange within ninety days after your purchase thereof and subsequently
reacquire Fund shares or acquire shares of another fund in the United Group
without paying a sales charge due to the thirty-day reinvestment privilege or
exchange privilege. See "About Your Account." In these cases, any gain on the
disposition of the Fund shares would be increased, or loss decreased, by the
amount of the sales charge you paid when those shares were acquired, and that
amount will increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Class A shares of the Fund within thirty days before
or after redeeming other Class A shares of the Fund at a loss, part or all of
that loss will not be deductible and will increase the basis of the newly
purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Retirement Shares, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end management investment company organized as a corporation
under Maryland law on May 8, 1989, as successor to a Delaware corporation which
commenced operations on December 3, 1971.
The Fund is governed by a Board of Directors, which has overall responsibility
for the management of its affairs. The majority of directors are not affiliated
with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to October 6, 1995, the Fund offered
only one class of shares to the public. Shares outstanding on that date were
designated as Class A shares, which are offered by this Prospectus. In
addition, the Fund offers Class Y shares through a separate Prospectus. Class Y
shares are designed for institutional investors. Class Y shares are not subject
to a sales charge on purchases and are not subject to redemption fees. Class Y
shares are not subject to a Rule 12b-1 fee. Additional information about Class
Y shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of the Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended (the "1940 Act"), applies to the Fund, the
directors are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any director when requested in writing to
do so by the shareholders of record of not less than 10% of the Fund's
outstanding shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate vote of
any Class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular Classes, in which case only the
shareholders of the affected Classes are entitled to vote, each as a separate
Class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds, Inc.
since that fund's inception, until January 8, 1992, when it assigned its duties
as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992, Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. since
each commenced operations in February 1993 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995.
Cynthia P. Prince-Fox is primarily responsible for the day-to-day management of
the Fund. Ms. Prince-Fox has held her Fund responsibilities since January 1995.
She is Vice President of WRIMCO and Vice President of Waddell & Reed Asset
Management Company, an affiliate of WRIMCO. She is Vice President of the Fund,
and Vice President of other investment companies for which WRIMCO serves as
investment manager. Ms. Prince-Fox has served as the portfolio manager for
investment companies managed by WRIMCO since January 1993 and has been an
employee of Waddell & Reed, Inc. and its successor, WRIMCO, since February 1983.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc., and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Fund and processes the payments of dividends. Waddell & Reed
Services Company also acts as agent ("Accounting Services Agent") in providing
bookkeeping and accounting services and assistance to the Fund and pricing daily
the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, and an indirect subsidiary of United
Investors Management Company, a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so may
consider sales of shares of the Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a specific
fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .15 of 1% of its net assets. The group
fee is a pro rata participation based on the relative net asset size of the Fund
in the group fee computed each day on the combined net asset values of all the
funds in the United Group at the annual rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $12.1 billion as of June 30, 1995. Management fees for the fiscal
year ended June 30, 1995 were 0.57% of the Fund's average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class A
shares, the Fund pays the Shareholder Servicing Agent a monthly fee for each
Class A shareholder account that was in existence at any time during the month,
and a fee for each account on which a dividend or distribution had a record date
during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act with
respect to its Class A shares. Under the Plan, the Fund may pay monthly a fee
to Waddell & Reed, Inc. in an amount not to exceed .25% of the Fund's average
annual net assets of its Class A shares. The fee is to be paid to reimburse
Waddell & Reed, Inc. for amounts it expends in connection with the provision of
personal services to Class A shareholders and/or maintenance of Class A
shareholder accounts. In particular, the Service Plan and a related Service
Agreement between the Fund and Waddell & Reed, Inc. contemplate that these
expenditures may include costs and expenses incurred by Waddell & Reed, Inc. and
its affiliates in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders and/or maintaining Class A shareholder
accounts; increasing services provided to Class A shareholders by office
personnel located at field sales offices; engaging in other activities useful in
providing personal services to Class A shareholders and/or the maintenance of
Class A shareholder accounts; and in compensating broker-dealers who may
regularly sell Class A shares, and other third parties, for providing Class A
shareholder services and/or maintaining Class A shareholder accounts.
The total expenses for the fiscal year ended June 30, 1995 for the Fund's Class
A shares were 0.89% of the average net assets of the Fund's Class A shares.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
the Fund may have a high portfolio turnover. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
United Retirement Shares, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, Kansas Accounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United Retirement Shares, Inc.
Class A Shares
PROSPECTUS
October 6, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1007(10-95)
printed on recycled paper
<PAGE>
SUBJECT TO COMPLETION -- Information contained herein is subject to completion
or amendment. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
before the time the registration statement becomes effective. This Prospectus
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful before registration or qualification
under the securities laws of any such state.
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated October 6, 1995. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United Retirement Shares, Inc. Class Y Shares
This Fund seeks to provide the highest long-term total investment return as is,
in the opinion of the Fund's investment manager, consistent with reasonable
safety of capital. The Fund will attempt to achieve its objective through a
fully-managed investment policy.
This Prospectus describes one class of shares of the Fund -- Class Y Shares.
Prospectus
October 6, 1995
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND........................29
EXPENSES.......................................30
FINANCIAL HIGHLIGHTS...........................31
PERFORMANCE....................................32
EXPLANATION OF TERMS...........................32
ABOUT WADDELL & REED...........................33
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....34
INVESTMENT GOALS AND PRINCIPLES................34
Risk Considerations ..........................34
SECURITIES AND INVESTMENT PRACTICES............34
ABOUT YOUR ACCOUNT.............................40
BUYING SHARES..................................40
MINIMUM INVESTMENTS............................41
ADDING TO YOUR ACCOUNT.........................41
SELLING SHARES.................................41
TELEPHONE TRANSACTIONS.........................43
SHAREHOLDER SERVICES...........................43
Personal Service .............................43
Reports ......................................43
Exchanges ....................................44
DIVIDENDS, DISTRIBUTIONS, AND TAXES............44
Distributions ................................44
Taxes ........................................44
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..46
WRIMCO AND ITS AFFILIATES......................46
BREAKDOWN OF EXPENSES..........................47
Management Fee ...............................47
Other Expenses ...............................48
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United Retirement
Shares, Inc., an open-end, diversified management investment company.
Goals and Strategies: United Retirement Shares, Inc. (the "Fund") seeks to
provide the highest long-term total investment return as is, in the opinion of
the Fund's investment manager, consistent with reasonable safety of capital.
The Fund seeks to achieve this goal through a fully-managed investment policy.
The Fund invests primarily in common stock, preferred stock or debt securities.
See "About the Investment Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class Y share of the Fund
is the net asset value of a Class Y share. There is no sales charge incurred
upon purchase of Class Y shares of the Fund. See "About Your Account" for
information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption procedures.
Who May Want to Invest: The Fund is designed for investors seeking a high total
return with reasonable safety of principal through a diversified portfolio that
may include stocks, bonds and other securities. You should consider whether the
Fund fits your particular investment objectives.
Risk Considerations: Because the Fund owns different types of investments, its
performance will be affected by a variety of factors. The value of the Fund's
investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions, and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Fund" for information
about the risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating
expenses (as a percentage of average net assets). 3
Management fees 0.57%
12b-1 fees None
Other expenses 0.20%
Total Fund operating expenses 0.77%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return4 and (2) redemption at the end of each time period:
1 year $ 8
3 years $25
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class Y shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
3Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended June 30, 1995, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those shown.
4Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
Financial Highlights for Class Y shares are not included because the Fund did
not offer Class Y shares during the fiscal year ended June 30, 1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may also
advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may be for periods other
than those required to be presented or may otherwise differ from standardized
total return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is to achieve the highest long-term total investment return
as is, in the opinion of WRIMCO, consistent with reasonable safety of capital.
Total return is the aggregate of income and changes in the capital value of the
shares of the Fund. The Fund seeks to achieve this goal through a fully-managed
investment policy in which it may invest substantially all of its assets in
equity securities, preferred stock, or convertible securities, or may invest
varying proportions of its assets in these types of securities, depending on
WRIMCO's analysis of what types of securities, or what proportions, are most
likely to achieve the Fund's goal. There is no assurance that the Fund will
achieve its goal. When deemed advisable, as a temporary measure, the Fund may
make defensive investments in either cash or money market instruments with
respect to up to all its assets.
Since the Fund's goal is long-term total investment return, WRIMCO will not
attempt to make quick shifts between the type of securities to take advantage of
what it considers to be short-term market or economic trends, but will, rather,
attempt to find investment opportunities based on its analysis of long-term
prospects for capital growth, capital stability and income. This policy differs
from that of many mutual funds, which either stress capital appreciation or
current income, because, under this policy, the Fund will seek the highest long-
term total investment return.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk, and in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate that
the share price of the Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of the Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security with
a high stated interest rate will be prepaid prior to its expected maturity date.
The Fund may also invest in certain derivative instruments, including options,
futures contracts, options on futures contracts, indexed securities, stripped
securities and mortgage-backed securities. The use of derivative instruments
involves special risks. See "Risks of Derivative Instruments" for further
information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of instruments
in which the Fund may invest, and strategies WRIMCO may employ in pursuit of the
Fund's investment goal. A summary of risks associated with these instrument
types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted by the Fund's investment policies and restrictions
unless it believes that doing so will help the Fund achieve its goal. As a
shareholder, you will receive annual and semiannual reports detailing the Fund's
holdings.
Certain of the investment policies and restrictions of the Fund are also stated
below. A fundamental policy of the Fund may not be changed without the approval
of the shareholders of the Fund. Operating policies may be changed by the Board
of Directors without the approval of the affected shareholders. The goal of the
Fund and the types of securities in which the Fund may invest are fundamental
policies. Unless otherwise indicated, the types of other assets in which the
Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Fund's investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The debt securities in which the Fund invests
may include debt securities whose performance is linked to a specified equity
security or securities index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
U.S. Government Securities are high-quality instruments issued or guaranteed as
to principal or interest by the U.S. Treasury or by an agency or instrumentality
of the U.S. Government. Not all U.S. Government Securities are backed by the
full faith and credit of the United States. Some are backed by the right of the
issuer to borrow from the U.S. Treasury; others are backed by discretionary
authority of the U.S. Government to purchase the agencies' obligations; while
others are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Subject to its investment restrictions, the Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by
Standard & Poor's Ratings Group ("S&P") and C by Moody's Investors Service, Inc.
("MIS")). In addition, the Fund will treat unrated securities judged by WRIMCO
to be of equivalent quality to a rated security to be equivalent to securities
having that rating. Debt securities rated at least BBB by S&P or Baa by MIS are
considered to be investment grade debt securities. Securities rated BBB or Baa
may have speculative characteristics. Debt securities rated in the lower rating
categories of the established rating services (BB or lower by S&P or Ba or lower
by MIS), or comparable unrated securities (commonly called "junk bonds"), have
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
Debt securities rated D by S&P or C by MIS are in payment default or are
regarded as having extremely poor prospects of ever attaining any real
investment standing. S&P and MIS ratings are described in Appendix A to the
SAI. Credit ratings for individual securities may change from time to time, and
the Fund may retain a portfolio security whose rating has been changed.
Preferred Stock. The Fund may invest in preferred stock rated in any rating
category by an established rating service and unrated preferred stock judged by
WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: The Fund does not intend to invest more than 10% of
its total assets in debt securities rated lower than BBB by S&P or Baa by MIS.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
Certain foreign securities impose restrictions on transfer within the U.S. or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase securities of foreign issuers
only if not more than 10% of the Fund's total assets are invested in foreign
securities.
Options, Futures and Other Strategies. The Fund may use certain options to
attempt to enhance income or yield or may attempt to reduce the overall risk of
its investments by using certain options, futures contracts and certain other
strategies described herein. The strategies described below may be used in an
attempt to manage certain risks of the Fund's investments that can affect
fluctuation in its net asset value.
Except as to covered call writing, the Fund intends to limit purchase and sale
of options and futures contracts to buying and selling futures contracts on
broadly-based stock indices ("Stock Index Futures") and options thereon for the
purposes of hedging not more than 10% of its total assets.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. The Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed. The risks associated with such strategies are described below. Also
see the SAI for more information on these instruments and strategies and their
risk considerations.
Options. The Fund may engage in certain strategies involving options to attempt
to enhance the Fund's income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities, or cash in the case of an option on an index, subject to the
call or the collateral underlying the put until a closing purchase transaction
can be entered into or the option expires. Because index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Fund bears the risk that the value of the securities it holds
will vary from the value of the index.
Policies and Restrictions: The Fund may purchase and sell only options on
securities that are issued by the Options Clearing Corporation except that the
Fund may write unlisted put options and purchase unlisted put and call options
on U.S. Government Securities, and except for optional delivery standby
commitments.
The Fund will write a put only when it has determined that it would be willing
to purchase the underlying security at the exercise price.
As a fundamental policy, the Fund may write listed covered calls (i.e., the Fund
must own the securities that are subject to the call or have the right to
acquire them without additional payment) on securities on up to 50% of its total
assets and may purchase calls and write and purchase puts on securities in which
the Fund may invest.
As a fundamental policy, the Fund may, for non-speculative purposes, write and
purchase options on domestic stock indices that are not limited to stocks of any
industry or group of industries ("broadly-based stock indices"). The Fund may
write and purchase only listed options on broadly-based stock indices.
Futures Contracts and Options on Futures Contracts. When the Fund purchases a
futures contract, it incurs an obligation to take delivery of a specified amount
of the obligation underlying the contract at a specified time in the future for
a specified price. When the Fund sells a futures contract, it incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
When the Fund writes an option on a futures contract it becomes obligated, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: As a fundamental policy, the Fund may, for non-
speculative purposes, buy and sell futures contracts on debt securities ("Debt
Futures"), Stock Index Futures and options on Debt Futures and Stock Index
Futures.
Indexed Securities. The Fund may purchase and sell indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the United States and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage-backed securities, and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage-backed securities and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if the Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. Accelerated prepayments on securities purchased by the Fund
at a premium also impose a risk of loss of principal because the premium may not
have been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association) is guaranteed by the
full faith and credit of the United States. This is not a guarantee against
market decline of the value of these securities or shares of the Fund. It is
possible that the availability and marketability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities, stripped
securities and mortgage-backed securities, involve special risks, including: (i)
possible imperfect or no correlation between price movements of the portfolio
investments (held or intended to be purchased) involved in the transaction and
price movements of the instruments involved in the transaction; (ii) possible
lack of a liquid secondary market for any particular instrument at a particular
time; (iii) the need for additional portfolio management skills and techniques;
(iv) losses due to unanticipated market price movements; (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction; (vi) incorrect forecasts
by WRIMCO concerning interest rates or direction of price fluctuations of the
investment involved in the transaction, which may result in the strategy being
ineffective; (vii) loss of premiums paid by the Fund on options it purchases;
and (viii) the possible inability of the Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with such transactions and the possible inability of
the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instrument may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to adjust
the return characteristics of the Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose return
of principal or interest, in part, is determined by reference to something that
is not intrinsic to the security itself. The use of derivative instruments for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate or
stock market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various interest
rate movements or stock market movements or the time span within which the
movements take place.
Options and futures contracts may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transactions costs
and may result in certain tax consequences.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment goal and regulatory requirements applicable to investment
companies.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period, which could affect the
Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss. The Fund may purchase securities in which
it may invest on a when-issued or delayed-delivery basis or sell them on a
delayed-delivery basis.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Illiquid Investments. Illiquid investments may be difficult to sell promptly at
an acceptable price. Difficulty in selling securities may result in a loss or
may be costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting securities or
of any class of securities of an issuer, or if more than 5% of the Fund's total
assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result, more
than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow money
only from banks, only as a temporary measure or for extraordinary or emergency
purposes and only up to 5% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. This practice could result in a
loss or a delay in recovering the Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend more
than 10% of its assets at any one time.
As a fundamental policy, such loans must be on a collateralized basis in
accordance with applicable regulatory requirements.
Other Instruments may include securities of closed-end investment companies. As
a shareholder in an investment company, the Fund would bear its pro rata share
of that investment company's expenses, which could result in duplication of
certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may buy shares of
other investment companies that do not redeem their shares only if it does so in
a regular transaction in the open market and only if not more than 10% of the
Fund's total assets would be invested in these shares. The Fund does not
currently intend to invest more than 5% of its assets in such securities.
The Fund may not invest its assets in companies, including predecessors, with
less than three years' continuous operation.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares are
available for purchase by:
o participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has 100 or
more eligible employees and holds the shares in an omnibus account on the Fund's
records;
o banks, trust institutions and investment fund administrators investing for
their own accounts or for the accounts of their customers where such investments
for customer accounts are held in an omnibus account on the Fund's records;
o government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
o certain retirement plans and trusts for employees and account
representatives of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a Class Y share (price to buy one Class Y share) is the
Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are sold
without a sales charge.
To purchase by wire, you must first obtain an account number by calling 1-800-
366-2520, then fax or mail a completed application to Waddell & Reed, Inc., P.
O. Box 29217, Shawnee Mission, Kansas 66201-9217, 913-236-5044. Instruct your
bank to wire the amount you wish to invest to UMB Bank, n.a., ABA Number
101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and Account
Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail the
check, along with your completed application, to Waddell & Reed, Inc., P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding with respect to that Class the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds that offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open. The Fund normally calculates the net asset values of its shares as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on customary U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of Fund shares may be significantly affected on
days when the Fund does not price its shares and when you have no access to the
Fund.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be delayed
for up to ten days to ensure that your previous investment has cleared.
o The Fund does not issue certificates representing Class Y shares of the
Fund.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and whether you are
subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first twelve
months)
For other
investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you wish
to invest, along with the account number and registration, to UMB Bank, n.a.,
ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name
and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed, Inc.
Mail the check along with a letter showing your account number, the account
registration and stating the fund whose shares you wish to purchase to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class Y
NAV.
To sell shares by telephone or fax: If you have elected this method in your
application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed account representative, or write a letter of
instruction with:
o the name on the account registration,
o the Fund's name,
o the Fund account number,
o the dollar amount or number of shares to be redeemed, and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account representative,
or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement account The written instructions must be signed by a properly
authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name is not in the account registration, provide a
currently certified copy of the trust document.
Business or Organization At least one person authorized by corporate
resolution to act on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after your request is received and accepted by Waddell & Reed, Inc.
at its home office. Note the following:
o Written requests for redemption must be in good order, which requires that
if more than one person owns the shares, each owner must sign the written
request.
o If you recently purchased the shares by check, the Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares will
be delayed until the earlier of 10 days or the date the Fund is able to verify
that your purchase check has cleared and been honored.
o Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
o the request for redemption is made by a corporation, partnership or
fiduciary,
o the request for redemption is made by someone other than the owner of
record, or
o the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a federally
chartered savings and loan or a member firm of a national stock exchange or
other eligible guarantor in accordance with procedures of the Fund's transfer
agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned or
held by you having an aggregate NAV of less than $500. The Fund will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, exchange, transfer or
redemption)
o year-to-date statements (quarterly)
o annual and
semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in the
United Group. You may exchange only into funds that are legally registered for
sale in your state of residence. Note that exchanges out of the Fund may have
tax consequences for you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Dividends, Distributions, and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed from the Fund's
net investment income, which includes accrued interest, earned discount,
dividends and other income earned on portfolio assets less expenses, quarterly
in March, June, September and December. Net capital gains (and any net realized
gains from foreign currency transactions) ordinarily are distributed in
December. The Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on undistributed income and capital gains.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class Y shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class Y
shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) and net capital gains (the
excess of net long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are tax requirements that the Fund must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid in
additional Fund shares. Distributions of the Fund's realized net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or reinvested in additional Fund shares and regardless of the
length of time you have owned your shares. The Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year. Under certain circumstances, the Fund may
elect to permit shareholders to take a credit or deduction for foreign income
taxes paid by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other fund
in the United Group generally will have similar tax consequences. In addition,
if you purchase Class Y shares of the Fund within thirty days before or after
redeeming other Class Y shares of the Fund at a loss, part or all of that loss
will not be deductible and will increase the basis of the newly purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Retirement Shares, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end management investment company organized as a corporation
under Maryland law on May 8, 1989, as successor to a Delaware corporation which
commenced operations on December 3, 1971.
The Fund is governed by a Board of Directors, which has overall responsibility
for the management of its affairs. The majority of directors are not affiliated
with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares offered
by this Prospectus, the Fund has issued and outstanding Class A shares which are
offered by Waddell & Reed, Inc. through a separate Prospectus. Prior to October
6, 1995, the Fund offered only one class of shares to the public. Shares
outstanding on that date were designated as Class A shares. Class A shares are
subject to a sales charge on purchases but are not subject to redemption fees.
Class A shares are subject to a Rule 12b-1 fee at an annual rate of up to 0.25%
of the Fund's average net assets attributable to Class A shares. Additional
information about Class A shares may be obtained by calling 913-236-2000 or by
writing to Waddell & Reed, Inc. at the address on the inside back cover of the
Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended (the "1940 Act"), applies to the Fund, the
directors are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any director when requested in writing to
do so by the shareholders of record of not less than 10% of the Fund's
outstanding shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate vote of
any Class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular Classes, in which case only the
shareholders of the affected Classes are entitled to vote, each as a separate
Class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds, Inc.
since that fund's inception, until January 8, 1992, when it assigned its duties
as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992, Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. since
each commenced operations in February 1993 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995.
Cynthia P. Prince-Fox is primarily responsible for the day-to-day management of
the Fund. Ms. Prince-Fox has held her Fund responsibilities since January 1995.
She is Vice President of WRIMCO and Vice President of Waddell & Reed Asset
Management Company, an affiliate of WRIMCO. She is Vice President of the Fund,
and Vice President of other investment companies for which WRIMCO serves as
investment manager. Ms. Prince-Fox has served as the portfolio manager for
investment companies managed by WRIMCO since January 1993 and has been an
employee of Waddell & Reed, Inc. and its successor, WRIMCO, since February 1983.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc., and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Fund and processes the payments of dividends. Waddell & Reed
Services Company also acts as agent ("Accounting Services Agent") in providing
bookkeeping and accounting services and assistance to the Fund and pricing daily
the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, and an indirect subsidiary of United
Investors Management Company, a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so may
consider sales of shares of the Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a specific
fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .15 of 1% of its net assets. The group
fee is a pro rata participation based on the relative net asset size of the Fund
in the group fee computed each day on the combined net asset values of all the
funds in the United Group at the annual rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $12.1 billion as of June 30, 1995. Management fees for the fiscal
year ended June 30, 1995 were 0.57% of the Fund's average net assets, which
during that period consisted only of the Fund's Class A shares.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class Y
shares, the Fund pays the Shareholder Servicing Agent a monthly fee based on the
average daily net assets of the Class for the preceding month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
the Fund may have a high portfolio turnover. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
United Retirement Shares, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, Kansas Accounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United Retirement Shares, Inc.
Class Y Shares
PROSPECTUS
October 6, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1007-Y(10-95)
printed on recycled paper
<PAGE>
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
October 6, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
("Prospectus") for the Class A shares or the Class Y shares, as applicable, of
United Retirement Shares, Inc. (the "Fund") dated October 6, 1995, which may be
obtained from the Fund or its underwriter, Waddell & Reed, Inc., at the address
or telephone number shown above.
TABLE OF CONTENTS
Performance Information.............................
Goal and Investment Policies........................
Investment Management and Other Services............
Purchase, Redemption and Pricing of Shares..........
Directors and Officers..............................
Payments to Shareholders............................
Taxes ..............................................
Portfolio Transactions and Brokerage................
Other Information...................................
Appendix A..........................................
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return information and/or performance rankings in
advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the
average annual compounded rates of return over the one-, five-, and ten-year
periods that would equate the initial amount invested to the ending redeemable
value. Standardized total return information is calculated by assuming an
initial $1,000 investment and, for Class A shares, from which the maximum sales
load of 5.75% is deducted. All dividends and distributions are assumed to be
reinvested in shares of the applicable Class at net asset value for the Class as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions on Class A shares. The formula used to
calculate the total return for a particular Class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that Class.
The average annual total return quotations for Class A shares as of June
30, 1995, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from July 1, 1994 to
June 30, 1995: 8.45% 15.07%
Five-year period from July 1, 1990 to
June 30, 1995: 9.87% 11.18%
Ten-year period from July 1, 1985 to
June 30, 1995: 11.20% 11.86%
Prior to October 6, 1995, the Fund offered only one Class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Fund have been available to certain
institutional investors.
The Fund may also quote unaveraged or cumulative total return for a Class
which reflects the change in value of an investment in that Class over a stated
period of time. Cumulative total returns will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may, from time to time, publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. Each Class of the Fund may also compare its performance to that of
other selected mutual funds or selected recognized market indicators such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average.
Performance information may be quoted numerically or presented in a table, graph
or other illustration.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or
less than their original cost.
GOAL AND INVESTMENT POLICIES
The goal and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Securities - General
The Fund may invest in securities including common stock, preferred stock
and debt securities, as described in the Prospectus. These securities may
include the following described securities from time to time.
The Fund may purchase debt securities whose principal amount at maturity is
dependent upon the performance of a specified equity security. The issuer of
such debt securities, typically an investment banking firm, is unaffiliated with
the issuer of the equity security to whose performance the debt security is
linked. Equity-linked debt securities differ from ordinary debt securities in
that the principal amount received at maturity is not fixed, but is based on the
price of the linked equity security at the time the debt security matures. The
performance of equity-linked debt securities depends primarily on the
performance of the linked equity security and may also be influenced by interest
rate changes. In addition, although the debt securities are typically adjusted
for diluting events such as stock splits, stock dividends and certain other
events affecting the market value of the linked equity security, the debt
securities are not adjusted for subsequent issuances of the linked equity
security for cash. Such an issuance could adversely affect the price of the
debt security. In addition to the equity risk relating to the linked equity
security, such debt securities are also subject to credit risk with regard to
the issuer of the debt security. In general, however, such debt securities are
less volatile than the equity securities to which they are linked.
The Fund may also invest in a type of convertible preferred stock that pays
a cumulative, fixed dividend that is senior to, and expected to be in excess of,
the dividends paid on the common stock of the issuer. At the mandatory
conversion date, the preferred stock is converted into not more than one share
of the issuer's common stock at the "call price" that was established at the
time the preferred stock was issued. If the price per share of the related
common stock on the mandatory conversion date is less than the call price, the
holder of the preferred stock will nonetheless receive only one share of common
stock for each share of preferred stock (plus cash in the amount of any accrued
but unpaid dividends). At any time prior to the mandatory conversion date, the
issuer may redeem the preferred stock upon issuing to the holder a number of
shares of common stock equal to the call price of the preferred stock in effect
on the date of redemption divided by the market value of the common stock, with
such market value typically determined one or two trading days prior to the date
notice of redemption is given. The issuer must also pay the holder of the
preferred stock cash in an amount equal to any accrued but unpaid dividends on
the preferred stock. This convertible preferred stock is subject to the same
market risk as the common stock of the issuer, except to the extent that such
risk is mitigated by the higher dividend paid on the preferred stock. The
opportunity for equity appreciation afforded by an investment in such
convertible preferred stock, however, is limited, because in the event the
market value of the issuer's common stock increases to or above the call price
of the preferred stock, the issuer may (and would be expected to) call the
preferred stock for redemption at the call price. This convertible preferred
stock is also subject to credit risk with regard to the ability of the issuer to
pay the dividend established upon issuance of the preferred stock. Generally,
convertible preferred stock is less volatile than the related common stock of
the issuer.
Specific Securities and Investment Practices
Debt Securities
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty.
While the market for high-yield, high-risk corporate debt securities has
been in existence for many years and has weathered previous economic downturns,
the 1980s brought a dramatic increase in the use of such securities to fund
highly-leveraged corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of the high-yield,
high-risk bond market, especially during periods of economic recession. The
market for lower-rated debt securities may be thinner and less active than that
for higher-rated debt securities, which can adversely affect the prices at which
the former are sold. Adverse publicity and changing investor perceptions may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for which
more external sources of quotations and last sale information are available.
Since the risk of default is higher for lower-rated debt securities, the
research and credit analysis performed by Waddell & Reed Investment Management
Company ("WRIMCO"), the Fund's investment manager, are an especially important
part of managing securities of this type held by the Fund. WRIMCO continuously
monitors the issuers of lower-rated debt securities in the Fund's portfolio in
an attempt to determine if the issuers will have sufficient cash flow and
profits to meet required principal and interest payments.
The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk.
The Fund does not intend to invest more than 10% of its total assets in
debt securities rated lower than BBB by Standard and Poor's Ratings Group or Baa
by Moody's Investors Service. See Appendix A included in this SAI for a
description of the factors considered by the rating companies.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificate of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
Government, a government agency, or a corporation in zero coupon form.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Some
mortgage-backed securities, such as collateralized mortgage obligations, make
payments of both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with interests
sold in the pool; the assembly is made by an "issuer," such as a mortgage
banker, commercial bank or savings and loan association, which assembles the
mortgages in the pool and passes through payments of principal and interest for
a fee payable to it. Payments of principal and interest by individual
mortgagors are passed through to the holders of the interest in the pool.
Monthly or other regular payments on pass-through securities and participation
certificates include payments of principal (including prepayments on mortgages
in the pool) rather than only interest payments.
The Fund may purchase mortgage-backed securities issued by both government
and non-government entities such as banks, mortgage lenders, or other financial
institutions. Other types of mortgage-backed securities will likely be
developed in the future, and the Fund may invest in them if WRIMCO determines
they are consistent with the Fund's investment goal and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment rates
tend to increase, which tends to reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate, while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value.
Foreign Securities
The Fund may not purchase securities of foreign issuers if more than 10%
of the Fund's total assets would consist of foreign securities. WRIMCO believes
that there are investment opportunities as well as risks in investing in foreign
securities. Individual foreign economies may differ favorably or unfavorably
from the U.S. economy or each other in such matters as gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position. Individual foreign companies may also differ favorably or
unfavorably from domestic companies in the same industry. Foreign currencies
may be stronger or weaker than the U.S. dollar or than each other. WRIMCO
believes that the Fund's ability to invest a substantial portion of its assets
abroad might enable it to take advantage of these differences and strengths
where they are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage).
The Fund may bear a transaction charge in connection with the exchange of
currency. There may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock
markets have substantially less volume than the New York Stock Exchange ("NYSE")
and securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There is generally less government
regulation of stock exchanges, brokers and listed companies than in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries. If it should become
necessary, the Fund would normally encounter greater difficulties in commencing
a lawsuit against the issuer of a foreign security than it would against a U.S.
issuer.
Lending Securities
One of the ways in which the Fund may try to realize income is by
lending not more than 10% of its securities at any one time. This percentage
limitation can only be changed by shareholder vote. If the Fund does this, the
borrower pays the Fund an amount equal to the dividends or interest on the
securities that the Fund would have received if it had not loaned the
securities. The Fund also receives additional compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash or securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities") or bank letters of credit, at least equal in value to the market
value of the securities loaned on each day that the loan is outstanding. If the
market value of the loaned securities exceeds the value of the collateral, the
borrower must add more collateral so that it at least equals the market value of
the securities loaned. If the market value of the securities decreases, the
borrower is entitled to return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit which the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of the banks providing them
(which might include the Fund's custodian bank) must be satisfactory to the
Fund. Under the Fund's current securities lending procedures, the Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. The Fund will make loans only under rules of the NYSE, which
presently require the borrower to give the securities back to the Fund within
five business days after the Fund gives notice to do so. If the Fund loses its
voting rights on securities loaned, it will have the securities returned to it
in time to vote them if a material event affecting the investment is to be voted
on. The Fund may pay reasonable finder's, administrative and custodian fees in
connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 10%
of its net assets to be invested in illiquid securities, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or broker-
dealer) agrees, at the time of purchase, that it will repurchase the security at
a specified time and price. The amount by which the resale price is greater
than the purchase price reflects an agreed-upon market interest rate effective
for the period of the agreement. The return on the securities subject to the
repurchase agreement may be more or less than the return on the repurchase
agreement.
The majority of the repurchase transactions in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays or
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans, i.e., the
value of the securities subject to the repurchase agreement, which will be held
by the Fund's custodian bank or by a third party that qualifies as a custodian
under Section 17(f) of the Investment Company Act of 1940, as amended (the
"1940 Act"), will be and, during the entire term of the agreement, will
remain at least equal to the value of the loan, including the accrued interest
earned thereon. Repurchase agreements are entered into only with those entities
approved on the basis of criteria established by the Board of Directors.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase any securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis. The
securities so purchased or sold by the Fund are subject to market fluctuation;
their value may be less or more when delivered than the purchase price paid or
received. For example, delivery to the Fund and payment by the Fund in the case
of a purchase by it, or delivery by the Fund and payment to it in the case of a
sale by the Fund, may take place a month or more after the date of the
transaction. The purchase or sale price is fixed on the transaction date. The
Fund will enter into when-issued or delayed-delivery transactions in order to
secure what is considered to be an advantageous price and yield at the time of
entering into the transaction. No interest accrues to the Fund until delivery
and payment is completed. When the Fund makes a commitment to purchase
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of the securities in determining
its net asset value per share. The securities so sold by the Fund on a delayed-
delivery basis are also subject to market fluctuation; their value when the Fund
delivers them may be more than the purchase price the Fund receives. When the
Fund makes a commitment to sell securities on a delayed basis, it will record
the transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that the Fund may not invest more than 10%
of its net assets in illiquid investments. The investments currently considered
illiquid include: (i) repurchase agreements not terminable within seven days;
(ii) securities for which market quotations are not readily available; and (iii)
unlisted options and their underlying collateral. The assets used as cover for
OTC options written by the Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Indexed Securities
The Fund may purchase securities whose prices are indexed to the prices of
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. Gold-
indexed securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S. dollar-
denominated securities of equivalent issuers. Currency-indexed securities may
be positively or negatively indexed; that is, their maturity value may increase
when the specified currency value increases, resulting in a security that
performs similarly to a foreign-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Options and Futures
As discussed in the Prospectus, WRIMCO may use certain options to attempt
to enhance income or yield or may attempt to reduce overall risk of its
investments by using certain options and futures contracts (sometimes referred
to as "futures"). Options and futures are sometimes referred to collectively as
"Financial Instruments." The Fund's ability to use a particular Financial
Instrument may be limited by its investment limitations or operating policies.
See "Operating Restrictions" and "Investment Restrictions."
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that the
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which the Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, the Commodity Futures Trading Commission ("CFTC") and various
state regulatory authorities. In addition, the Fund's ability to use Financial
Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and in
the Prospectus, WRIMCO expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts and
other similar or related techniques. These new opportunities may become
available as WRIMCO develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts,
options on futures contracts or other techniques are developed. WRIMCO may
utilize these opportunities to the extent that they are consistent with the
Fund's investment goal and permitted by the Fund's investment limitations and
applicable regulatory authorities. The Fund's Prospectus or this SAI will be
supplemented to the extent that new products or techniques involve materially
different risks than those described below or in the Prospectus.
Special Risks
The use of Financial Instruments involves special considerations and risks,
certain of which are described below. Risks pertaining to particular Financial
Instruments are described in the sections that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities and interest rate
markets, which requires different skills than predicting changes in the prices
of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match the Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because WRIMCO projected a decline in the
price of a security in the Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss. In either such case, the
Fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If the Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to close out a position
in a Financial Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("counterparty")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
Cover
Transactions using Financial Instruments, other than purchased options,
expose the Fund to an obligation to another party. The Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities or other options or futures contracts, or (2) cash,
receivables and short-term debt securities, with a value sufficient at all times
to cover its potential obligations to the extent not covered as provided in (1)
above. The Fund will comply with SEC guidelines regarding cover for these
instruments and will, if the guidelines so require, set aside cash, U.S.
Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount as determined
daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or to segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options
As a fundamental policy, the Fund may write call options on securities only
if: (i) such calls are listed on a domestic securities exchange; (ii) when any
such call is written and at all times prior to a closing purchase transaction as
to such call, or its lapse or exercise, the Fund owns the securities that are
subject to the call or has the right to acquire such securities without the
payment of further consideration; and (iii) when any such call is written, not
more than 50% of the Fund's total assets would be subject to calls. Calls may
be purchased to effect a closing purchase transaction as to any call written in
accordance with the foregoing. In addition, as a fundamental policy, the Fund
may purchase calls and write and purchase put options on securities in which the
Fund may invest and may, for non-speculative purposes, write and purchase
options on broadly-based stock indices.
The purchase of call options serves as a long hedge, and the purchase of
put options serves as a short hedge. Writing put or call options can enable the
Fund to enhance income or yield by reason of the premiums paid by the purchasers
of such options. However, if the market price of the security underlying a put
option declines to less than the exercise price on the option, minus the premium
received, the Fund would expect to suffer a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value. The Fund will write calls when
it considers that the amount of the premium represents adequate compensation for
the loss of the opportunity.
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
security at more than its market value. The Fund will write a put only when it
has determined that it would be willing to purchase the underlying security at
the exercise price. If the put option is an OTC option, the securities or other
assets used as cover would be considered illiquid to the extent described under
"Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
A type of put that the Fund may purchase is an "optional delivery standby
commitment," which is entered into by parties selling debt securities to the
Fund. An optional delivery standby commitment gives the Fund purchasing the
security the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
Risks of Options on Securities. The Fund is authorized to write listed
covered call options on securities and to write put options and purchase options
which are listed or unlisted. The Fund has an operating policy, however, which
provides that it will only purchase calls or write and purchase puts that are
listed with two exceptions: (1) it may purchase calls and write and purchase
puts that are not listed if the security underlying the option is a U.S.
Government Security; and (2) optional delivery standby commitments may be
unlisted. The Fund may only purchase or sell options on stock indices that are
listed on a national securities exchange. See "Operating Restrictions" below.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its counterparty
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when the Fund purchases an OTC option, it relies on the counterparty from
whom it purchased the option to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options only with major dealers
in unlisted options, there is no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration.
WRIMCO will evaluate the ability to enter into closing purchase transactions on
unlisted options prior to writing them. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Option premiums paid to control an amount of related investments are small
in relation to the market value of related investments and, consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment.
Options on Stock Indices
The Fund is permitted to write and purchase options on broadly-based stock
indices subject to the limitations set forth under "Operating Restrictions" and
"Investment Restrictions." Broadly-based stock indices are indices which are
not limited to stocks of any particular industry or industries. The Fund may
purchase calls on stock indices to hedge against anticipated increases in the
price of securities it wishes to acquire and purchase puts on stock indices to
hedge against anticipated declines in the market value of portfolio securities.
Puts and calls on stock indices are similar to puts and calls on securities
or futures contracts except that all settlements are in cash and gain or loss
depends on changes in the broad-based index in question rather than on price
movements in individual securities or futures contracts. When the Fund writes a
call on a stock index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the stock index
upon which the call is based is greater than the exercise price of the call.
The amount of cash is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on a stock index, it pays a premium and
has the same rights as to such call as are indicated above. When the Fund buys
a put on a stock index, it pays a premium and has the right, prior to the
expiration date, to require a seller of the put, upon the Fund's exercise of the
put, to deliver to the Fund an amount of cash if the closing level of the stock
index upon which the put is based is less than the exercise price of the put,
which amount of cash is determined by the multiplier, as described above for
calls. When the Fund writes a put on a stock index, it receives a premium and
the purchaser has the right, prior to the expiration date, to require the Fund
to deliver to it an amount of cash equal to the difference between the closing
level of the stock index and the exercise price times the multiplier if the
closing level is less than the exercise price.
Risks of Options on Stock Indices. The risks of investment in options on
stock indices may be greater than options on securities. Because stock index
options are settled in cash, when the Fund writes a call on a stock index it
cannot provide in advance for its potential settlement obligations by acquiring
and holding the underlying securities. The Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of stocks similar
to those on which the underlying index is based. However, the Fund cannot, as a
practical matter, acquire and hold a portfolio containing exactly the same
stocks as underlie the index and, as a result, bears a risk that the value of
the securities held will vary from the value of the index.
Even if the Fund could assemble a stock portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, the Fund as the call writer will not learn that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its stock portfolio.
This "timing risk" is an inherent limitation on the ability of index call
writers to cover their risk exposure by holding stock positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
Futures Contracts and Options on Futures Contracts
The Fund is permitted to purchase and sell futures contracts and options on
futures contracts subject to the limitations set forth under "Operating
Restrictions" and "Investment Restrictions."
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve as
a limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of the
Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average duration
of the Fund's fixed-income portfolio, the Fund may sell a futures contract or a
call option thereon, or purchase a put option on that futures contract. If
WRIMCO wishes to lengthen the average duration of the Fund's fixed-income
portfolio, the Fund may buy a futures contract or a call option thereon, or sell
a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial margin"
consisting of cash or U.S. Government Securities in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing a
call or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures and options on futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. In such event, it may not be possible
to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures or an option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures or options on futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
As an operating policy, to the extent that the Fund enters into futures
contracts or options on futures contracts, in each case other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money" at the time of purchase) will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any contracts the Fund has entered into. (In
general, a call option on a futures contract is "in-the-money" if the value of
the underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of the Fund's assets that are at risk
in futures contracts and options on futures contracts.
Risk of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to the differences in the natures of those markets, are subject to
the following factors, which may create distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of
general interest or stock market trends by WRIMCO may still not result in a
successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest rate movements or stock market movements or the time
span within which the movements take place.
Stock Index Futures. The Fund may purchase and sell futures contracts on
broadly-based stock indices ("Stock Index Futures") and options thereon. A
stock index is broadly-based if it is not limited to stocks of any industry or
group of industries.
The risk of imperfect correlation between movements in the price of a Stock
Index Future and movements in the price of the securities that are the subject
of the hedge increases as the composition of the Fund's portfolio diverges from
the securities included in the applicable index. The price of the Stock Index
Future may move more than or less than the price of the securities being hedged.
If the price of the Stock Index Future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the Stock Index Futures, the Fund may buy or sell
Stock Index Futures in a greater dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the prices of the
securities being hedged is more than the historical volatility of the prices of
the securities included in the index. It is also possible that, where the Fund
has sold Stock Index Futures to hedge against decline in the market, the market
may advance and the value of securities held in the portfolio may decline. If
this occurred, the Fund would lose money on the futures contract and also
experience a decline in value in its portfolio securities. However, while this
could occur for a very brief period or to a very small degree, over time the
value of a diversified portfolio of securities will tend to move in the same
direction as the market indices upon which the futures contracts are based.
Where Stock Index Futures are purchased to hedge against a possible
increase in the price of securities before the Fund is able to invest in them in
an orderly fashion, it is possible that the market may decline instead. If the
Fund then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contract that is not offset by a reduction in the price of the
common stocks it had anticipated purchasing.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures contracts, to adjust the risk
and return characteristics of its overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate.
Once the Fund has received an exercise notice on an option it has written, it
cannot effect a closing transaction in order to terminate its obligation under
the option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Operating Restrictions
The Fund is subject to certain operating restrictions pertaining to
investments in options and futures. Such operating restrictions may be revised
by the Board depending on its judgments regarding the ability of WRIMCO to make
use of these instruments to the benefit of the Funds and in order to conform to
rules and regulations of the CFTC, the SEC, various state securities
commissions, Federal tax law and regulations, and the rules of the exchanges on
which the investments are traded.
(i) Options on stock indices, futures contracts and options on futures
contracts will be used only for risk management ("hedging") purposes
within the meaning of applicable regulations. The Fund will not hedge
more than 10% of its total assets.
(ii) Only options on securities that are issued by the Options Clearing
Corporation may be purchased or sold except that the Fund may write
unlisted put options and purchase unlisted put and call options on U.S.
Government Securities and except for optional delivery standby
commitments; only options on stock indices, options on futures contracts
and futures contracts that are listed on a national securities or
commodities exchange may be purchased or sold; to the extent option
transactions involving unlisted options are illiquid, such options and
the underlying collateral will be subject to an operating policy of the
Fund that limits investment in illiquid securities to 10% of the net
assets of the Fund.
(iii) The aggregate premiums paid for the purchase of permitted options that
are held by the Fund at any one time, adjusted for the portion of any
premium attributable to a difference between the "strike price" of the
option and the market value of the underlying security or futures
contract at the time of purchase, may not exceed 20% of the total assets
of the Fund.
(iv) The aggregate margin deposits and premiums required on all futures
contracts and options thereon held or outstanding at any one time by the
Fund may not exceed 5% of the total assets of the Fund adjusted for
unrealized gains or losses of the Fund on such options and futures
contracts.
(v) The aggregate amount of the obligations underlying the puts written by
the Fund that are outstanding at any one time may not exceed 25% of the
net assets of the Fund computed at the time of sale.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and, together with certain
restrictions described in the Prospectus, cannot be changed without shareholder
approval. Under these additional restrictions, the Fund may not:
(i) Buy or sell commodities or commodity contracts except that it may,
for non-speculative purposes, buy or sell Stock Index Futures, futures
contracts on debt securities ("Debt Futures") and options on Stock
Index Futures and Debt Futures;
(ii) Buy real estate nor any nonliquid interests in real estate investment
trusts which includes investments in oil, gas and other mineral leases
and real estate limited partnerships;
(iii) Buy shares of other investment companies which redeem their shares.
The Fund can buy shares of investment companies which do not redeem
their shares if it does it in a regular transaction in the open market
and then does not have more than one tenth (i.e., 10%) of its total
assets in these shares. The Fund may also buy these shares as part of a
merger or consolidation;
(iv) Lend money or other assets, other than through certain limited types of
loans described herein; the Fund can buy debt securities which have been
sold to the public; it can buy other obligations customarily acquired by
institutional investors; it can also lend its portfolio securities (see
"Lending Securities" above) or, except as provided above, enter into
repurchase agreements (see "Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Buy or continue to hold securities if the Fund's Directors or officers
or certain others own too much of the same securities; if any one of
these people owns more than one two-hundredths (i.e., .5 of 1%) of the
shares of a company and if the people who own that much or more own one
twentieth (i.e., 5%) of that company's shares, the Fund cannot buy that
company's shares or continue to own them;
(vii) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(viii) Sell securities short, buy securities on margin or engage in arbitrage
transactions; however, the Fund may make margin deposits in connection
with its use of any financial instrument permitted by its fundamental
policies;
(ix) Engage in the underwriting of securities, that is, the selling of
securities for others; also, the Fund does not invest in restricted
securities; restricted securities are securities which cannot freely be
sold for legal reasons;
(x) Purchase warrants;
(xi) Purchase or write puts, calls or combinations thereof; however call
options may be written on securities if: (i) such calls are listed on a
domestic securities exchange; (ii) when any such call is written and at
all times prior to a closing purchase transaction as to such call, or
its lapse or exercise, the Fund owns the securities which are subject to
the call or has the right to acquire such securities without the payment
of further consideration; and (iii) when any such call is written, not
more than 50% of the Fund's total assets would be subject to calls;
calls may be purchased to effect a closing purchase transaction as to
any call written in accordance with the foregoing. In addition, the
Fund may purchase calls and write and purchase put options on securities
in which the Fund may invest and may, for non-speculative purposes,
write and purchase options on broadly-based stock indices;
(xii) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets but may enter into escrow and
collateral arrangements in connection with the use of options and
futures. The Fund may borrow money from banks as a temporary measure or
for extraordinary or emergency purposes but only up to 5% of its total
assets; or
(xiii) Buy the securities of any company if it would then own more than 10%
of the voting securities or any class of the securities; or buy the
securities of any company if more than 5% of the Fund's total assets
(valued at market value) would then be invested in that company; or buy
the securities of companies in any one industry if more than 25% of the
Fund's total assets would then be in companies in that industry.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rate for the common stock portion of the Fund's
portfolio for the fiscal year ended June 30, 1995 was _____%, while the rate for
the remainder of the portfolio was ____%. The Fund's overall portfolio turnover
rates for the fiscal years ended June 30, 1995 and 1994 were 48.62% and 27.10%,
respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds,
except United Asset Strategy Fund, Inc., since 1940 or the company's inception
date, whichever was later, and to TMK/United Funds, Inc. since that fund's
inception, until January 8, 1992 when it assigned its duties as investment
manager for these funds (and the related professional staff) to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992, Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. since they each commenced operations in
February 1993 and United Asset Strategy Fund, Inc. since it commenced operations
in March 1995. Waddell & Reed, Inc. serves as principal underwriter for the
investment companies in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc. and serves as distributor for the TMK/United Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund
and Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell &
Reed, Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records, pricing of
the Fund's shares, and preparation of prospectuses for existing shareholders,
proxy statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Fund pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO during the fiscal years ended June 30,
1995, 1994 and 1993 were $2,739,585, $2,423,283 and $1,801,837,
respectively.
For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
to the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A
shares, the Fund pays the Agent a monthly fee of $1.0208 for each shareholder
account that was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution, of cash or shares, had a
record date in that month. For Class Y shares, the Fund pays the Agent a
monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of
that Class for the preceding month. The Fund also pays certain out-of-pocket
expenses of the Agent, including long distance telephone communications costs;
microfilm and storage costs for certain documents; forms, printing and mailing
costs; and costs of legal and special services not provided by Waddell & Reed,
Inc., WRIMCO, or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a fee for
accounting services as described in the Prospectus. Fees paid to the Agent for
the fiscal years ended June 30, 1995, 1994 and 1993 were $60,000, $60,000 and
$52,500, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay and requires WRIMCO to reduce its fee if these expense amounts
are exceeded. WRIMCO must reduce the amount of such expenses to the extent they
exceed these expense limits. Not all of the Fund's expenses are included in the
limit. The excluded expenses include interest, taxes, brokerage commissions and
extraordinary expenses such as litigation that usually do not arise in the
normal operations of a mutual fund. The Fund's other expenses, including its
management fee, are included.
WRIMCO must, under California law, reduce the cost of any included expenses
which are over 2.5% of the Fund's first $30 million of average net assets, 2% of
the next $70 million of average net assets, and 1.5% of any remaining average
net assets during a fiscal year. The Fund will notify shareholders of any
change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed. Inc. and affiliates also pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund. The aggregate dollar amounts of
underwriting commissions for Class A shares for the fiscal years ended June 30,
1995, 1994 and 1993 were $2,495,772, $3,770,666 and $4,667,599, respectively,
and the amounts retained by Waddell & Reed, Inc. for each fiscal year were
$1,054,553, $1,634,235 and $2,015,186, respectively.
A major portion of the sales charge for Class A shares is paid to account
representatives and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may
compensate its account representatives as to purchases for which there is no
sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Service Plan for Class A shares (the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay Waddell & Reed,
Inc., the principal underwriter for the Fund, a fee not to exceed .25% of the
Fund's average annual net assets attributable to Class A shares, paid monthly,
to reimburse Waddell & Reed, Inc. for its costs and expenses in connection with
the provision of personal services to Class A shareholders of the Fund and/or
maintenance of Class A shareholder accounts.
The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders of the Fund and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders of
the Fund by office personnel located at field sales offices; engaging in other
activities useful in providing personal service to Class A shareholders of the
Fund and/or maintenance of Class A shareholder accounts; and in compensating
broker-dealers who may regularly sell Class A shares of the Fund, and other
third parties, for providing shareholder services and/or maintaining shareholder
accounts with respect to Class A shares. Fees paid (or accrued) as service fees
by the Fund for the fiscal year ended June 30, 1995 were $577,769.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by the affected shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding Class A shares of the Fund, and (iv)
while the Plan remains in effect, the selection and nomination of the Directors
who are Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, the Custodian is responsible for holding the Fund's cash and
securities. The Fund may place and maintain its foreign securities and cash
with a foreign custodian in accordance with Rule 17f-5 of the 1940 Act. Price
Waterhouse LLP, Kansas City, Missouri, the Fund's independent accountants,
audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each Class of the shares of the Fund is the value
of the assets of that Class, less the Class's liabilities, divided by the total
number of outstanding shares of that Class.
Class A shares of the Fund are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup as of
June 30, 1995 was as follows:
Net asset value per Class A share
(Class A net assets divided by Class A
shares outstanding) ....................... $8.26
Add: selling commission (5.75% of offering
price) .................................... .50
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $8.76
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class Y share is its net asset value next determined
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
receives and accepts your order at its principal business office at the address
shown on the cover of this SAI. You will be sent a confirmation after your
purchase which will indicate how many shares you have purchased. Shares are
normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are computed once on
each day that the NYSE is open for trading as of the later of the close of the
regular session of the NYSE (ordinarily, 4:00 P.M. Eastern time) or the close of
the regular session of any domestic securities or commodities exchange on which
an option or future held by the Fund is traded. The NYSE annually announces the
days on which it will not be open for trading. The most recent announcement
indicates that the NYSE will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may
close on other days. The net asset value will change every business day, since
the value of the assets and the number of shares outstanding change every
business day.
The securities in the portfolio of the Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations), which provides information on bid and asked prices quoted
by major dealers in such stocks. Bonds, other than convertible bonds, are
valued using a pricing system provided by a major dealer in bonds. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued at amortized cost, which
approximates market. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the Fund's Board of Directors.
Puts, calls and futures purchased and held by the Fund are valued at the
last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session of option trading on
national securities exchanges is 4:10 P.M. Eastern time and the close of the
regular session of commodities exchanges is 4:15 P.M. Eastern time. Futures
contracts will be valued with reference to established futures exchanges. The
value of a futures contract purchased by the Fund will be either the closing
price of that contract or the bid price. Conversely, the value of a futures
contract sold by the Fund will be either the closing price or the asked price.
When the Fund writes a put or call, an amount equal to the premium
received is included in the Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to-market" (that is, treated as sold for its fair
market value) to reflect the current market value of the put or call. If a call
the Fund wrote is exercised, the proceeds received on the sale of the related
investment are increased by the amount of the premium the Fund received. If the
Fund exercised a call it purchased, the amount paid to purchase the related
investment is increased by the amount of the premium paid. If a put written by
the Fund is exercised, the amount that the Fund pays to purchase the related
investment is decreased by the amount of the premium it received. If the Fund
exercises a put it purchased, the amount the Fund receives from the sale of the
related investment is reduced by the amount of the premium it paid. If a put or
call written by the Fund expires, it has a gain in the amount of the premium; if
it enters into a closing purchase transaction, it will have a gain or loss
depending on whether the premium was more or less than the cost of the closing
transaction.
Foreign currency exchange rates are generally determined prior to the close
of trading of the regular session of the NYSE. Occasionally events affecting
the value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the regular session of trading on
the NYSE, which events will not be reflected in a computation of the Fund's net
asset value on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period,
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of the Fund conducted on a spot (that is, cash) basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Fund's Board of Directors. They
are accounted for in the same manner as exchange-listed puts.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A minimum
initial investment of only $25 is applicable to purchases made through payroll
deduction by or for employees of Waddell & Reed, Inc., WRIMCO, their affiliates
or certain retirement plan accounts. Except with respect to certain exchanges
and automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges.
The schedule of sales charges appears in the Prospectus for Class A shares. For
the purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), Section 457 of the Internal Revenue
Code of 1986, as amended (the "Code"), salary reduction plan account, tax
sheltered annuity account ("TSA") or Keogh plan account, provided that such
purchases are subject to a sales charge (see "Net Asset Value Purchases"),
provided that the individual and spouse are the only participants in the
Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. (If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.)
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there is
more than one participant where one or more of the participants is other than
the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A "qualified"
employee benefit plan is established pursuant to Section 401 of the Code. All
qualified employee benefit plans of any one employer or affiliated employers
will also be grouped. An affiliate is defined as an employer that directly, or
indirectly, controls or is controlled by or is under control with another
employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping
may be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 of Class A shares is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that the
purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His wife,
W, now wishes to invest $20,000 in Class A shares of the Fund. W's
purchase will be combined with H's existing account and will be
entitled to a reduced sales charge of 4.75%. H's original purchase
was subject to a full sales charge and the reduced charge does not
apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by WRIMCO. Each purchase made from time to time under the Statement is treated
as if the purchaser were buying at one time the total amount which he or she
intends to invest. The sales charge applicable to all purchases of Class A
shares made under the terms of the statement will be the sales charge in effect
on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement is
accepted by Waddell & Reed, Inc. of $15,000; H's wife, W, has an
account in her own name invested in another fund in the United Group
which charges the same sales load as the Fund, with a net asset value
as of the date of acceptance of the Statement of $10,000; H needs to
invest $75,000 in Class A shares over the 13-month period in order to
qualify for the reduced sales load applicable to a purchase of
$100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the Statement of Intention only if the
contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement. An amount equal to 5%
of the purchase required under the Statement of Intention will be held "in
escrow." If a purchaser does not, during the period covered by the Statement of
Intention, invest the amount required to qualify for the reduced sales charge
under the terms of the Statement of Intention, he or she will be responsible for
payment of the sales charge applicable to the amount actually invested. The
additional sales charge owed on purchases of Class A shares made under a
Statement of Intention which is not completed will be collected by redeeming
part of the shares purchased under the Statement and held "in escrow" unless the
purchaser makes payment of this amount to Waddell & Reed, Inc. within 20 days of
Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement will be deducted in computing the aggregate purchases under the
Statement.
Statements of Intention are not available for purchases made under a SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a sales
charge. A purchase of, or shares held, in any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group have shares that are subject to
a maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United Retirement
Shares, Inc., United High Income Fund, Inc., United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc., United High Income Fund II, Inc. and United
Asset Strategy Fund, Inc. The following funds in the United Group have shares
that are subject to a "reduced" sales charge as described in the prospectus of
each fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of obtaining
the lower sales charge which applies to large purchases, purchases in a fund in
the United Group of shares that are subject to a full sales charge may not be
grouped with purchases of shares in a fund in the United Group that are subject
to a reduced sales charge; conversely, purchases of shares in a fund with a
reduced sales charge may not be grouped or combined with purchases of shares of
a fund that are subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be purchased at
net asset value by the Directors and officers of the Fund, employees of Waddell
& Reed, Inc., employees of their affiliates, account representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each such Director, officer, employee and account representative.
"Child" includes stepchild; "parent" includes stepparent. Purchases of Class A
shares in an IRA sponsored by Waddell & Reed, Inc. established for any of these
eligible purchasers may also be at net asset value. Purchases in any tax
qualified retirement plan under which the eligible purchaser is the sole
participant may also be made at net asset value. Trusts under which the grantor
and the trustee or a co-trustee are each an eligible purchaser are also eligible
for net asset value purchases of Class A shares. "Employees" includes retired
employees. A retired employee is an individual separated from service from
Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Account representatives" includes retired account representatives.
A "retired account representative" is any account representative who was, at the
time of separation from service from Waddell & Reed, Inc., a Senior Account
Representative. A custodian under the Uniform Gifts (or Transfers) to Minors
Act purchasing for the child or grandchild of any employee or account
representative may purchase Class A shares at net asset value whether or not the
custodian himself is an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of instances
in which the Fund's Class A shares are sold or issued on a basis other than the
maximum public offering price, that is, the net asset value plus the highest
sales charge. Some of these relate to lower or eliminated sales charges for
larger purchases of Class A shares, whether made at one time or over a period of
time as under a Statement of Intention or right of accumulation. See the table
of sales charges in the Prospectus. The reasons for these quantity discounts
are, in general, that (i) they are traditional and have long been permitted in
the industry and are therefore necessary to meet competition as to sales of
shares of other funds having such discounts; (ii) certain quantity discounts are
required by rules of the National Association of Securities Dealers, Inc. (as
are elimination of sales charges on the reinvestment of dividends and
distributions); and (iii) they are designed to avoid an unduly large dollar
amount of sales charge on substantial purchases in view of reduced selling
expenses. Quantity discounts are made available to certain related persons for
reasons of family unity and to provide a benefit to tax-exempt plans and
organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted in the 1940 Act from the otherwise applicable restrictions as to what
sales charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing Class A shareholders
adversely affected since, in each case, the Fund receives the net asset value
per share of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). The Service is
available not only for Class A shares of the Fund but also for corresponding
shares of any of the funds in the United Group. It would be a disadvantage to
an investor to make additional purchases of Class A shares while a withdrawal
program is in effect as this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
Class A or corresponding shares which you still own of any of the funds in the
United Group; or, you must own Class A or corresponding shares having a value of
at least $10,000. The value for this purpose is not the net asset value but the
value at the offering price, i.e., the net asset value plus the sales charge.
To start the Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make available
for this Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for
the Service are reinvested in additional Class A shares. All payments are made
by redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments exceed dividends and distributions, the number of Class A
shares you own will decrease. When all of the shares in your account are
redeemed, you will not receive any further payments. Thus, the payments are not
an annuity or an income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed, you can change to any of the choices originally available to
you. For example, if you started out with a $50 monthly payment, you could
change to a $200 quarterly payment. You can at any time redeem part or all of
the shares in your account; if you redeem all of the shares, the Service is
terminated. The Fund can also terminate the Service by notifying you in
writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges.
Once a sales charge has been paid on shares of a fund in the United Group,
these shares and any shares added to them from reinvestment of dividends or
distributions may be freely exchanged for corresponding shares of another fund
in the United Group. The shares you exchange must be worth at least $100 or you
must already own shares of the fund in the United Group into which you want to
exchange.
You may exchange corresponding shares you own in another fund in the United
Group for Class A shares of the Fund without charge if (i) a sales charge was
paid on these shares, or (ii) the shares were received in exchange for shares
for which a sales charge was paid, or (iii) the shares were acquired from
reinvestment of dividends and distributions paid on such shares. There may have
been one or more such exchanges so long as a sales charge was paid on the shares
originally purchased. Also, shares acquired without a sales charge because the
purchase was $2 million or more will be treated the same as shares on which a
sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exception and special
rules apply. Corresponding shares of these funds may be exchanged for Class A
shares of the Fund only if (i) you have received those shares as a result of one
or more exchanges of shares on which a sales charge was originally paid, or (ii)
the shares have been held from the date of the original purchase for at least
six months.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of corresponding shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any other
fund in the United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must own
Class A shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange
monthly is $100, which may be allocated among the Class A or corresponding
shares of different funds in the United Group so long as each fund receives a
value of at least $25. Minimum initial investment and minimum balance
requirements apply to such automatic exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges.
Class Y shares of a Fund may be exchanged for Class Y shares of any other
fund in the United Group.
General Exchange Information.
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your written exchange request is received in good
order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be
set up as a funding vehicle for a retirement plan. For individual taxpayers
meeting certain requirements, Waddell & Reed, Inc. offers prototype documents
for the following retirement plans. All of these plans involve investment in
shares of the Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days unless delayed because of
emergency conditions determined by the SEC, when the NYSE is closed other than
for weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemption of shares of the Fund may be made
in portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege
for Class A shares under which, if you redeem your Class A shares and then
decide it was not a good idea, you may reinvest. If Class A shares of the Fund
are then being offered, you can put all or part of your redemption payment back
into Class A shares of the Fund without any sales charge at the net asset value
next determined after you have returned the amount. Your written request to do
this must be received within 30 days after your redemption request was received.
You can do this only once as to Class A shares of the Fund. You do not use up
this privilege by redeeming Class A shares to invest the proceeds at net asset
value in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wright is a member of the Fund's Board of Directors. The other
persons are officers but not members of the Board of Directors. For purposes of
this section, the term "Fund Complex" includes each of the registered investment
companies in the United Group of Mutual Funds, Waddell & Reed Funds, Inc.,
TMK/United Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. Each of the Fund's Directors is also a Director of
each of the other funds in the Fund Complex and each of its officers is also an
officer of one or more of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; formerly, President of Gilliland &
Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to Mr.
Judd's property was filed under the Federal bankruptcy laws and is now
final.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in the
Fund Complex then in existence on April 30, 1993); formerly, President, Director
and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly,
Chairman of the Board of Directors of Waddell & Reed Services Company; formerly,
Director of Waddell & Reed Asset Management Company, United Investors Management
Company and United Investors Life Insurance Company, affiliates of Waddell &
Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of
the other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell &
Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Vice President, Secretary and General
Counsel of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Secretary and General Counsel of Waddell & Reed Asset Management Company; Vice
President, Secretary and General Counsel of Torchmark Distributors, Inc.;
formerly, Assistant General Counsel of WRIMCO, Waddell & Reed Financial
Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset Management Company
and Waddell & Reed Services Company.
Cynthia P. Prince-Fox
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be deemed
to be "interested persons" as defined in the 1940 Act of its underwriter,
Waddell & Reed, Inc., or of WRIMCO. The Directors who may be deemed to be
interested persons are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but he has no
authority or responsibility with respect to management of the Fund. Currently,
no person serves as Director Emeritus.
The funds in the United Group (with the exception of United Asset Strategy
Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. pay to each
Director a total of $40,000 per year, plus $1,000 for each meeting of the Board
of Directors attended (prior to January 1, 1995, the fee was $500 for each
meeting of the Board of Directors attended) and $500 for each Committee meeting
attended which is not in conjunction with a Board of Directors meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the funds in the United Group (with
the exception of United Asset Strategy Fund, Inc.), TMK/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size. During the Fund's
fiscal year ended June 30, 1995, the Fund's Directors received the following
fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
-------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon
Dodds I. Buchanan
Jay B. Dillingham
John F. Hayes
Glendon E. Johnson
William T. Morgan
Doyle Patterson
Frederick Vogel III
Paul S. Wise
Leslie S. Wright
Ms. Graves, Ms. Schwartz and Mr. Judd were elected as Directors on July 12,
1995. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of July 31, 1995, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date no
person owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder of a Class of shares of the Fund, other than payments when you
redeem your shares. The first source is the Fund's net investment income, which
is derived from the dividends, interest and earned discount on the securities it
holds less expenses (which will vary by Class). The second source is realized
capital gains, which are derived from the proceeds received from the sale of
securities at a price higher than the Fund's tax basis (usually cost) in such
securities; these gains can be either long-term or short-term, depending on how
long the Fund has owned the securities before it sells them. The third source
is net realized gains from foreign currency transactions. The payments made to
shareholders from net investment income, net short-term capital gains and net
realized gains from certain foreign currency transactions are called dividends.
Payments, if any, from long-term capital gains are called distributions.
The Fund pays distributions only if it has net realized capital gains (the
excess of net long-term capital gains over net short-term capital losses). It
may or may not have such gains, depending on whether securities are sold and at
what price. If the Fund has net realized capital gains, it will ordinarily pay
distributions once each year, in the latter part of the fourth calendar quarter.
Even if the Fund has net capital gains for a year, the Fund does not pay out the
gains if it has applicable prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions reinvested in shares of the Fund of the same Class as that with
respect to which they were paid, or (iii) you want cash for your dividends and
want your distributions reinvested in shares of the Fund of the same Class as
that with respect to which they were paid. You can change your instructions at
any time. If you give no instructions, your dividends and distributions will be
reinvested in shares of the Fund of the same Class as that with respect to which
they were paid. All reinvestments are at net asset value without any sales
charge. The net asset value used for this purpose is that computed as of the
record date for the dividend or distribution, although this could be changed by
the Board of Directors.
Even if you get dividends and distributions of Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of the
Fund at net asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or disposition of securities, or
any of the following, that were held for less than three months -- (i) options,
futures contracts or forward contracts or (ii) foreign currencies (or options,
futures contracts or forward contracts thereon) that are not directly related to
the Fund's principal business of investing in securities (or in options and
futures contracts with respect to securities) ("Short-Short Limitation"); (3) at
the close of each quarter of the Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
Securities, securities of RICs and securities that are limited, in respect of
any one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government Securities or the securities
of other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in one of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors should also
be aware that if shares are purchased shortly before the record date for a
dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or taxes imposed by foreign countries and U.S. possessions that
would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its
shareholders.
Income from Options and Futures Contracts
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts, involves complex rules that will determine for
income tax purposes the character and timing of recognition of the gains and
losses the Fund realizes in connection therewith. Income from transactions in
options and futures contracts derived by the Fund with respect to its business
of investing in securities will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
contracts will be subject to the Short-Short Limitation if they are held for
less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of options and futures contracts beyond the time when it otherwise
would be advantageous to do so, in order for the Fund to continue to qualify as
a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many options
that it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at the end
of each taxable year, other than section 1256 contracts that are part of a
"mixed straddle" with respect to which the Fund has made an election not to have
the following rules apply, are "marked-to-market" for Federal income tax
purposes, with the result that unrealized gains or losses are treated as though
they were realized. Sixty percent of any net gains or losses recognized on
these deemed sales, and 60% of any net realized gains or losses from any actual
sales of section 1256 contracts, are treated as long-term capital gains or
losses, and the balance is treated as short-term capital gains or losses.
Section 1256 contracts also may be marked-to-market for purposes of the Excise
Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If the Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Fund are not entirely clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the portfolio of
the Fund. Transactions in securities other than those for which an exchange is
the primary market are generally done with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained. The individual
who manages the Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the manager will frequently place
concurrent orders for all or most accounts for which the manager has
responsibility. Transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each fund or advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other funds and accounts over which WRIMCO or its affiliates
have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may
be higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations, WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the Fund and other funds managed by WRIMCO
and its affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider sales
of shares of the Fund and other funds managed by WRIMCO and its affiliates as a
factor in the selection of brokers to execute portfolio transactions. WRIMCO
intends to allocate brokerage on the basis of this factor only if the sale is $2
million or more and there is no sales charge. This results in the consideration
only of sales which by their nature would not ordinarily be made by Waddell &
Reed, Inc.'s direct sales force and is done in order to prevent the direct sales
force from being disadvantaged by the fact that it cannot participate in Fund
brokerage.
During the Fund's fiscal years ended June 30, 1995, 1994 and 1993, it paid
brokerage commissions of $_______, $379,174 and $202,341, respectively. These
figures do not include principal transactions or spreads or concessions on
principal transactions, i.e., those in which the Fund sells securities to a
broker-dealer firm or buys from a broker-dealer firm securities owned by it.
During the Fund's fiscal year ended June 30, 1995, the transactions, other
than principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $____________ on which $_______ in
brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group, TMK/United
Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc. and Torchmark Insured Tax-Free Fund, Inc. or accounts over which Waddell &
Reed Asset Management Company exercises investment discretion frequently buy or
sell the same securities at the same time. If this happens, the amount of each
purchase or sale is divided. This is done on the basis of the amount of
securities each fund or account wanted to buy or sell. Sharing in large
transactions could affect the price the Fund pays or receives or the amount it
buys or sells. However, sometimes a better negotiated commission is available.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two Classes of shares: Class A and Class Y. Prior to
October 6, 1995, the Fund offered only one Class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Each Class
represents an interest in the same assets of the Fund and differ as follows:
each Class of shares has exclusive voting rights on matters pertaining to
matters appropriately limited to that Class; Class A shares are subject to an
initial sales charge and to an ongoing service fee; each Class may bear
differing amounts of certain Class-specific expenses; and each Class has a
separate exchange privilege. The Fund does not anticipate that there will be
any conflicts between the interests of holders of the different Classes of
shares of the Fund by virtue of those Classes. On an ongoing basis, the Board
of Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of the Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two Classes, dividends and liquidation proceeds of Class A
shares are expected to be lower than for Class Y shares of the Fund. Each
fractional share of a Class has the same rights, in proportion, as a full share
of that Class.
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
Standard & Poor's Ratings Group. A Standard & Poor's ("S&P")
corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1995
Shares Value
COMMON STOCKS
Airlines - 0.90%
Southwest Airlines Co. ................. 200,000 $ 4,775,000
Banks and Savings and Loans - 1.99%
Ahmanson (H.F.) & Company .............. 195,000 4,290,000
Great Western Financial Corporation (#) . 175,000 3,609,375
HSBC Holdings Plc (A) .................. 202,060 2,591,751
Total ................................. 10,491,126
Beverages - 2.50%
Coca-Cola Company (The) ................ 100,000 6,375,000
PepsiCo, Inc. .......................... 150,000 6,843,750
Total ................................. 13,218,750
Biotechnology and Medical Services - 0.57%
St. Jude Medical, Inc. ................. 60,000 3,003,720
Building - 1.79%
National Health Investors, Inc. ........ 100,000 2,725,000
York International Corporation ......... 150,000 6,750,000
Total ................................. 9,475,000
Chemicals Major - 2.89%
du Pont (E.I.) de Nemours and Company .. 150,000 10,312,500
PPG Industries, Inc. ................... 115,000 4,945,000
Total ................................. 15,257,500
Chemicals Specialty and Miscellaneous Technology - 2.66%
Browning Ferris Industries Inc. (#) .... 80,000 2,890,000
IMC Global, Inc. ....................... 100,000 5,412,500
Minnesota Mining and Manufacturing
Company ............................... 100,000 5,725,000
Total ................................. 14,027,500
Computers and Office Equipment - 2.94%
Compaq Computer Corporation* ........... 125,000 5,671,875
General Motors Corporation, Class E .... 160,000 6,960,000
International Business Machines
Corporation ........................... 30,000 2,880,000
Total ................................. 15,511,875
Domestic Oil - 2.08%
Atlantic Richfield Company .............. 100,000 10,975,000
Drugs and Hospital Supply - 3.57%
Abbott Laboratories .................... 160,000 6,480,000
American Home Products Corporation ..... 90,000 6,963,750
Astra AB, Class A (A) .................. 175,000 5,393,301
Total ................................. 18,837,051
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1995
Shares Value
COMMON STOCKS (Continued)
Electrical Equipment - 2.03%
Emerson Electric Co. ................... 150,000 $ 10,725,000
Electronics - 2.17%
AMP Incorporated ....................... 126,000 5,323,500
Applied Materials, Inc.* ............... 34,200 2,958,300
Intel Corporation ...................... 50,000 3,165,600
Total ................................. 11,447,400
Engineering and Construction - 0.80%
Foster Wheeler Corporation ............. 120,000 4,230,000
Financial - 1.07%
Federal National Mortgage Association .. 60,000 5,662,500
Hospital Management - 1.28%
LTC Properties, Inc. ................... 200,000 2,625,000
United HealthCare Corporation .......... 100,000 4,137,500
Total ................................. 6,762,500
Household Products - 3.74%
Colgate-Palmolive Company .............. 100,000 7,312,500
Gillette Company (The) ................. 150,000 6,693,750
Procter & Gamble Company (The) ......... 80,000 5,750,000
Total ................................. 19,756,250
Insurance - 4.69%
Chubb Corporation (The) ................ 200,000 16,025,000
Financial Security Assurance Holdings Ltd. 350,000 8,750,000
Total ................................. 24,775,000
International Oil - 2.68%
Exxon Corporation ...................... 200,000 14,125,000
Leisure Time - 3.91%
Walt Disney Company (The) .............. 275,000 15,296,875
Time Warner Incorporated ............... 130,000 5,346,250
Total ................................. 20,643,125
Multi-Industry - 4.24%
Grupo Carso, S.A. de C.V.,
Series 1A (A)* ........................ 500,000 2,736,000
ITT Corporation ........................ 125,000 14,687,500
Mark IV Industries, Inc. ............... 231,000 4,966,500
Total ................................. 22,390,000
Oil Services - 2.73%
Baker Hughes Incorporated .............. 400,000 8,200,000
Schlumberger Limited ................... 100,000 6,212,500
Total ................................. 14,412,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1995
Shares Value
COMMON STOCKS (Continued)
Publishing and Advertising - 0.67%
American Greetings Corporation,
Class A ............................... 120,000 $ 3,517,440
Retailing - 1.95%
Cifra, S.A. de C.V., Class C (A) ....... 550,000 721,600
May Department Stores Company (The) .... 115,000 4,786,875
Penney (J.C.) Company, Inc. ............ 100,000 4,800,000
Total ................................. 10,308,475
Services, Consumer and Business - 0.78%
Block (H & R), Inc. .................... 100,000 4,112,500
Telecommunications - 9.86%
AT&T Corporation ....................... 250,000 13,281,250
BellSouth Corporation .................. 200,000 12,700,000
GTE Corporation ........................ 179,700 6,132,263
General Motors Corporation, Class H .... 66,700 2,634,650
MCI Communications Corporation ......... 300,000 6,581,100
Motorola, Inc. ......................... 50,000 3,356,250
Telefonos de Mexico S.A. de C.V., ADR .. 250,000 7,406,250
Total ................................. 52,091,763
Textiles and Apparel - 0.60%
Liz Claiborne, Inc. (#) ................ 150,000 3,187,500
TOTAL COMMON STOCKS - 65.09% $343,719,475
(Cost: $284,739,586)
PREFERRED STOCKS
Airlines - 1.11%
Delta Air Lines, Incorporated,
Convertible ........................... 100,000 5,850,000
Automotive - 1.10%
Ford Motor Company, Convertible ........ 60,000 5,827,500
Building - 0.47%
National Health Investors, Inc.,
Convertible............................ 100,000 2,450,000
TOTAL PREFERRED STOCKS - 2.68% $ 14,127,500
(Cost: $10,853,522)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Electrical Equipment - 0.64%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... $ 3,000 $ 3,373,200
Financial - 2.29%
American Express Company,
6.25%, 10-15-96 ....................... 9,188 12,125,019
Telecommunications - 0.67%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ..................... 3,000 3,538,650
TOTAL CORPORATE DEBT SECURITIES - 3.60% $ 19,036,869
(Cost: $15,139,390)
OTHER GOVERNMENT SECURITY - 0.59%
Supranational
International Bank for Reconstruction and
Development,
9.25%, 7-15-2017 ...................... 2,500 $ 3,097,475
(Cost: $2,498,180)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.625%, 5-31-96 ....................... 10,000 10,156,200
7.5%, 12-31-96 ........................ 10,000 10,234,400
6.5%, 8-15-97 ......................... 5,000 5,062,500
7.375%, 11-15-97 ...................... 5,000 5,162,500
9.25%, 8-15-98 ........................ 5,000 5,467,950
4.75%, 10-31-98 ....................... 10,000 9,642,200
7.125%, 9-30-99 ....................... 20,000 20,825,000
7.75%, 12-31-99 ....................... 10,000 10,676,600
7.25%, 5-15-2004 ...................... 5,000 5,338,300
7.875%, 11-15-2004 .................... 10,000 11,137,500
9.375%, 2-15-2006 ..................... 8,500 10,514,755
10.375%, 11-15-2012 ................... 4,000 5,290,640
9.25%, 2-15-2016 ...................... 5,000 6,410,950
Miscellaneous United States Government
Backed Securities:
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... 4,422 5,095,725
Postal Square Limited Partnership,
8.95%, 6-15-2022 .................... 1,953 2,302,326
TOTAL UNITED STATES GOVERNMENT SECURITIES - 23.35% $123,317,546
(Cost: $115,421,609)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1995
Value
TOTAL SHORT-TERM SECURITIES - 4.68% $ 24,691,038
(Cost: $24,691,038)
TOTAL INVESTMENT SECURITIES - 99.99% $527,989,903
(Cost: $453,343,325)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.01% 72,053
NET ASSETS - 100.00% $528,061,956
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $527,989,903
Cash ............................................. 27,615
Receivables:
Dividends and interest .......................... 2,661,868
Investment securities sold ...................... 1,450,000
Fund shares sold ................................ 449,263
Prepaid insurance premium ......................... 18,296
------------
Total assets .................................. 532,596,945
------------
Liabilities
Payable for investment securities purchased ...... 2,830,050
Payable for Fund shares redeemed ................. 1,505,686
Accrued service fee ............................... 96,195
Accrued transfer agency and dividend disbursing .. 66,730
Accrued accounting services fee .................. 5,000
Other ............................................ 31,328
------------
Total liabilities ............................. 4,534,989
------------
Total net assets ............................. $528,061,956
============
Net Assets
$1.00 par value capital stock, authorized --
300,000,000; shares outstanding -- 63,920,608
Capital stock ................................... $ 63,920,608
Additional paid-in capital....................... 363,890,147
Accumulated undistributed income:
Accumulated undistributed net investment income . 2,187,534
Accumulated undistributed net realized gain
on investment and foreign
currency transactions ......................... 23,417,506
Net unrealized appreciation in value of
securities at end of period ................... 74,646,161
------------
Net assets applicable to outstanding
units of capital ............................. $528,061,956
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $8.26
Sales load (offering price x 5.75%) ................ .50
-----
Offering price per share (net asset value
divided by 94.25%) ............................... $8.76
=====
On sales of $100,000 or more the sales load
is reduced as set forth in the Prospectus.
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1995
Investment Income
Income:
Interest ........................................ $10,608,492
Dividends ....................................... 8,451,414
-----------
Total income .................................. 19,059,906
-----------
Expenses (Note 2):
Investment management fee ....................... 2,739,585
Transfer agency and dividend disbursing ......... 729,317
Service fee ..................................... 577,769
Accounting services fee ......................... 60,000
Custodian fees .................................. 35,621
Audit fees ...................................... 22,660
Legal fees ...................................... 12,105
Other ........................................... 131,739
-----------
Total expenses ................................ 4,308,796
-----------
Net investment income ........................ 14,751,110
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 29,080,227
Realized net loss on foreign
currency transactions ........................... (10,862)
-----------
Realized net gain on investments ................ 29,069,365
Unrealized appreciation in value of investments
during the period ............................... 25,469,423
-----------
Net gain on investments ....................... 54,538,788
-----------
Net increase in net assets resulting
from operations ............................ $69,289,898
===========
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
June 30,
-------------------------
1995 1994
------------ ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 14,751,110 $ 9,940,359
Realized net gain on investments .... 29,069,365 16,961,825
Unrealized appreciation
(depreciation) .................... 25,469,423 (8,435,883)
------------ ------------
Net increase in net assets
resulting from operations ........ 69,289,898 18,466,301
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (13,359,196) (9,489,801)
Realized gains on securities
transactions ...................... (16,046,041) (14,680,000)
------------ ------------
(29,405,237) (24,169,801)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(8,362,713 and 12,022,339
shares, respectively) ............. 65,060,570 95,070,558
Proceeds from reinvestment of
dividends and/or capital gains
distribution (3,899,165 and
3,062,704 shares, respectively) ... 29,326,493 24,100,246
Payments for shares redeemed
(7,622,986 and 5,121,599
shares, respectively) ............. (59,045,801) (40,564,094)
------------ ------------
Net increase in net assets
resulting from capital
share transactions ............... 35,341,262 78,606,710
------------ ------------
Total increase ................... 75,225,923 72,903,210
Net Assets
Beginning of period .................. 452,836,033 379,932,823
------------ ------------
End of period, including
undistributed net investment
income of $2,187,534 and $806,482,
respectively ........................$528,061,956 $452,836,033
============ ============
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended June 30,
----------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $7.64 $7.70 $7.20 $6.41 $6.41
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... .24 .18 .22 .21 .26
Net realized and
unrealized gain
on investments .. .86 .22 .73 .91 .05
----- ----- ----- ----- -----
Total from investment
operations ....... 1.10 .40 .95 1.12 .31
----- ----- ----- ----- -----
Less distributions:
Dividends from
net investment
income .......... (0.22) (0.18) (0.23) (0.22) (0.26)
Distribution from
capital gains ... (0.26) (0.28) (0.22) (0.11) (0.05)
----- ----- ----- ----- -----
Total distributions. (0.48) (0.46) (0.45) (0.33) (0.31)
----- ----- ----- ----- -----
Net asset value,
end of period .... $8.26 $7.64 $7.70 $7.20 $6.41
===== ===== ===== ===== =====
Total return* ...... 15.07% 5.03% 13.45% 17.93% 5.07%
Net assets, end
of period (000
omitted) ......... $528,062$452,836$379,933$258,862$195,330
Ratio of expenses
to average net
assets ........... 0.89% 0.87% 0.80% 0.82% 0.88%
Ratio of net
investment income
to average net
assets ........... 3.04% 2.32% 2.98% 3.12% 4.20%
Portfolio turnover
rate ............. 48.62% 27.10% 30.62% 38.26% 29.05%
*Total return calculated without taking into account the
sales load deducted on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 -- Significant Accounting Policies
United Retirement Shares, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using Nasdaq
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Short-term debt securities are valued at amortized
cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
3 -- Investment Securities Transactions.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
D. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards. At June 30, 1995, $10,862 was reclassified between
accumulated undistributed net investment income and accumulated
undistributed net realized gain on investment transactions.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .15% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $12.1 billion of
combined net assets at June 30, 1995) at annual rates of .51% of the first $750
million of combined net assets, .49% on that amount between $750 million and
$1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between $2.25
billion and $3 billion, .43% between $3 billion and $3.75 billion, .40% between
$3.75 billion and $7.5 billion, .38% between $7.5 billion and $12 billion, and
.36% of that amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Fund also reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$2,495,772, out of which W&R paid sales commissions of $1,441,219 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to W&R in an
amount not to exceed .25% of the Fund's average annual net assets. The fee is
to be paid to reimburse W&R for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Fund paid Directors' fees of $17,122.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Securities Transactions
Purchases of investment securities, other than U.S. Government obligations
and short-term securities, aggregated $187,884,122 while proceeds from
maturities and sales aggregated $208,248,411. Purchases of short-term and U.S.
Government securities aggregated $657,871,608 and $68,332,813, respectively.
Proceeds from maturities and sales of short-term and U.S. Government securities
aggregated $702,482,915 and $2,069,815, respectively.
For Federal income tax purposes, cost of investments owned at June 30, 1995
was $453,343,325, resulting in net unrealized appreciation of $74,646,578, of
which $79,668,684 related to appreciated securities and $5,022,106 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $29,080,227 during its fiscal year ended June 30, 1995, of which a portion
was paid to shareholders during the period ended June 30, 1995. Remaining
capital gain net income will be distributed to Fund shareholders.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Retirement Shares, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Retirement Shares, Inc. (the
"Fund") at June 30, 1995, the results of its operations for the year then ended
and the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
August 4, 1995
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Retirement Shares, Inc.
Included in Part B:
-------------------
As of June 30, 1995
Statement of Assets and Liabilities
For the fiscal year ended June 30, 1995
Statement of Operations
For each of the two years ended June 30, 1995
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of June 30, 1995
Report of Independent Accountants
Included in Part C:
-------------------
Articles of Incorporation, as amended, attached hereto as EX-99.B1-
charter
Articles Supplementary, attached hereto as EX-99.B1-rsarsupa
Bylaws, as amended (refiling by EDGAR), attached hereto as EX-99.B2-
rsbylaw
Investment Management Agreement (refiling by EDGAR), attached hereto
as EX-99.B5-rsima
Assignment of Investment Management Agreement (refiling by EDGAR),
attached hereto as EX-99.B5-rsassign
Underwriting Agreement, attached hereto as EX-99.B6-rsua
Custodian Agreement, as amended (refiling by EDGAR), attached hereto
as EX-99.B8-rsca
Shareholder Servicing Agreement, attached hereto as EX-99.B9-rsssa
Fund Class A Application, attached hereto as EX-99.B9-rsappca
Fund Class Y Application, attached hereto as EX-99.B9-rsappcy
Fund NAV application, attached hereto as EX-99.B9-rsappnav
Accounting Services Agreement (refiling by EDGAR), attached hereto as
EX-99.B9-rsasa
Service Agreement, attached hereto as EX-99.B9-rssa
Amendment to Service Agreement, attached hereto as EX-99.B9-rssaa
Consent of Independent Accountants, attached hereto as EX-99.B11-
rsconsnt
Service Plan, as restated, attached hereto as EX-99.B15-rsspca
Financial Data Schedule, attached hereto as EX-27.B17-rsfds
Plan for Multiple Classes attached hereto as EX-99.B18-rsmcp
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended, attached hereto
Articles Supplementary, attached hereto
(2) Bylaws, as amended, (refiling by EDGAR), attached hereto
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of the Registrant, as amended, attached hereto;
Article II and Article VIII of the Bylaws of the Registrant, as
amended, attached hereto
(5) Investment Management Agreement (refiling by EDGAR), attached
hereto
Assignment of the Investment Management Agreement (refiling by
EDGAR), attached hereto
(6) Underwriting Agreement, attached hereto
(7) Not applicable
(8) Custodian Agreement, as amended (refiling by EDGAR), attached
hereto
Amended Exhibit A to the Custodian Agreement dated July 14, 1995
attached hereto
Amended Exhibit B to the Custodian Agreement dated January 1,
1995 attached hereto
(9) Shareholder Servicing Agreement, attached hereto
Fund Class A application, attached hereto
Fund Class Y application, attached hereto
Fund NAV application, attached hereto
Accounting Services Agreement (refiling by EDGAR), attached
hereto
(10) Not Applicable
(11) Consent of Independent Accountants, attached hereto
(12) Not Applicable
(13) Not Applicable
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
---------------------------------
*Incorporated herein by reference
of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit Sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-s401gis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase Pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-smppgis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description
filed December 16, 1994 as EX-99.B14-17-spspgis to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
---------------------------------
*Incorporated herein by reference
Fund, Inc.*
(15) Service Plan, as restated, attached hereto
Service Agreement, attached hereto
Amendment to Service Agreement filed by EDGAR September 28, 1994
as Exhibit (b)(15) to Post-Effective Amendment No. 43 to
Registration Statement on Form N-1A*
Amendment to Service Agreement, attached hereto
(16) Schedule for computation of average annual total return
performance quotations for Class A shares filed August 4, 1993 as
Exhibit (b)(16) to Post-Effective Amendment No. 42 to the
Registration Statement on Form N-1A*
(17) Financial Data Schedule attached hereto
(18) Multiple Classes Plan, attached hereto
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class June 30, 1995
-------------- ------------------------------
Capital Stock 48,933
27. Indemnification
---------------
Reference is made to Article TENTH Section 10.2 of the Articles of
Incorporation, as amended, attached hereto; Article IX of the Bylaws,
attached hereto and to Article IV of the Underwriting Agreement, attached
hereto, both of which provide indemnification. Also refer to Section 2-418
of the Maryland General Corporation Law regarding indemnification of
directors, officers and employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
---------------------------------
*Incorporated herein by reference
Additional Information of the Registrant, and except for Mr. Ronald K.
Richey. Mr. Richey is Chairman of the Board and Chief Executive Officer of
Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a holding
company of which Waddell & Reed, Inc. is an indirect subsidiary. Mr.
Richey's address is 2001 Third Avenue South, Birmingham, Alabama 35233.
The address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United Science
and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
---------------------------------
*Incorporated herein by reference
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to items (b)(9) and
(b) 15 hereof.
32. Undertakings
-----------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested in writing
by the shareholders of record of not less than 10% of the Fund's outstanding
shares, to call a meeting of the shareholders of the Fund for the purpose of
voting upon the question of removal of any director.
---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
rule 485(b) of the Securities Act of 1933, and the Registrant has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 28th day of September, 1994.
UNITED RETIREMENT SHARES, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board September 28, 1994
---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 28, 1994
---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 28, 1994
---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 28, 1994
---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 28, 1994
---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 28, 1994
--------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 28, 1994
-------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director September 28, 1994
------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director September 28, 1994
------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director September 28, 1994
------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director September 28, 1994
------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 28, 1994
------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 28, 1994
------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director September 28, 1994
------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED
FUNDS, INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND
FUND, INC., UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED
CASH MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT
SECURITIES FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD &
GOVERNMENT FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL
INCOME FUND, INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND,
INC., TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED
TAX-FREE FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each
hereinafter called the "Corporation"), and certain directors and officers for
the Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940, as amended, including
specifically, but without limitation of the foregoing, power and authority to
sign the names of each of such directors and officers in his behalf as such
director or officer has indicated below opposite his signature hereto, to any
amendment or supplement to the Registration Statement filed with the Securities
and Exchange Commission under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, and to any instruments or documents filed or
to be filed as a part of or in connection with such Registration Statement; and
each of the undersigned hereby ratifies and confirms all that said attorneys
and agents shall do or cause to be done by virtue hereof.
Date: July 12, 1995 /s/Keith A. Tucker
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board July 12, 1995
-------------------- --------------
Ronald K. Richey
/s/Keith A. Tucker President and Director July 12, 1995
-------------------- (Principal Executive Officer) --------------
Keith A. Tucker
/s/Theodore W. Howard Vice President, Treasurer July 12, 1995
-------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and July 12, 1995
-------------------- Principal Financial --------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director July 12, 1995
-------------------- --------------
Henry L. Bellmon
Director
-------------------- --------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director July 12, 1995
-------------------- --------------
Jay B. Dillingham
/s/John F. Hayes Director July 12, 1995
-------------------- --------------
John F. Haye
/s/Glendon E. Johnson Director July 12, 1995
-------------------- --------------
Glendon E. Johnson
/s/William T. Morgan Director July 12, 1995
-------------------- --------------
William T. Morgan
Director
-------------------- --------------
Doyle Patterson
/s/Frederick Vogel III Director July 12, 1995
-------------------- --------------
Frederick Vogel III
/s/Paul S. Wise Director July 12, 1995
-------------------- --------------
Paul S. Wise
Director
-------------------- --------------
Leslie S. Wright
/s/Linda Graves Director July 12, 1995
-------------------- --------------
Linda Graves
/s/Eleanor Schwartz Director July 12, 1995
-------------------- --------------
Eleanor Schwartz
/s/James Judd Director July 12, 1995
-------------------- --------------
James Judd
Attest:
/s/Sharon K. Pappas
--------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-charter
ARTICLES OF INCORPORATION
OF
UNITED RETIREMENT SHARES, INC.
FIRST: THE UNDERSIGNED, Robert G. Bagnall, whose post office address is
South Lobby - Ninth Floor, 1800 M Street, N.W., Washington, D.C. 20036, being
at least eighteen years of age, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations, is acting as sole
incorporator with the intention of forming a corporation.
SECOND: The name of the corporation is United Retirement Shares, Inc.
(the "Corporation").
THIRD: The purposes for which the Corporation is formed are to act as an
open-end investment management company under the Investment Company Act of
1940, as amended ("1940 Act"), and to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations of a similar
character by the General Laws of the State of Maryland now or hereafter in
force, including, but not limited to, the following:
(a) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase,
subscribe for or otherwise acquire, hold for investment or otherwise, to
trade and deal in, write, sell, assign, negotiate, transfer, exchange,
lend, pledge or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall, for the purposes of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any stocks, shares, bonds, debentures, bills, notes,
mortgages or other obligations, or evidences of indebtedness, and any
options, certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or in
any property or assets; and any negotiable or non-negotiable instruments
and money market instruments, including bank certificates of deposit,
finance paper, commercial paper, bankers' acceptances and all kinds of
repurchase or reverse repurchase agreements) created or issued by any
United States or foreign issuer (which term "issuer" shall for the purpose
of these Articles of Incorporation, without limiting the generality
thereof, be deemed to include any persons, firms, associations,
partnerships, corporations, syndicates, combinations, organizations,
governments, or subdivisions, agencies or instrumentalities of any
government); and to exercise, as owner or holder of any securities, all
rights, powers and privileges in respect thereof including the right to
vote thereon; to aid by further investment any issuer, any obligation of
or interest in which is held by the Corporation or in the affairs of which
the Corporation has any direct or indirect interest; to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes,
debentures and other obligations of any corporation, company, trust,
association or firm; and to do any and all acts and things for the
preservation, protection, improvement and enhancement in value of any or
all such securities.
(b) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore or
hereafter engaged in any business similar to any business which the
Corporation has the power to conduct, and to hold, utilize, enjoy and in
any manner dispose of the whole or any part of the rights, property and
business so acquired, and to assume in connection therewith any
liabilities of any such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any
patents, copyrights, licenses, trademarks, trade names and the like, which
may be capable of being used for any of the purposes of the Corporation;
and to use, exercise, develop, grant licenses in respect of, sell and
otherwise turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter
permitted by the laws of the State of Maryland, by the 1940 Act and by
these Articles of Incorporation, as its Board of Directors may determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock in any manner
and to the extent now or hereafter permitted by the laws of the State of
Maryland, by the 1940 Act and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more
offices in Maryland and elsewhere in any part of the world, without
restriction or limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in foreign
countries, all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland
now or hereafter in force.
(h) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary, suitable
or proper for the accomplishment of such purposes or for the attainment of
any object or the furtherance of any power hereinbefore set forth, either
alone or in association with others, to do every other act or thing
incidental or appurtenant to or growing out of or connected with its
business or purposes, objects or powers, and, subject to the foregoing, to
have and exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force from time to
time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference
from, the terms of any other clause of this or any other Article of these
Articles of Incorporation, and shall each be regarded as independent, and
construed as a power as well as an object and a purpose, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the general powers of
the Corporation now or hereafter conferred by the laws of Maryland, nor shall
the expression of one thing be deemed to exclude another though it be of like
nature, not expressed; provided however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other
evidence of indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange, including the
purchase and sale of futures contracts and options on futures contracts related
thereto, subject to any applicable provisions of law.
FOURTH: The address of the principal office of the Corporation in the
State of Maryland is 32 South Street, Baltimore, Maryland 21202. The name of
the resident agent of the Corporation in the State of Maryland is The
Corporation Trust, Inc., whose post office address is 32 South Street,
Baltimore, Maryland 21202. The resident agent is incorporated in the State of
Maryland.
FIFTH: Section 5.1. Capital Stock. The total number of shares of
capital stock which the Corporation shall have authority to issue is three
hundred million (300,000,000) shares, of the par value of one tenth of one cent
($.001) ("Shares"), and of the aggregate par value of three hundred thousand
dollars ($300,000.00). The Shares may be issued by the Board of Directors in
such separate and distinct series ("Series") and classes of Series ("Classes")
as the Board of Directors shall from time to time create and establish. The
Board of Directors shall have full power and authority, in its sole discretion,
to create and establish Series and Classes having such preferences, rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption as shall be fixed and determined from time
to time by resolution or resolutions providing for the issuance of such Shares
adopted by the Board of Directors. In addition, the Board of Directors is
hereby expressly granted authority to increase or decrease the number of Shares
of any Series or Class, but the number of Shares of any Series or Class shall
not be decreased by the Board of Directors below the number of Shares thereof
then outstanding.
The Board of Directors of the Corporation is authorized, from time to
time, to classify or to reclassify, as the case may be, any unissued Shares of
the Corporation in separate Series or Classes. The shares of said Series or
Class of stock shall have such preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as shall be fixed and determined from time to time by
the Board of Directors. The Corporation may hold as treasury Shares, reissue
for such consideration and on such terms as the Board of Directors may
determine, or cancel, at their discretion from time to time, any Shares
reacquired by the Corporation. No holder of any of the Shares shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any
Shares of the Corporation which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 5.2. Establishment of Series. The establishment of any Series or
Class shall be effective upon the adoption of a resolution by a majority of the
then Directors setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series or Class. At any
time that there are no Shares outstanding of any particular Series or Class
previously established and designated, the Directors may by a majority vote
abolish that Series and the establishment and designation thereof.
Section 5.3. Dividends. Dividends and distributions on Shares with
respect to each Series or Class may be declared and paid with such frequency,
in such form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine.
The Board of Directors shall have the power, it its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor
or comparable statute thereto, and regulations promulgated thereunder, and to
avoid liability of the Corporation, or each Series of the Corporation, for
Federal income tax in respect of that year. However, nothing in the foregoing
shall limit the authority of the Board of Directors to make distributions
greater than or less than the amount necessary to qualify as a regulated
investment company and to avoid liability of the Corporation, or any Series of
the Corporation, for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 5.7.
Section 5.4. Assets and Liabilities of Series. All consideration
received by the Corporation for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be referred to as "assets belonging to" that
Series. In addition, any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series shall be allocated by the Board of Directors between and
among one or more of the Series in such manner as the Board of Directors, in
its sole discretion, deems fair and equitable. Each such allocation shall be
conclusive and binding upon the Stockholders of all Series for all purposes,
and shall be referred to as assets belonging to that Series. The assets
belonging to a particular Series shall be so recorded upon the books of the
Corporation. The assets belonging to each particular Series or Class shall be
charged with the liabilities of that Series or Class and all expenses, costs,
charges and reserves attributable to that Series or Class. Any general
liabilities, expenses, costs, charges or reserves of the Corporation which are
not readily identifiable as belonging to any particular Series or Class shall
be allocated and charged by the Board of Directors between or among any one or
more of the Series or Classes in such a manner as the Board of Directors in its
sole discretion deems fair and equitable. Each such allocation shall be
conclusive and binding upon the Stockholders of all Series or Class for all
purposes.
Section 5.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his or her name on
the books of the Corporation; provided, however, that when required by the 1940
Act or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of a particular Series or Class, and
each holder of Shares thereof shall be entitled to votes equal to the full and
fractional Shares of the Series or Class standing in his or her name on the
books of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares outstanding and entitled to vote thereat shall
constitute a quorum for the transaction of business at a Stockholders' meeting,
except that where any provision of law or of these Articles of Incorporation
permit or require that holders of any Series or Class shall vote as a Series or
Class, then one-third of the aggregate number of Shares of that Series or Class
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that Series or Class.
Section 5.6. Redemption by Stockholders. Each holder of Shares shall
have the right at such times as may be permitted by the Corporation to require
the Corporation to redeem all or any part of his or her Shares at a redemption
price per Share equal to the net asset value per Share as of such time as the
Board of Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price per Share shall be the net asset value next
determined (in accordance with Section 5.7) after receipt by the Corporation of
a request for redemption in proper form less such charges as are determined by
the Board of Directors and described in the Corporation's registration
statement under the Securities Act of 1933. The Board of Directors may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment
of the redemption price may be wholly or partly in securities or other assets
at the value of such securities or assets used in such determination of net
asset value, or may be in cash. Notwithstanding the foregoing, the Board of
Directors may postpone payment of the redemption price and may suspend the
right of the holders of Shares to require the Corporation to redeem Shares
during any period or at any time when and to the extent permissible under the
1940 Act.
Section 5.7. Net Asset Value per Share. The net asset value of each
Share of the Corporation, or each Series or Class, shall be the quotient
obtained by dividing the value of the net assets of the Corporation, or if
applicable of the Series or Class (being the value of the assets of the
Corporation or of the particular Series or Class less its actual and accrued
liabilities exclusive of Capital Stock and Surplus) by the total number of
outstanding Shares of the Corporation, or of the Series or Class. The Board of
Directors shall have the power and duty to determine from time to time the net
asset value per Share at such times and by such methods as it shall determine
subject to any restrictions or requirements under the 1940 Act and the rules,
regulations and interpretations thereof promulgated or issued by the Securities
and Exchange Commission or insofar as permitted by any order of the Securities
and Exchange Commission applicable to the Corporation. The Board of Directors
may delegate such power and duty to any one or more of the directors and
officers of the Corporation, to the Corporation's manager or investment
adviser, to the custodian or depository of the Corporation's assets, or to
another agent of the Corporation.
Section 5.8. Redemption by the Corporation. The Board of Directors may
cause the Corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than five hundred dollars ($500). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his or her Shares to five hundred dollars ($500). Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of the
full redemption price to be made to the holder of Shares so redeemed.
SIXTH: Section 6.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for
any other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event
shall Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or
value than the net asset value of the Shares so issued or sold determined as of
such time as the Board of Directors shall have by resolution prescribed. In
the absence of such a resolution, such net asset value shall be that next
determined after an unconditional order in proper form to purchase such Shares
is accepted, except that Shares may be sold to an underwriter at (a) the net
asset value next determined after such orders are received by a dealer with
whom such underwriter has a sales agreement or (b) the net asset value
determined at a later time.
Section 6.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever
the words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
SEVENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all Shares of the Corporation or of
all Series or Classes (or of any Series or Class entitled to vote thereon as a
separate Series or Class) to take or authorize any action, in accordance with
he authority granted by Section 2-104(b)(5) of the Maryland General Corporation
Law, the Corporation is hereby authorized to take such action upon the
concurrence of a majority of the aggregate number of Shares entitled to vote
thereon (or of a majority of the aggregate number of Shares of a Series or
Class entitled to vote thereon as a separate Series or Class). The right to
cumulate votes in the election of directors is expressly prohibited.
EIGHTH: Section 8.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the By-Laws of the Corporation) shall be
vested in and exercised by the Board of Directors. The number of directors
constituting the Board of Directors shall be such number as may from time to
time be fixed in or in accordance with the By-Laws of the Corporation, provided
that after stock is issued to more than one stockholder, such number shall not
be less than three. Except as provided in the By-Laws, the election of
directors may be conducted in any way approved at the meeting (whether of
stockholders or directors) at which the election is held, provided that such
election shall be by ballot whenever requested by any person entitled to vote.
The name of the person who shall act as initial director until stock is issued
to more than one stockholder or the first meeting of stockholders, whichever
shall occur first, and until her successor(s) has been duly chosen and
qualified is Sharon K. Pappas.
Section 8.2. By-Laws. Except as may otherwise be provided in the By-
Laws, the Board of Directors of the Corporation is expressly authorized to
make, alter, amend and repeal By-Laws or to adopt new By-Laws of the
Corporation, without any action on the part of the Stockholders; but the By-
Laws made by the Board of Directors and the power so conferred may be altered
or repealed by the Stockholders.
NINTH: Section 9.1. Contracts. The Board of Directors may in its
discretion from time to time enter into an exclusive or nonexclusive
distribution contract or contracts providing for the sale of Shares whereby the
Corporation may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such shares (such other party
being herein sometimes called the "underwriter"), and in either case on such
terms and conditions as may be prescribed in the By-Laws, if any, and such
further terms and conditions as the Board of Directors may in its discretion
determine not inconsistent with the provisions of these Articles of
Incorporation and such contract may also provide for the repurchase of Shares
of the Corporation by such other party or parties as agent of the Corporation.
The Board of Directors may also in its discretion from time to time enter into
an investment advisory or management contract or contracts whereby the other
party to such contract shall undertake to furnish to the Board of Directors
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such
terms and conditions, as the Board of Directors may in its discretion
determine.
Section 9.2. Parties to Contracts. Any contract of the character
described in Section 9.1 or for services as administrator, custodian, transfer
agent or disbursing agent or related services may be entered into with any
corporation, firm, trust or association, although any one or more of the
directors or officers of the Corporation may be an officer, director, trustee,
stockholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered violable by reason of the existence of any
such relationship, nor shall any person holding such relationship be liable
merely be reason of such relationship for any loss or expense to the
Corporation under or by reason of said contract or accountable for any profit
realized directly or indirectly therefrom, provided that the contract when
entered into was reasonable and fair and not inconsistent with the provisions
of this Article NINTH. The same person (including a firm, corporation, trust,
or association) may be the other party to contracts entered into pursuant to
Section 9.1 above, and any individual may be financially interested or
otherwise affiliated with persons who are parties to any or all of the
contracts mentioned in this Section 9.2.
TENTH: Section 10.1. Liability. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) as currently in effect
or as may hereafter be amended, no director or officer of the Corporation shall
be liable to the Corporation or its stockholders for money damages.
Section 10.2 Indemnification. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) currently in effect or
as may hereafter be amended, the Corporation shall indemnify and advance
expenses as provided in the By-Laws to its present and past directors,
officers, employees and agents, and persons who are servicing or have served at
the request of the Corporation as a director, officer, employee or agent in
similar capacities for other entities.
Section 10.3. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability.
Section 10.4. Modification. Any repeal or modification of this Article
TENTH by the stockholders of the Corporation, or adoption or modification of
any other provision of the Articles of Incorporation or By-Laws inconsistent
with this Article TENTH, shall be prospective only, to the extent that such
repeal or modification would, if applied retrospectively, adversely affect any
limitation on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with
respect to any act or omission which occurred prior to such repeal,
modification or adoption.
ELEVENTH: The Corporation reserves the right from time to time to make
any amendment of these Articles of Incorporation, now or hereafter authorized
by law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at a meeting of the
stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon.
IN WITNESS WHEREOF, the undersigned incorporator of UNITED RETIREMENT
SHARES, INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 5th day of May, 1989.
/s/Robert G. Bagnall
--------------------
Robert G. Bagnall
EX99.B1-rsarsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
UNITED RETIREMENT SHARES, INC.
United Retirement Shares, Inc. (the "Corporation"), a Maryland
corporation, having its principal office in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of
shares of capital stock which the Corporation is authorized to issue at Three
Hundred Million (300,000,000) shares of capital stock, (par value $1.00 per
share), amounting in the aggregate to a par value of Three Hundred Million
Dollars ($300,000,000.00). All authorized shares that have not been designated
or classified remain available for future designation or classification.
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly designates and classifies the capital stock of the
Corporation among the classes of the Corporation as follows:
Class A (150,000,000 shares)
Class Y (150,000,000 shares)
The aggregate number of shares of all classes of stock of the Corporation
remains at Three Hundred Million (300,000,000) shares of capital stock, the par
value remains $1.00 per share, and the aggregate value of all authorized stock
remains Three Hundred Million Dollars ($300,000,000.00).
THIRD: The capital stock of the Corporation is divided into classes and
there are no changes in the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as shares of capital stock as set forth in the
Corporation's Articles of Incorporation, except as follows:
(1) The capital stock of Class A shares shall be subject to fees,
including a front-end sales load and a Rule 12b-1 fee, as
determined by the Board of Directors of the Corporation from time
to time;
(2) The capital stock of the Class Y shares shall not be subject to
either a front-end or contingent deferred sales charge or Rule
12b-1 fees and is subject to a shareholder servicing fee which
differs from that of the Class A shares.
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act
of 1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
___ day of _________, 1995.
__________________________
Sharon K. Pappas, Vice President
Attest: _________________
Amy D. Eisenbeis
Assistant Secretary
The undersigned, Vice President of United Retirement Shares, Inc. who
executed on behalf said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the act
of said Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
UNITED RETIREMENT SHARES, INC.
By:
Sharon K. Pappas, Vice President
EX-99.B2rsbylaw
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES
AND SEAL
Section 1.01. Name: The name of the Corporation is United Retirement
Shares, Inc.
Section 1.02. Principal Offices: The principal office of the Corporation
in the State of Maryland shall be located in the City of Baltimore. The
Corporation may establish and maintain such other offices and places of
business as the Board of Directors may, from time to time, determine.
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings: There shall be no stockholders' meetings
for the election of directors and the transaction of other proper business
except as required by law or as hereinafter provided.
Section 2.02. Special Meetings: Special meetings of the stockholders may
be called at any time by the chairman of the board, the president or a vice-
president, or by a majority of the Board of Directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than 25% of all the shares entitled
to be voted at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b) the
stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which
the secretary shall determine and specify to such stockholders. No special
meeting need be called upon the request of the holders of shares entitled to
vote less than a majority of all the shares entitled to be voted at such
meeting to consider any matter which is substantially the same as a matter
voted upon at any special meeting of the stockholders held during the preceding
12 months.
Section 2.03. Place of Meetings: All stockholders' meetings shall be
held at such place within the United States as designated by the Board of
Directors in each notice or waiver of notice of the meeting, and the
Corporation may keep the books of the Corporation at any other place within the
United States as the Board of Directors may from time to time determine.
Section 2.04. Notice of Meetings: The secretary shall cause notice of
the place, date and hour, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, to be mailed not less than 10 nor
more than 90 days before the date of the meeting, to each stockholder entitled
to vote at such meeting, at his or her address as it appears on the records of
the Corporation at the time of such mailing. Notice of any stockholders'
meeting need not be given to any stockholder who shall sign a written waiver of
such notice whether before or after the time of such meeting, which waiver
shall be filed with the record of such meeting, or to any stockholder who shall
attend such meeting in person or by proxy. Notice of adjournment of a
stockholders' meeting to another time or place need not be given, if such time
and place are announced at the meeting.
Section 2.05. Voting - In General: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time
("1940 Act"), all matters shall be decided by a vote of the majority of the
votes validly cast at a meeting at which a quorum is present. The vote upon
any question shall be by ballot whenever requested by any person entitled to
vote, but, unless such a request is made, voting may be conducted in any way
approved by the meeting.
Section 2.06. Stockholders Entitled to Vote: If, pursuant to Section
8.05 hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock standing in his or her name on the
books of the Corporation on such record date and outstanding at the time of the
meeting. If no record date has been fixed for the determination of
stockholders, the record date for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day 90 days before the meeting, whichever is the
closer date to the meeting; or, (b) if notice is waived by all stockholders, at
the close of business on the tenth day next preceding the day on which the
meeting is held.
Section 2.07. Voting - Proxies: A stockholder may vote the stock he or
she owns of record by written proxy executed by the stockholder himself or
herself or by his or her duly authorized attorney in fact. No proxy shall be
voted after eleven months from its date unless it provides for a longer period.
Each proxy shall be dated, but need not be sealed, witnessed or acknowledged.
Proxies shall be delivered to the secretary before being voted. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the
Corporation receives from any one of them written notice to the contrary and a
copy of the instrument or order which so provides. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Section 2.08. Organization: At every meeting of stockholders, the
president, or in his or her absence, a vice-president, or in the absence of any
of the foregoing officers, a chairman chosen by majority vote of the
stockholders present in person or by proxy and entitled to vote thereat, shall
act as chairman. The secretary, or in his or her absence, an assistant
secretary, shall act as secretary at all meetings of stockholders.
Section 2.09. Quorum: Except as otherwise provided in the Articles of
Incorporation, the presence at any stockholders' meeting, in person or by
proxy, of stockholders entitled to cast one third of the votes thereat shall be
necessary and sufficient to constitute a quorum for the transaction of
business.
Section 2.10. Absence of Quorum: In the absence of a quorum, the holders
of a majority of the shares present at the meeting in person or by proxy, or,
if no stockholder entitled to vote is present thereat in person or by proxy,
any officer present thereat entitled to preside or act as secretary of such
meeting, may adjourn the meeting without determining the date of the new
meeting or, from time to time, without further notice to a date not more than
120 days after the original record date. Any business that might have been
transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.11. Stock Ledger and List of Stockholders: It shall be the
duty of the assistant secretary of the Corporation or such other person or
entity named by the Board of Directors to cause an original or duplicate stock
ledger to be maintained at the office of the Corporation's transfer agent.
Such stock ledger may be in written form or any other form capable of being
converted into written form within a reasonable time for visual inspection.
Any one or more persons, each of whom has been a stockholder of record of the
Corporation for more than six months next preceding such request, who owns in
the aggregate 5% or more of the outstanding capital stock of the Corporation,
may submit (unless the Corporation at the time of the request maintains a
duplicate stock ledger at its principal office in Maryland) a written request
to any officer of the Corporation or its resident agent in Maryland for a list
of the stockholders of the Corporation. Within 20 days after such a request,
there shall be prepared and filed at the Corporation's principal office in
Maryland a list containing the names and addresses of all stockholders of the
Corporation and the number of shares of each class held by each stockholder,
certified as correct by an officer of the Corporation, by its stock transfer
agent, or by its registrar.
Section 2.12. Action Without Meeting: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to
vote on the matter consent to the action in writing and the written consents
are filed with the records of the meetings of stockholders. Such consent shall
be treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The Board of Directors shall
consist of sixteen directors, which number may be increased or decreased by a
resolution of a majority of the entire Board of Directors; provided that the
number of directors shall not be less than three nor more than seventeen; and
further provided that if there is no stock outstanding the number of directors
may be less than three but not less than one, and if there is stock outstanding
and so long as there are less than three stockholders, the number of directors
may be less than three but not less than the number of stockholders. Each
director (whenever selected) shall hold office until his or her successor is
elected and qualified or until his or her earlier death, resignation or
removal.
Section 3.02. Qualification of Directors: Except for the initial Board
of Directors, at least one of the members of the Board of Directors shall be a
person who is not an interested person of the Corporation, as defined in the
Investment Company Act of 1940, as amended.
Section 3.03. Election of Directors: Initially the director or directors
of the Corporation shall be that person or those persons named as such in the
Articles of Incorporation. Thereafter, except as otherwise provided in Section
3.04 and 3.05 hereof, the directors shall be elected by the stockholders on a
date fixed by the Board of Directors. A plurality of all the votes cast at a
meeting at which a quorum is present in person or by proxy is sufficient to
elect a director.
Section 3.04. Removal of Directors: At any stockholders' meeting duly
called, provided a quorum is present, any director may be removed (either with
or without cause) by the vote of the holders of a majority of the shares
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his or her stead by a majority of the votes validly cast.
Section 3.05. Vacancies and Newly Created Directorships: If any
vacancies shall occur in the Board of Directors by reason of death,
resignation, removal or otherwise, or if the authorized number of directors
shall be increased, the directors then in office shall continue to act, and
such vacancies (if not previously filled by the stockholders) may be filled by
a majority of the directors then in office, although less than a quorum, except
that a newly created directorship may be filled only by a majority vote of the
entire Board of Directors, provided that in either case immediately after
filling such vacancy, at least two-thirds of the directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first
stockholders' meeting, less than a majority of the directors of the Corporation
holding office at that time were so elected by the stockholders, a meeting of
the stockholders hall be held promptly and in any event within 60 days for the
purpose of electing directors to fill any existing vacancies in the Board of
Directors unless the Securities and Exchange Commission shall by order extend
such period.
Section 3.06. General Powers:
(a) The property, affairs and business of the Corporation shall be
managed by or under the direction of the Board of Directors, which may exercise
all the powers of the Corporation except those powers vested solely in the
stockholders of the Corporation by statute, by the Articles of Incorporation,
or by these By-Laws.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his or her successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that
there was some defect in the election of the directors or of such person acting
as aforesaid or that they or any of them were disqualified, be as valid as if
the directors or such other person, as the case may be, had been duly elected
and were or was qualified to be directors or a director of the Corporation.
Section 3.07. Section 3.07. Power to Issue and Sell Stock: The Board of
Directors may from time to time issue and sell or cause to be issued and sold
any of the Corporation's authorized shares to such persons and for such
consideration as the Board of Directors shall deem advisable, subject to the
provisions of Article Sixth of the Articles of Incorporation.
Section 3.08 Power to Declare Dividends:
(a) The Board of Directors, from time to time as it may deem advisable,
may declare and pay dividends in stock, cash or other property of the
Corporation, out of any source available for dividends, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(I) the Corporation's accumulated undistributed net income (determined in
accordance with good accounting practice and the rules and regulations of
the Securities and Exchange Commission then in effect) and not including
profits or losses realized upon the sale of securities or other
properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year. Such statement shall adequately disclose the
source or sources of such payment and the basis of calculation, and shall
be in such form as the Securities and Exchange Commission may prescribe.
Section 3.09. Annual and Regular Meetings: The annual meeting of the
Board of Directors for choosing officers and transacting other proper business
shall be held at such time and place as the Board may determine. The Board of
Directors from time to time may provide by resolution for the holding of
regular meetings and fix their time and place within or outside the State of
Maryland. Except as otherwise provided under the Investment Company Act of
1940, notice of such annual and regular meetings need not be given, provided
that notice of any change in the time or place of such meetings shall be sent
promptly to each director not present at the meeting at which such change was
made in the manner provided for notice of special meetings. Except as
otherwise provided under the Investment Company Act of 1940, as amended,
members of the Board of Directors or any committee designated thereby may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
Section 3.10. Special Meetings: Special meetings of the Board of
directors shall be held whenever called by the chairman of the board, the
president or a vice-president or by any two directors, at the time and place
within or outside the State of Maryland specified in the respective notices or
waivers of notice of such meetings.
Section 3.11. Notice: Except as otherwise provided, notice of any
special meeting shall be given by the secretary to each director, by mailing to
him or her, postage prepaid, addressed to him or her at his or her address as
registered on the books of the Corporation or, if not so registered, at his or
her last known address, a written or printed notification of such meeting at
least two days before the meeting, or by delivering such notice to him or her
at least two days before the meeting, or by sending such notice by facsimile
transmission to him or her at least 24 hours before the meeting, by prepaid
telegram, addressed to him or her at his or her said registered address, if
any, or if he or she has no such registered address, at his or her last known
address, notice of such meeting.
Section 3.12. Section 3.12. Waiver of Notice: No notice of any meeting
need be given to any director who attends such meeting in person or to any
director who waives notice of such meeting in writing (which waiver shall be
filed with the records of such meeting), whether before or after the time of
the meeting.
Section 3.13. Quorum and Voting: At all meetings of the Board of
Directors the presence of a majority or more of the number of directors then in
office shall constitute a quorum for the transaction of business, provided that
there shall be present no fewer than two directors except when there is no
stock outstanding, at which time the initial director will constitute a quorum.
In the absence of a quorum, a majority of the directors present may adjourn the
meeting, from time to time, until a quorum shall be present. The action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors unless the concurrence of a
greater proportion is required for such action by law, by the Articles of
Incorporation or by these By-Laws.
Section 3.14. Compensation: Each director may receive such remuneration
for his or her services as shall be fixed from time to time by resolution of
the Board of Directors.
Section 3.15. Action Without a Meeting: Except as otherwise provided
under the Investment Company Act of 1940, as amended, any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if written consents thereto are signed by all members of the
Board and such written consents are filed with the records of the meetings of
the Board.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the Board of
Directors, the Board may designate an executive committee, consisting of not
less than two directors.
Section 4.02. Powers of the Executive Committee: Except as further
limited by the Board of Directors, when the board of directors is not in
session the executive committee shall have and may exercise all powers of the
Board of Directors in the management of the business and affairs of the
Corporation that may lawfully be exercised by an executive committee, except
the power to declare a dividend, to authorize the issuance of stock, to
recommend to stockholders any matter requiring stockholders' approval, to amend
the By-Laws, or to approve any merger or share exchange which does not require
shareholder approval.
Section 4.03. Proceedings, Quorum and Manner of Acting: In the absence
of an appropriate resolution of the Board of Directors, the executive committee
and any committee appointed under section 4.04 may adopt such rules and
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
directors. In the absence of any member of any such committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint a member of the Board of Directors to act in the place of such absent
member. All action by any committee shall be reported to the Board of
Directors at its next meeting following such action.
Section 4.04. Other Committees: The Board of Directors may appoint other
committees, each consisting of one or more persons who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation shall be a
president, one or more vice-presidents, a secretary and a treasurer. The Board
of Directors may elect, but shall not be required to elect, a chairman of the
board and a comptroller.
Section 5.02. Election, Term of Office and Qualifications: The officers
of the Corporation (except those appointed pursuant to Section 5.07 hereof)
shall be chosen by the Board of directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not chosen at
any annual meeting, such officers may be chosen at any subsequent regular or
special meeting of the Board. Except as provided in Sections 5.03, 5.04 and
5.05 hereof, each officer chosen by the Board of Directors shall hold office
until the next annual meeting of the Board of Directors and until his or her
successor shall have been chosen and qualified. The chairman of the board and
the president shall be chosen from among the directors of the Corporation and
may each hold such office only so long as he or she continues to be a director.
No other officer need be a director. Any person may hold one or more offices
of the Corporation except that the president may not hold the office of vice-
president, the secretary may not hold the office of assistant secretary, and
the treasurer may not hold the office of assistant treasurer; provided further
that a person who holds more than one office may not act in more than one
capacity to execute, acknowledge or verify an instrument required by law to be
executed, verified or acknowledged by more than one officer.
Section 5.03. Resignation: Any officer may resign his or her office at
any time by delivering a written resignation to the Board of Directors, the
chairman of the board, the president, the secretary, or any assistant
secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
Section 5.04. Removal: Any officer may be removed from office whenever
in the Board's judgment the best interest of the Corporation will be served
thereby, by the vote of a majority of the Board of Directors given at the
regular meeting or any special meeting called for such purpose. In addition,
any officer or agent appointed in accordance with the provisions of Section
5.07 hereof may be removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the Board of Directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any regular or
special meeting or, in the case of any office created pursuant to Section 5.07
hereof, by any officer upon whom such power shall have been conferred by the
Board of Directors.
Section 5.06. Powers: The officers of the Corporation shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may be assigned to them from time to time by the
Board of Directors or the executive committee.
Section 5.07. Subordinate Officers: The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable,
including one or more assistant treasurers and one or more assistant
secretaries, each of whom shall have such title, hold office for such period,
have such authority and perform such duties as the Board of Directors may
determine. The Board of Directors from time to time may delegate to one or
more officers or agents their power to appoint any such subordinate officers or
agents and to prescribe their respective rights, terms of office, authorities
and duties.
Section 5.08. Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any subordinate officers or agents appointed in
accordance with the provisions of Section 5.07 hereof.
Section 5.09. Surety Bonds: The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange
commission) to the Corporation in such sum and with such surety or sureties as
the Board of Directors may determine, conditioned upon the faithful performance
of his or her duties to the Corporation, including responsibility for
negligence and for the accounting of any of the Corporation's property, funds
or securities that may come into his or her hands.
ARTICLE VI
CUSTODY OF SECURITIES
Section 6.01. Employment of a Custodian: The Corporation shall place and
at all times maintain in the custody of a custodian (including any sub-
custodian for the custodian) all funds, securities and similar investments
owned by the Corporation in accordance with the applicable terms of the 1940
Act. The custodian (and any sub-custodian) shall be a bank or similar
financial institution having not less that $2,000,000 aggregate capital,
surplus and undivided profits and shall be appointed from time to time by the
Board of Directors, which shall fix its remuneration.
Section 6.02. Action Upon Termination of Custodian Agreement: Upon
termination of a custodian agreement or inability of the custodian to continue
to serve, the Board of Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If
so directed by vote of the holders of a majority of the outstanding shares of
stock of the Corporation, the custodian shall deliver and pay over all property
of the Corporation held by it as specified in such vote.
Section 6.03. Other Arrangements: The Corporation may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. General: Subject to the provisions of Section 5.07, 7.02
and 8.03 hereof, all deeds, documents, transfers, contracts, agreements and
other instruments requiring execution by the Corporation shall be signed by the
president or a vice president and by the treasurer or secretary or an assistant
treasurer or an assistant secretary, or as the Board of Directors may
otherwise, from time to time, authorize. Any such authorization may be general
or confined to specific instances.
Section 7.02. Checks, Notes, Drafts, Etc.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the Board of Directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed
in the name of the Corporation by the president or a vice president and by the
treasurer or an assistant treasurer. Promissory notes, checks or drafts
payable to the Corporation may be endorsed only to the order of the custodian
or its nominee and only by the treasurer or president or a vice president or by
such other person or persons as shall be authorized by the Board of Directors.
Section 7.03. Voting of Securities: Unless otherwise ordered by the
Board of Directors, the president or any vice president shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any
such meeting such officer shall possess and may exercise (in person or by
proxy) any and all rights, powers and privileges incident to the ownership of
such stock. The Board of Directors may by resolution from time to time confer
like powers upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Share Certificates: Certificates for shares of the capital
stock of the Corporation shall not be issued unless requested in writing by a
shareholder or unless pursuant to a resolution of the Board of Directors. If
issued, certificates shall be in such form as the Board of Directors shall
approve and shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall exhibit the holder's name and
certify the number of shares owned by him or her and shall be signed by, or in
the name of the Corporation by, the president or a vice-president and the
treasurer or an assistant treasurer or the secretary or an assistant secretary
of the Corporation; provided, however, that where any certificate is signed by
a transfer agent or assistant transfer agent or by a transfer clerk acting on
behalf of the Corporation, the signature of any such president, vice-president,
treasurer, assistant treasurer, secretary or assistant secretary may be
facsimile, printed or engraved. If any officer or officers who shall have
signed, or whose facsimile signature or signatures shall have been used on, any
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates shall nevertheless be adopted by the Corporation
and be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
Corporation.
Section 8.02. Transfer of Capital Stock:
(a) Transfers of shares of the capital stock of the Corporation shall be
made on the books of the Corporation by the holder of record thereof (in person
or by his or her attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) (i) if a
certificate or certificates have been issued, upon the surrender of the
certificate or certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, or (ii) as otherwise
prescribed by the board of Directors.
(b) The Corporation shall be entitled to treat the holder of record of
any share of stock as the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize any legal, equitable or other claim
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by the statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The Board of Directors
may, from time to time, appoint or remove transfer agents or registrars of
shares of the Corporation. Upon any such appointment being made, all
certificates representing shares of the Corporation thereafter issued shall be
countersigned by one of such transfer agents or registrars or by both and shall
not be valid unless so countersigned.
Section 8.04. Transfer Regulations: Except as provided in the Articles
of Incorporation, the shares of the Corporation may be freely transferred,
subject to the charging of customary transfer fees, and the Board of Directors
may, from time to time, adopt rules and regulations with reference to the
method of transfer of the shares of the Corporation.
Section 8.05. Fixing of Record Date: The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action;
provided that such record date shall be a date not more than 90 nor less than
10 days prior to the date on which the particular action requiring such
determination of stockholders of record will be taken.
Section 8.06. Lost, Stolen or Destroyed Certificates: Before issuing a
new certificate for shares of the Corporation alleged to have been lost, stolen
or destroyed, the Board of Directors or any officer authorized by the Board
may, in its discretion, require the owner of the lost, stolen or destroyed
certificate (or his or her legal representative) to give the Corporation a bond
or other indemnity, in such form and in such amount as the Board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the Board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 9.01. Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify each person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("Proceeding"), by reason of the fact that he or she is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted. Notwithstanding the foregoing, the following provisions
shall apply with respect to indemnification of the Corporation's directors,
officers, and investment adviser (as defined in the Investment Company Act of
1940, as amended):
(A) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for any
liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in
the conduct of his or her office or under any contract or agreement with
the Corporation ("disabling conduct").
(B) The Corporation shall not indemnify any such person unless:
(1) the court or other body before which the Proceeding was brought
(a) dismisses the Proceeding for insufficiency of evidence of any
disabling conduct, or (b) reaches a final decision on the merits that
such person was not liable by reason of disabling conduct; or
(2)absent such a decision, a reasonable determination is made, based
upon a review of the facts, by (a) the vote of a majority of a quorum
of the directors of the Corporation who are neither interested
persons of the Corporation as defined in the Investment Company Act
of 1940, as amended, nor parties to the Proceeding, or (b) if such
quorum is not obtainable, or even if obtainable, if a majority of a
quorum of directors described above so directs, based upon a written
opinion by independent legal counsel, that such person was not liable
by reason of disabling conduct.
(C) The Corporation may advance expenses in connection with the
preparation and presentation of a defense to any Proceeding from time to
time prior to final disposition thereof upon receipt of an undertaking by
or on behalf of such person that such amount will be paid over by him or
her to the Corporation if it is ultimately determined that he or she is
not entitled to indemnification hereunder; provided, however, that either
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the directors of the Corporation who
are neither interested persons of the Corporation as defined in the
Investment Company Act of 1940, as amended, nor parties to the
Proceeding, or independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts that there is
reason to believe that such person will be found to be entitled to
indemnification.
Section 9.02. Insurance of Officers, Directors, Employees and Agents:
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by
him or her in or arising out of his or her position.
Section 9.03. Non-exclusivity: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, agreement, vote of stockholders or directors, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 9.04. Amendment: No amendment, alteration or repeal of this
Article or the adoption, alteration or amendment of any other provision of the
Articles of Incorporation or By-Laws inconsistent with this Article, shall
adversely affect any right or protection of any person under this Article with
respect to any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
ARTICLE X
MISCELLANEOUS
Section 10.01. Fiscal Year: The fiscal year of the Corporation shall end
on such date as the Board of Directors may by resolution specify, and the Board
of Directors may by resolution change such date for future fiscal years at any
time and from time to time.
Section 10.02. Books and Records:
(a) The books and records of the Corporation may be kept outside the
State of Maryland at such place or places as the Board of Directors may from
time to time determine, except as otherwise required by law.
(b) The Board of Directors shall, subject to the laws of Maryland, have
power to determine, from time to time, whether and to what extent and at what
times and places and under what conditions and regulations any accounts and
books of the Corporation, or any of them, shall be open to the inspection of
the stockholders; and no stockholder shall have any right to inspect any
account or book or document of the Corporation, except as conferred by the laws
of Maryland, unless and until authorized so to do by resolution of the Board of
Directors or of the stockholders.
Section 10.03. Waiver of Notice: Whenever any notice whatever is required
to be given by these By-Laws or the Articles of Incorporation or the laws of
the State of Maryland, a waiver thereof in writing, or by facsimile
transmission, telegraph, cable, radio or wireless by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Section 11.02 hereof, all
By-Laws of the Corporation, whether adopted by the Board of Directors or the
stockholders, shall be subject to amendment, alteration or repeal, and new By-
Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Laws; or
(b) The directors, at any regular or special meeting, the notice or
waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new By-Law.
END OF BY-LAWS
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of August, 1990, by and between UNITED RETIREMENT
SHARES, 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 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 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. 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 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 insurance policies funded by United's
shares and sales of shares of 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.
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 (direct or beneficial) 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 RETIREMENT SHARES, 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 RETIREMENT SHARES, 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 .15 of 1% 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 & 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.
United Asset Strategy 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.
EX-99.B5-rsassign
Assignment
Waddell & Reed, Inc. ("W&R") does hereby assign, transfer and convey, and
United Retirement Shares, Inc. ("Fund") does hereby consent to the assignment,
transfer and conveyance of, effective January 8, 1992, the Investment
Management Agreement between W&R and the Fund, dated August l, 1990, to Waddell
& Reed Investment Management Company ("WRIMCO"), a wholly owned subsidiary of
W&R. W&R has provided certain undertakings, agreements and guarantees in
connection with this assignment as provided in the Guarantee of Performance
attached hereto as Exhibit A.
Executed this 8th day of January, 1992.
Waddell & Reed, Inc.
By: William T. Morgan
William T. Morgan, President
United Retirement Shares, Inc.
By William T. Morgan
William T. Morgan, President
Accepted:
Waddell & Reed Investment Management Company
By Rodney O. McWhinney
Rodney O. McWhinney, Sr. Vice President
Guarantee of Performance
In consideration of each of the Funds' listed in Exhibit A hereto consent to
the assignment by Waddell & Reed, Inc., of the Investment Management Agreement
between Waddell & Reed, Inc., and the particular Fund to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of Waddell
& Reed, Inc., Waddell & Reed, Inc. hereby undertakes and agrees that at all
times WRIMCO shall be staffed and adequately supported to assure that WRIMCO is
fully capable of carrying out any and all of its obligations, duties and
responsibilities under the Investment Management Agreements assigned to it and
hereby further guarantees that WRIMCO shall perform its obligations, duties and
responsibilities in accordance with the terms of the several Investment
Management Agreements and in accordance with all applicable Federal laws and
regulations.
Dated this 11th day of December, 1991.
Waddell & Reed, Inc.
By: Rodney O. McWhinney
Rodney O. McWhinney
Senior Vice President
<PAGE>
EXHIBIT A
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science & Energy Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United Government Securities Fund, Inc.
United Vanguard Fund, Inc.
United Vanguard Fund, Inc.
United Cash Management, Inc.
United Retirement Shares, Inc.
United High Income Fund II, Inc.
United Vanguard Fund, Inc.
United Gold & Government Fund, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
TMK/United Funds, Inc.
Bond Portfolio
Growth Portfolio
High Income Portfolio
Income Portfolio
Money Market Portfolio
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 8th day of February, 1995, by and between United
Retirement Shares, Inc. (hereinafter the "Company"), a Maryland corporation,
and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) the shares of each of its classes of shares ("Fund") and of
each sub-class thereof ("Class"), if any, are, as of the date of the
effectiveness of this Agreement as to each such Fund or Class, registered with
the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Company in all states in which the shares are
currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of
SecuritiesDealers, Inc. ("NASD");
3) it maintains a retail securities and insurance sales
organization consisting in part of a number of representatives authorized under
Federal and state securities laws to solicit as representatives of W&R orders
for Company shares and other securities;
4) it maintains and enforces procedures to enable it to
supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for
compliance with applicable securities laws, rules and regulations all sales
literature and promotional materials used by it and authorized to be used by
its representatives in solicitation of orders to buy Company shares, and it
files, when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to act,
as the Company's principal underwriter under the terms and provisions of this
Agreement.
A. Company agrees
1) to use its best efforts to register from time to time under
the Securities Act of 1933 (the "Securities Act") adequate amounts of its
shares for sale by W&R to the public and to qualify or to permit W&R to qualify
such shares for offering to the public in such states as may from time to time
be agreed upon;
2) to immediately advise W&R (i) when any post-effective
amendment to its registration statement or any further amendment or supplement
thereto or any further registration statement or amendment or supplement
thereto becomes effective, (ii) of any request by the SEC for amendments to the
registration statement(s) or any then effective prospectus or for additional
information, (iii) of the issuance by the SEC of any stop-order suspending the
effectiveness of the registration statement or the initiation of any
proceedings for that purpose, and (iv) of the happening of any event which
makes untrue any material statement made in the registration statement or any
then effective prospectus or which, in the opinion of counsel for the Company,
requires the making of a change in the registration statement or any then
effective prospectus in order to make the statements therein not misleading; in
case of the happening at any time of any event which materially affects the
Company or its securities and which should be set forth in a supplement to or
an amendment of any then effective prospectus in order to make the statements
therein not misleading, to prepare and furnish to W&R such amendment or
amendments to that prospectus as will correct the prospectus so that as
corrected it will not contain, or such supplement or supplements to that
prospectus which when read in conjunction with that prospectus will make the
combined information not contain any untrue statement of a material fact or any
omission to state any material fact necessary in order to make the statements
in that prospectus not misleading; if any time the SEC shall issue any stop-
order suspending the effectiveness of the registration statement, to make every
reasonable effort to obtain the prompt lifting of such order; and, before
filing any amendment to the registration statement or to any then effective
prospectus, to furnish W&R with a copy of the proposed amendment;
3) to advise W&R of the net asset value of the shares of each
of its Funds and Classes, as applicable, as often as computed and to furnish to
W&R as soon as practical such information as may be reasonably requested by W&R
in order that it may know all of the facts necessary to sell shares of the
Company;
4) to make delivery of its shares subject to the provisions of
its Articles of Incorporation and Bylaws to W&R as ordered by W&R as soon as
reasonably possible after receipt of the orders and against payment of the
consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses incident to the
issuance, transfer, registration and delivery of its shares, all taxes in
connection therewith, costs and expenses incident to preparing and filing any
registration statements and prospectuses and any amendments or supplements to a
registration statement or a prospectus, statutory fees incidental to the
registration of additional shares with the SEC, statutory fees and expenses
incurred in connection with any Blue Sky law qualifications undertaken by or at
the request of W&R, and the fees and expenses of the Company's counsel,
accountants or any other experts used in connection with the foregoing; and
6) not without the consent of W&R to offer any of its shares
for sale directly or to any persons or corporations other than W&R, except only
a) the reinvestment of dividends and/or distributions or
their declaration in shares of the Company, in optional form or otherwise;
b) the issuance of additional shares to stock splits or
stock dividends;
c) sale of shares to another investment or securities
holding company in the process of purchasing all or a portion of its assets;
d) in connection with an exchange of shares of the Company
for shares in another investment or securities holding company;
e) the sale of shares to registered unit investment
trusts; or
f) in connection with the exchange of one Fund's shares
for shares of another Fund of the Company.
B. W&R agrees
1) to offer Company shares in such states as may be agreed upon
through its retail account representatives and, at its sole discretion, through
broker-dealers which are members of the NASD on such terms as are not
inconsistent with this Agreement;
2) to order shares from the Company only after it has received
a purchase order therefor;
3) to pay to the Company the net asset value of shares sold
within two business days after the day payment is received by W&R at its
principal place of business from the investor or broker-dealer, or pay the
Company at such other time as may be agreed upon hereafter by the Company and
W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the provisions of the
Articles of Incorporation and Bylaws of the Company and with the provisions
stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or proceeding to
terminate, revoke or suspend W&R's registration as a broker-dealer with the
SEC, membership in the NASD, or authority with any state securities commission
to offer Company shares; and
6) to pay the cost of all sales literature, advertising and
other materials which it may at its discretion use in connection with the sale
of Company shares, including the cost of reports to the shareholders of the
Company in excess of the cost of reports to existing shareholders and the cost
of printing the prospectus(es) furnished to it by the Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters relating to
promotion and sale of Company shares, including the preparation and use of all
advertising, sales literature and other promotional materials, and shall make
and enter into all other arrangements, agreements and contracts as principal on
its own account and not as agent for the Company. Title to shares issued and
sold by the Company through W&R shall pass directly from the Company to the
dealer or investor, or shall first pass to W&R as it may from time to time be
determined by W&R and the Company; except provided, however, that W&R may, if
so agreed by W&R and the Company, act as agent of the Company without
commission on repurchase of shares of the Company;
2) certificates for shares shall not be created or delivered by
the Company in any case in which the purchase is pursuant to any provisions of
the Company described in its applicable then current prospectus(es) under the
terms of which certificates are not to be issued to the shareholder. Shares
sold by W&R shall be registered in such name or names and amounts as W&R may
request from time to time, and all shares when so paid for and issued shall be
fully paid and non-assessable;
3) the offering price at which shares of the Company may be
sold by W&R shall include such selling commission as may be applicable to that
Class and as may be fixed from time to time by W&R but shall not be in excess
of 8.5 percent of the offering price. W&R shall retain any such sales
commission and may re-allow all or any part of the sales commission to its
account representatives and to selected brokers and dealers who sell shares of
the Company; and
4) W&R may designate, reduce or eliminate its selling
commissions in certain sales or exchanges to the extent described in the
applicable then current prospectus(es) of the Company and in accordance with
Section 22(d) of the Investment Company Act of 1940 and any rules, regulations
or orders of the SEC thereunder.
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (a
"Plan"), which Plan is applicable to certain shares and that the Company may in
the future adopt Plans applicable to certain Funds and Classes, respectively.
B. With respect to any Fund or Class as to which the Company has
adopted a Plan, pursuant to that Plan, each day the Company shall pay to W&R a
distribution fee and/or a service fee at the maximum rates and under the terms
and conditions set forth in the applicable Plan, as amended from time to time,
or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption proceeds
that portion represented by the reinvestment of dividends and distributions and
the appreciation of the value of Fund shares being redeemed, promptly pay W&R
an amount, if any, equal to the percent of the amount invested as determined by
W&R and as is then stated in the Company's current prospectus applicable to the
shares redeemed (the "contingent deferred sales charge"). For purposes of
determining the applicable contingent deferred sales charge, if any: the
redemptions shall be deemed in order of investment made when more than one
investment has been made; and when the shares being redeemed were acquired by
exchange of shares of another Fund or Class of the Company, or corresponding
class of another registered investment company for which W&R or its affiliate
serves as principal underwriter, the investment shall be deemed as if it had
been made when the Company's shares were first purchased, and the applicable
contingent deferred sales charges, if any, shall be with respect to the amount
originally invested in Company shares; and provided that any contingent
deferred sales charge shall be determined in accordance with and in the manner
set forth in the applicable then current prospectus and any applicable Order or
Rule issued by the SEC.
D. It is contemplated that W&R may pay commissions to its field
sales force at the time of sale of the Company's shares and may incur other
expenses substantially in advance of receiving the distribution fee, if any,
that may be applicable to the payment of such commissions and expenses. W&R
recognizes that such payments are at its risk and that this Agreement may be
terminated or not continued as hereinafter provided without the payment to it
of any further distribution fees or service fees whatsoever and without the
payment of any penalty. The contingent deferred sales charges, if any, shall,
however, be payable to W&R with respect to all subject sales made prior to the
termination of this Agreement.
E. W&R shall at least quarterly provide to the Company's board of
directors a written report with respect to each Fund or Class, as applicable,
of the amounts of the distribution and/or service fees expended and the
purposes for which these expenditures were made. W&R shall in addition furnish
to the board of directors of the Company such information as may be requested
or as may be necessary to an informed determination by the directors of whether
or not the directors should continue the Company's Plan(s) and continue this
Agreement and to determine whether there is reasonable likelihood that the
Plan(s) and this Agreement will benefit the Company and its shareholders
affected by such Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and each
person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold harmless
W&R and any such controlling person from and against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Securities Act, under any other statute, at common
law or otherwise, and to reimburse the underwriter and such controlling
persons, if any, for any legal or other expenses (including the cost of any
investigation and preparation) reasonably incurred by them or any of them in
connection with any litigation whether or not resulting in any liability,
insofar as such losses, claims, damages, liabilities or litigation arise out of
or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or any prospectus or any
amendment thereof or supplement thereto or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that this indemnity agreement shall not apply to amounts
paid in settlement of any such litigation if such settlement is effected
without the consent of the Company or to any such losses, claims, damages,
liabilities or litigation arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or prospectus or any amendment thereof or supplement thereto, or
arising out of or based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by W&R for
inclusion in any registration statement or any prospectus or any amendment
thereof or supplement thereto. W&R and each such controlling person shall
promptly, after the complaint shall have been served upon W&R or such
controlling person in any litigation against W&R or such controlling person in
respect of which indemnity may be sought from the Company on account of its
agreement contained in this paragraph, notify the Company in writing of the
commencement thereof. The omission of W&R or such controlling person so to
notify the Company of any such litigation shall relieve the Company from any
liability which it may have to W&R or such controlling person on account of the
indemnity agreement contained in this paragraph but shall not relieve the
Company from any liability which it may have to W&R or controlling person
otherwise than on account of the indemnity agreement contained in this
paragraph. In case any such litigation shall be brought against W&R or any
such controlling person and the underwriter or such controlling person shall
notify the Company of the commencement thereof, the Company shall be entitled
to participate in (and, to the extent that it shall wish, to direct) the
defense thereof at its own expense but such defense shall be conducted by
counsel of good standing and satisfactory to W&R or such controlling person or
persons, defendant or defendants in the litigation. The indemnity agreement of
the Company contained in this paragraph shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of W&R or
any such controlling person and shall survive any delivery of shares of the
Company. The Company agrees to notify W&R promptly of the commencement of any
litigation or proceeding against it or any of its officers or directors of
which it may be advised in connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the agreement in
Section A of this article, insofar as it constitutes a basis for reimbursement
by the Company for liabilities (other than payment by the Company of expenses
incurred or paid in the successful defense of any action, suit or proceeding)
arising under the Securities Act, shall not extend to the extent of any
interest therein of any person who is an underwriter or a partner or
controlling person of an underwriter within the meaning of Section 15 of the
Securities Act or who, at the date of this Agreement, is a director of the
Company, except to the extent that an interest of such character shall have
been determined by a court of appropriate jurisdiction the question of whether
or not such interest is against public policy as expressed in the Securities
Act.
C. W&R agrees to indemnify and hold harmless the Company and its
directors and such officers as shall have signed any registration statement
from and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such directors or officers may become subject
under the Securities Act, under any other statute, at common law or otherwise,
and will reimburse the Company or such directors or officers for any legal or
other expenses (including the cost of any investigation and preparation)
reasonably incurred by it or them or any of them in connection with any
litigation, whether or not resulting in any liability insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, which statement or omission was made in reliance upon information
furnished in writing to the Company by W&R for inclusion in any registration
statement or any prospectus, or any amendment thereof or supplement thereto, or
which statement was made in, or the alleged omission was from, any advertising
or sales literature (including any reports to shareholders used as such) which
relate to the Company.
W&R shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. The Company
and its directors and such officers, defendant or defendants, in any such
litigation shall, promptly after the complaint shall have been served upon the
Company or any such director or officer in any litigation against the Company
or any such director or officer in respect of which indemnity may be sought
from W&R on account of its agreement contained in this paragraph, notify W&R
in writing of the commencement thereof. The omission of the Company or such
director or officer so to notify the underwriter of any such litigation shall
relieve W&R from any liability which it may have to the Company or such
director or officer on account of the indemnity agreement contained in this
paragraph, but shall not relieve W&R from any liability which it may have to
the Company or such director or officer otherwise than on account of the
indemnity agreement contained in this paragraph. In case any such litigation
shall be brought against the Company or any such officer or director and notice
of the commencement thereof shall have been so given to W&R, W&R shall be
entitled to participate in (and, to the extent that it shall wish, to direct)
the defense thereof at its own expense, but such defense shall be conducted by
counsel of good standing and satisfactory to the Company. The indemnity
agreement of W&R contained in this paragraph shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Company and shall survive any delivery of shares of the Company. W&R agrees to
notify the Company promptly of the commencement of any litigation or proceeding
against it or any of its officers or directors or against any such controlling
person of which it may be advised, in connection with the issue and sale of the
Company's shares.
D. Notwithstanding any provision contained in this Agreement, no
party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Company or its security holders to which
they would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of their duties or by reason of their
reckless disregard of their obligations and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from acting as
underwriter and/or dealer for any other mutual fund, from engaging in any other
aspects of the securities business, whether or not such may be deemed in
competition with the sale of shares of the Company, and to carry on any other
lawful business whatsoever.
B. Except as expressly provided in Article V and hereinabove, the
agreements herein set forth have been made and are made solely for the benefit
of the Company and W&R, and the persons expressly provided for in Article V,
their respective heirs and successors, personal representatives and assigns,
and except as so provided, nothing expressed or mentioned herein is intended or
shall be construed to give any person, firm or corporation other than the
Company, W&R and the persons expressly provided for in Article V any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
representation, warranty or agreement herein contained. Except as so provided,
the term "heirs, successors, personal representatives and assigns" shall not
include any purchaser of shares merely because of such purchase.
C. This Agreement shall continue in effect, unless terminated as
hereinafter provided, for a period of one (1) year and thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not
parties to the Agreement or "interested persons" (as defined in the Investment
Company Act of 1940) or any such party and who have no direct or indirect
financial interest in the operation of any Plan or any agreement relating to
that Plan (hereafter the "Plan directors"), cast in person at a meeting called
for the purpose of voting on such approval. This Agreement may be terminated
by W&R at any time without penalty upon giving the Company sixty (60) days'
written notice (which notice may be waived by the Company) and may be
terminated by the Company at any time without penalty upon giving W&R sixty
(60) days' written notice (which notice may be waived by W&R), provided that
such termination by the Company shall be directed or approved by the vote of a
majority of the Plan directors, or by the vote of a majority (as defined in the
Investment Company Act of 1940) of the outstanding voting securities of a Fund
with respect to that Fund. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940.
D. This Agreement shall be governed and construed in accordance with
the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers and their corporate seals
to be affixed as of the day and year first above written.
United Retirement Shares, Inc.
By:_____________________________
Sharon K. Pappas, Vice President
and Secretary
ATTEST:
By:_____________________
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By:____________________________
Robert L. Hechler, President
ATTEST:
By:_____________________
Sharon K. Pappas, Secretary
<PAGE>
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Between
UNITED MISSOURI BANK, n.a.
and
UNITED RETIREMENT SHARES, INC.
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposit
2.13 Foreign Exchange Transactions
2.14 Securities Loan
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality
Appendices
Appendix "A"
Appendix "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 26th day of November, 1991 between United
Retirement Shares, Inc. (the "Fund") and United Missouri Bank, n.a. (the
"Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement.
The Custodian is authorized to act under the terms and conditions of this
Agreement as the Fund's agent and shall be representing the Fund when acting
within the scope of this Agreement. The Custodian hereby accepts such
appointment as custodian and shall perform the duties and responsibilities set
forth herein on the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-
entry form by a Securities System (as hereinafter defined) in accordance with
the provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliverall
certificates and documents in connection with registration of securities as
may be required by the applicable provisions of the Internal Revenue Code, the
laws of any State or territory of the United States and the laws of any
jurisdiction in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System
that the securities underlying such repurchase agreement have been transferred
by book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts
or options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the
Custodian may make payment therefor before receipt of an advice or transaction;
and (iii) in the case of the purchase of securities, the settlement of which
occurs outside of the United States of America, the Custodian may make payment
therefor and receive delivery of such securities in accordance with local
custom and practice generally accepted by Institutional Clients (as hereinafter
defined) in the country in which the settlement occurs, but in all events
subject to the standard of care set forth in Article V hereof. For purposes of
this Agreement, an "Institutional Client" shall mean a major commercial bank,
corporation, insurance company, or substantially similar institution, which, as
a substantial part of its business operations, purchases or sells securities
and makes use of custodial services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and
except as otherwise provided herein, the Custodian shall pay for and receive
other Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the
account of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper
Instructions: surrender securities for transfer into the name of the Fund, the
Fund's nominee or the nominee name of the Custodian as permitted by Section
2.02(b); and surrender securities for a different number of certificates or
instruments representing the same number of shares or same principal amount of
indebtedness, provided that the securities to be issued will be delivered to
the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper
Instructions, the Custodian shall make delivery of securities which have been
sold for the account of the Fund, but only against payment therefor in the form
of: (a) cash, certified check, bank cashier's check, bank credit, or bank wire
transfer; (b) credit to the account of the Custodian with a clearing
corporation of a national securities exchange of which the Custodian is a
member; or (c) credit to the Account of the Custodian with a Securities System,
in accordance with the provisions of Section 2.22 hereof. Notwithstanding the
foregoing: (i) in the case of the sale of securities, the settlement of which
occurs outside of the United States of America, such securities shall be
delivered and paid for in accordance with local custom and practice generally
accepted by Institutional Clients in the country in which the settlementoccurs,
but in all events subject to the standard of care set forth in Article
V hereof; and (ii) in the case of securities held in physical form, such
securities shall be delivered and paid for in accordance with "street delivery
custom" to a broker or its clearing agent, against delivery to the Custodian of
a receipt for such securities, provided that the Custodian shall have taken
reasonable steps to ensure prompt collection of the payment for, or return of,
such securities by the broker or its clearing agent, and provided further that,
subject to the standard of care set forth in Article V hereof, the Custodian
shall not be responsible for the selection of or the failure or inability to
perform of such broker or its clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper
Instructions, the Custodian shall surrender securities to the depositary used
for such securities by an issuer of American Depositary Receipts or
International Depositary Receipts (hereinafter referred to, collectively , a
"ADRs"), against a written receipt therefor adequately describing such
securities and written evidence satisfactory to the Custodian that the
depositary has acknowledged receipt of instructions to issue ADRs with respect
to such securities in the name of the Custodian or a nominee of the Custodian,
for delivery to the Custodian at such place as the Custodian may from time to
time designate. Upon receipt of Proper Instructions, the Custodian shall
surrender ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the Custodian that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities underlying such
ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or
not exercising such rights prior to their expiration unless such failure is due
to Custodian's failure to give timely notice to the Fund in accordance with
this Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall
receive and collect all stock dividends, rights and other items of like nature
and, upon receipt of Proper Instructions, take action with respect to the same
as directed in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance
with the rules of the Options Clearing Corporation (the "OCC") or of any
registered national securities exchange or similar organization(s), the
Custodian shall: (a) receive and retain confirmations or other documents, if
any, evidencing the purchase or writing of an option by the Fund; (b) deposit
and maintain in a segregated account, securities (either physically or by book-
entry in a Securities System), cash or other Assets; and (c) pay, release
and/or transfer such securities, cash or other Assets in accordance with any
such agreement and with notices or other communications evidencing the
expiration, termination or exercise of such options furnished by the OCC, the
securities or options exchange on which such options are traded or such other
organization as may be responsible for handling such option transactions. The
Fund and the broker-dealer shall be responsible for determining the sufficiency
of assets held in any segregated account established in compliance with
applicable margin maintenance requirements and the performance of other terms
of any option contract; provided, however, that the Custodian shall be liable
for performance of its duties under this Agreement and in accordance with
Proper Instructions, and shall be liable for performance of its duties under
any other agreement between the Custodian, any registered broker-dealer and, if
necessary, the Fund. Notwithstanding anything herein to the contrary, if the
Fund issues Proper Instructions to sell a naked option (including stock index
options), then as part of the transaction, the Custodian, the Fund and the
broker-dealer shall have entered into a tri-party agreement, as described
above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if
any evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that
such borrowed money is payable by the lender (a) to or upon the Custodian's
order, as Custodian for the Fund, and (b) concurrently with delivery of such
securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term
and call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt
evidencing such account, if any, as may be forwarded to the Custodian by the
Banking Institution. The responsibilities of the Custodian to the Fund for
Interest Bearing Deposits accepted on the Custodian's books in the United
States shall be that of a U.S. bank for a similar deposit. With respect to
Interest Bearing Deposits other than those accepted on the Custodian's books,
(a) the Custodian shall be responsible for the collection of income as set
forth in Section 2.15 and the transmission of cash and instructions to and
from such accounts; and (b) the Custodian shall have no duty with respect to
the selection of the Banking Institution or, so long as the Custodian acts in
accordance with Proper Instructions and the terms and conditions of this
Agreement, for the failure of such Banking Institution to pay upon demand.
Upon receipt of Proper Instructions, the Custodian shall take such reasonable
actions as the Fund deems necessary or appropriate to cause each such Interest
Bearing Deposit account to be insured to the maximum extent possible by all
applicable deposit insurers including, without limitation, the Federal Deposit
Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
on behalf of and for the account of the Fund with such currency brokers or
Banking Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the
maintenance of proper records as set forth in Section 2.25. The Custodian
shall have no duty with respect to the selection of the currency brokers or
Banking Institutions with which the Fund deals or, so long as the Custodian
acts in accordance with Proper Instructions, for the failure of such brokers or
Banking Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not
be obligated to enter into foreign exchange transactions as principal.
However, if the Custodian has made available to the Fund its services as a
principal in foreign exchange transactions, upon receipt of Proper
Instructions, the Custodian shall enter into foreign currencies for spot and
future delivery on behalf of and for the account of the Fund with the Custodian
as principal. The Custodian shall be responsible for the selection of the
currency brokers or Banking Institutions and the failure of such currency
brokers or Banking Institutions to comply with the terms of any contract or
option.
(c) Payments. Notwithstanding anything to the contrary contained
herein, upon receipt of Proper Instructions the Custodian may, in connection
with a foreign exchange contract, make free outgoing payments of cash in the
form of U.S. Dollars or foreign currency prior to receipt of confirmation of
such foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund,
deliver securities of the Fund to the borrower thereof and may, except as
otherwise provided below, deliver such securities prior to receipt of the
collateral, if any, for such borrowing; provided that, in cases of loans of
securities secured by cash collateral, the Custodian's instructions to the
Securities System shall require that the Securities System deliver the
securities of the Fund to the borrower thereof only upon receipt of the
collateral for such borrowing. The Custodian shall retain on the Fund's behalf
the right to any dividends, interest or distribution on such loaned securities
and any other rights specified in Proper Instructions. Upon receipt of Proper
Instructions and the loaned securities, the Custodian will release the
collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the
Custodian hereunder upon Custodian's receipt of such income or payments or as
otherwise agreed in writing by the Custodian and the Fund; (c) promptly endorse
and deliver any instruments required to effect such collection; and (d)
promptly execute ownership and other certificates and affidavits for all
federal, state, local and foreign tax purposes in connection with receipt of
income or other payments with respect to portfolio securities and other Assets,
or in connection with the transfer of such securities or other Assets;
provided, however, that with respect to portfolio securities registered in so-
called street name, or physical securities with variable interest rates, the
Custodian shall use its best efforts to collect amounts due and payable to the
Fund. The Custodian shall promptly notify the Fund in writing by facsimile
transmission or in such other manner as the Fund and Custodian may agree in
writing if any amount payable with respect to portfolio securities or other
Assets is not received by the Custodian when due. The Custodian shall not be
responsible for the collection of amounts due and payable with respect to
portfolio securities or other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter
defined) to such entity or account designated by the Fund in such Special
Instructions. For purposes of this Agreement, a "Distribution Account" shall
mean an account established at a Banking Institution designated by the Fund in
Special Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time
to time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed
pursuant to Proper Instructions, neither the Custodian nor any Subcustodian or
nominee shall vote upon any such securities, or execute any proxy to vote
thereon, or give any consent or take any other action with respect thereto.
The Custodian will not release the identity of the Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of
1985, for the specific purpose of direct communications between such issuer and
the Fund unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this
Section 2.21 to be insured to the maximum extent possible by all applicable
deposit insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76,
31 CFR 350.2, or (iii) the book-entry regulations of federal agencies
substantially in the form of 31 CFR 306.115; or (d) any other domestic clearing
agency registered with the Securities and Exchange Commission ("SEC") under
Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be
authorized by the Securities and Exchange Commission to serve in the capacity
of depository or clearing agent for the securities or other assets of
investment companies) which acts as a securities depository; provided, however,
that no such deposit or maintenance of securities may be made except with
respect to those agencies and entities the use of which the Fund has previously
approved by Special Instructions (each of the foregoing being referred to in
this Agreement as a "Securities System"). Use of a Securities System shall be
in accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of
the Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or
any Subcustodian with respect to a Securities System's accounting system,
internal accounting control and procedures for safeguarding securities
deposited in the Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate
the use of any Securities System (except the federal book-entry system) on
behalf of the Fund as promptly as practicable and shall take all actions
reasonably practicable to safeguard the securities of the Fund maintained with
such Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set
forth in this Agreement, provided that the Special Instructions relating to
such disposition shall include a statement of the purposes for which the
delivery is to be made, the amount of funds, Assets and/or securities to be
delivered and the name of the person or persons to whom delivery is to be made,
and shall otherwise comply with the provisions of Sections 3.01 and 3.03
hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or securities or other Assets
of the Fund, including securities maintained by the Custodian in a Securities
System pursuant to Section 2.22 hereof, said account or accounts to be
maintained: (a) for the purposes set forth in Section 2.09, 2.10 and 2.11
hereof; (b) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the SEC relating to the maintenance of segregated accounts by
registered investment companies; or (c) for such other purposes as may be set
forth, from time to time, in Special Instructions. The Custodian shall not be
responsible for the determination of the type or amount of Assets to be held in
any segregated account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including,
but not limited to: (a) journals or other records of original entry
containing a detailed and itemized daily record of all receipts and deliveries
of securities (including certificate and transaction identification numbers, if
any), and all receipts and disbursements of cash; (b) ledgers or other records
reflecting (i) securities in transfer, (ii) securities in physical possession,
(iii) securities borrowed, loaned or collateralizing obligations of the Fund,
(iv) monies borrowed and monies loaned (together with a record of the
collateral therefor and substitutions of such collateral), and (v) dividends
and interest received; and (c) cancelled checks and bank records relating
thereto. The Custodian shall keep such other books and records of the Fund as
the Fund shall reasonably request. All such books and records maintained by
the Custodian shall be maintained in a form acceptable to the Fund and in
compliance with the rules and regulations of the SEC, including, but not
limited to, books and records required to be maintained by Section 31(a) of the
1940 Act and the rules and regulations from time to time adopted thereunder.
All books and records maintained by the Custodian pursuant to this Agreement
shall at all times be the property of the Fund and shall be available during
normal business hours for inspection and use by the Fund and its agents,
including without limitation, its independent certified public accountants.
Notwithstanding the preceding sentence, the Funds shall not take any actions or
cause the Custodian to take any actions which would knowingly cause, either
directly or indirectly, the Custodian to violate any applicable laws,
regulations or orders. Notwithstanding the provisions of this Section 2.25, in
the event the Fund purchases cash, securities and other Assets requiring the
use of a Domestic Subcustodian or Foreign Sub-Subcustodian, the Custodian shall
be entitled to rely upon and use the books, records and accountings of the
Domestic Subcustodian as its means of accounting to the Fund for all cash,
securities and other Assets deposited with such entities; provided however,
that such books, records and accountings on which the Bank may rely must be
maintained in the United States by such Domestic Subcustodian and, provided
further, that any agreement between the Custodian and such Domestic
Subcustodian must state that the Domestic Subcustodian agrees to make any
records available upon request and preserve, for the periods described in Rule
31a-2 of the 1940 Act, the records required to be maintained by Rule 31a-1 of
the 1940 Act. In no event shall the Custodian be entitled to rely upon and use
books, records and accountings which are maintained outside of the United
States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants
with respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however,
the Custodian shall promptly notify the Fund in writing of any intent to
exercise a right of set-off against Assets hereunder and shall not exercise any
such right of set-off against Assets hereunder unless and until the Fund has
failed to pay (within ten (10) days after the Fund's receipt of such notice of
intent to exercise a right of set-off), any Overdraft, together with all
accrued interest thereon. Notwithstanding the provisions of any applicable
law, including, without limitation, the Uniform Commercial Code, the only
rights or remedies which the Custodian is entitled to with respect to
Overdrafts is the right of set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic
or other oral instructions communicated to the Custodian. Proper Instructions
may relate to specific transactions or to types or classes of transactions, and
may be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the same instrument
containing the Proper Instructions or on a separate instrument relating
thereto, and (ii) delivered by hand, by facsimile transmission or in such other
manner as the Fund and the Custodian agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at
the address and/or telephone, telecopy or telex number agreed upon from time to
time by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to
the contrary. Upon delivery of a certificate which deletes or does not include
the name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person;
provided, however, that nothing in this Section 3.03 shall prohibit (a) any
Authorized Person from giving Proper Instructions, or any person authorized to
issue Special Instructions from issuing Special Instructions, so long as such
action does not result in delivery of or access to Assets of the Fund
prohibited by this Section 3.03; or (b) the Fund's independent certified public
accountants from examining or reviewing the Assets of the Fund held by the
Custodian. The Fund will deliver from time to time a written certificate
executed by two Authorized Persons identifying such Authorized Persons,
Directors, officers, employees and agents of the Fund. Notwithstanding the
foregoing, to the extent that the person acting on behalf of the Custodian in
making such delivery has actual knowledge that any person is an Authorized
Person, Director, officer, employee or agent of the Fund, the Custodian will
comply with this Section 3.03 as if the name of such Authorized Person,
Director, officer, employee or agent had been contained in a written
certificate provided pursuant to this Section 3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case
may be, and (b) the terms of this Agreement, the Custodian shall not be
responsible for the title, validity or genuineness of any property, or evidence
of title thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign
Sub-Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined)
in accordance with this Article IV. For purposes of this Agreement, all
Domestic Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and
Interim Sub-Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States
(a "Domestic Subcustodian"); provided, that, the Custodian shall notify the
Fund in writing of the identity and qualifications of any proposed Domestic
Subcustodian at least sixty (60) days prior to the desired appointment of such
Domestic Subcustodian, and the Fund will notify the Custodian, in writing
signed by two or more Authorized Persons, of approval or disapproval of the
appointment of the proposed Domestic Subcustodian; and provided, further, that
the Custodian may not appoint any such Domestic Subcustodian without such prior
written approval of the Fund by such Authorized Persons. Each such duly
approved Domestic Subcustodian and the countries where, Foreign Sub-
Subcustodians and the securities depositories and clearing agencies through
which they may hold securities and other Assets of the Fund shall be as agreed
upon by the parties hereto in writing, from time to time, in accordance with
the provisions of Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United
States of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of
the Fund (which approval may be withheld in the sole discretion of such Board
of Directors or other governing body or entity) with respect to (i) the
identity and qualifications of any proposed Foreign Sub-Subcustodian, and (ii)
the country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of
the Fund shall be listed on the Subcustodian List. The Fund shall be
responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country in which no Foreign Sub-
Subcustodian is authorized to act, in order that there shall be sufficient time
for the Custodian or any Domestic Subcustodian to effect the appropriate
arrangements with a proposed Foreign Sub-Subcustodian, including obtaining
approval as provided in this Section 4.02(a). In connection with the
appointment of any Foreign Sub-Subcustodian, the Custodian shall, or shall
cause the Domestic Subcustodian to, enter into a sub-subcustodian agreement
with the Foreign Sub-Subcustodian in form and substance approved by the Fund,
provided that the agreement shall, in all events, comply with the provisions of
the 1940 Act and the rules and regulations thereunder, and the terms and
provisions of this Agreement. The Custodian shall not and shall cause any
Domestic Subcustodian not to consent to the amendment of any sub-subcustodian
agreement entered into with a Foreign Sub-Subcustodian, or agree to any changes
thereunder, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which no Foreign Sub-Subcustodian is authorized to act, the
Custodian shall, or shall cause the Domestic Subcustodian to, promptly notify
the Fund in writing by facsimile transmission or in such other manner as the
Fund and Custodian shall agree in writing of the unavailability of an approved
Foreign Sub-Subcustodian in such country; and upon the receipt of Special
Instructions, the Custodian shall, or shall cause the Domestic Subcustodian to,
appoint or approve any Person (as hereinafter defined) designated by the Fund
in such Special Instructions, to hold such security or other Asset. (Any
Person appointed or approved as a sub-subcustodian pursuant to this Section
4.02(b) is hereinafter referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special
Instructions to act as a subcustodian for the purpose of (i) effecting third-
party repurchase transactions with banks, brokers, dealers or other entities,
(ii) providing depository and clearing agency services with respect to certain
variable rate demand note securities; and (iii) effecting any other
transactions designated by the Fund in Special Instructions. (Each such
designated subcustodian is hereinafter referred to as a "Special
Subcustodian.") Each such duly appointed Special Subcustodian shall be listed
on the Subcustodian List. In connection with the appointment of any Special
Subcustodian, the Custodian shall enter into a subcustodian agreement with the
Special Subcustodian in form and substance approved by the Fund, provided that
such agreement shall in all events comply with the provisions of the 1940 Act
and the rules and regulations thereunder and the terms and provisions of this
Agreement. The Custodian shall not amend any subcustodian agreement entered
into with a Special Subcustodian, or agree to change or permit any changes
thereunder, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause
each Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian. In the event that the Custodian is
unable to cause such subcustodian or sub-subcustodian to fully perform its
obligations thereunder, the Custodian shall promptly notify the Fund in writing
and forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at
any time in its discretion, upon written notification to the Fund, terminate
any Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its
use of such entities with respect to the Fund, in accordance with the
termination provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing
Agency utilized by any such Subcustodian, or any nominee of the Custodian or
any Subcustodian (individually, a "Person") is prevented, forbidden or delayed
from performing, or omits to perform, any act or thing which this Agreement
provides shall be performed or omitted to be performed, by reason of: (i) any
provision of any present or future law or regulation or order of the United
States of America, or any state thereof, or of any foreign country, or
political subdivision thereof or of any court of competent jurisdiction (and
the Custodian nor any other Person shall not be obligated to take any action
contrary thereto); or (ii) any act of God or war or other similar circumstance
beyond the control of the Custodian unless in each case, such delay or
nonperformance is caused by the negligence, misfeasance or misconduct of the
Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to,
use all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing
harm to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such
other counsel as the Fund and the Custodian may agree upon in writing;
provided, however, with respect to the performance of any action or omission of
any action upon such advice, the Custodian shall be required to conform to the
standard of care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability
in respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in
reliance upon records that were maintained for the Fund by entities other than
the Custodian prior to the Custodian's employment hereunder which the Custodian
has no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing
Agency appointed by them) to the same extent as if such actions or omissions
were performed by the Custodian itself. In the event of any loss, damage or
expense suffered or incurred by the Fund caused by or resulting from the
actions or omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian
for which the Custodian would otherwise be liable, the Custodian shall promptly
reimburse the Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian
in connection with the fulfillment of its obligations under Section 5.01(c) as
it relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses
occasioned by or resulting from the negligence, misfeasance or misconduct of
the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its
nominee caused by or arising from actions taken by the Custodian, its employees
or agents in the performance of its duties and obligations under this
Agreement; provided, however, that such indemnity shall not apply to loss,
damage and expense occasioned by or resulting from the negligence, misfeasance
or misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the
provisions of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may
be imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any
loss arising from a foreign currency transaction or contract, where the loss
results from a Sovereign Risk (as hereinafter defined) or where any Person
maintaining securities, currencies, deposits or other Assets of the Fund in
connection with any such transactions has exercised reasonable care maintaining
such property or in connection with any such transaction involving such Assets.
A "Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall
have promptly notified the Fund in writing of the commencement of any
litigation or proceeding brought against the Custodian or other Person in
respect of which indemnity may be sought under this Section 5.03. With respect
to claims in such litigation or proceedings for which indemnity by the Fund may
be sought and subject to applicable law and the ruling of any court of
competent jurisdiction, the Fund shall be entitled to participate in any such
litigation or proceeding with counsel of its choice at its own expense in
respect of that portion of the litigation for which the Fund may be subject to
an indemnification obligation; provided, however, a Person shall be entitled to
participate in (but not control) at its own cost and expense, the defense of
any such litigation or proceeding if the Fund has not acknowledged in writing
it obligation to indemnify the Person with respect to such litigation or
proceeding. If the Fund is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Fund chooses not to so participate, the
Custodian or other Person shall not consent to the entry of any judgment or
enter into any settlement in any such litigation or proceeding without
providing the Fund with adequate notice of any such settlement or judgment, and
without the Fund's prior written consent which consent shall not be
unreasonably withheld or delayed. All Persons shall submit written evidence to
the Fund with respect to any cost or expense for which they are seeking
indemnification in such form and detail as the Fund may reasonably request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by
the Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to
the contrary contained herein, the Fund shall have, at its election upon
reasonable notice to the Custodian, the right to enforce, to the extent
permitted by any applicable agreement and applicable law, the Custodian's
rights against any Subcustodian, Securities System or other Person for loss,
damage or expense caused the Fund by such Subcustodian, Securities System or
other Person, which the Custodian may have as a consequence of any such loss,
damage or expense, if and to the extent that the Fund has not been made whole
for any such loss, expense or damage. If the Custodian makes the Fund whole
for any such loss, expense or damage, the Custodian shall retain the ability to
enforce its rights directly against such Subcustodian, Securities System or
other Person. Upon the Fund's election to enforce any rights of the Custodian
under this Section 5.05, the Fund shall reasonably prosecute all actions and
proceedings directly relating to the rights of the Custodian in respect of the
loss, damage or expense incurred by the Fund; provided that, so long as the
Fund has acknowledged in writing its obligation to indemnify the Custodian
under Section 5.03 hereof with respect to such claim, the Fund shall retain the
right to settle, compromise and/or terminate any action or proceeding in
respect of the loss, damage or expense incurred by the Fund without the
Custodian's consent and provided further, that if the Fund has not made an
acknowledgement of its obligation to indemnify, the Fund shall not settle,
compromise or terminate any such action or proceeding without the written
consent of the Custodian, which consent shall not be unreasonably withheld or
delayed. The Custodian agrees to cooperate with the Fund and take all actions
reasonably requested by the Fund in connection with the Fund's enforcement of
any rights of the Custodian. Nothing contained in this Section 5.05 shall be
construed as an obligation of the Fund to enforce the Custodian's rights. The
Fund agrees to reimburse the Custodian for out-of-pocket expenses incurred by
it in connection with the fulfillment of its obligations under this Section
5.05; provided, however, that such reimbursement shall not apply to expenses
occasioned by or resulting from the negligence, misfeasance or misconduct of
the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the
limitations set forth in this Agreement and in addition to the reimbursement
obligations provided in Section 5.02(a), the Custodian agrees to indemnify and
hold harmless the Fund and its nominees from all loss, damage and expense
(including reasonable attorneys' fees) suffered or incurred by the Fund or its
nominee caused by or arising from the failure of the Custodian, its nominee,
employees or agents to comply with the terms or conditions of this Agreement or
arising out of the negligence, misfeasance or misconduct of the Custodian or
its nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought
and subject to applicable law and the ruling of any court of competent
jurisdiction, the Custodian shall be entitled to participate in any such
litigation or proceeding with counsel of its choice at its own expense in
respect of that portion of the litigation for which the Custodian may be
subject to an indemnification obligation; provided, however, the Fund shall be
entitled to participate in (but not control) at its own cost and expense, the
defense of any such litigation or proceeding if the Custodian has not
acknowledged in writing its obligation to indemnify the Fund with respect to
such litigation or proceeding. If the Custodian is not permitted to
participate or control such litigation or proceeding under applicable law or by
a ruling of a court of competent jurisdiction, or if the Custodian chooses not
to so participate, the Fund shall not consent to the entry of any judgement or
enter into any settlement in any such litigation or proceeding without
providing the Custodian with adequate notice of any such settlement or
judgement, and without the Custodian's prior written consent which consent
shall not be unreasonably withheld or delayed. The Fund shall submit written
evidence to the Custodian with respect to any cost or expense for which it is
seeking indemnification in such form and detail as the Custodian may reasonably
request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election
upon reasonable notice to the Fund, the right to enforce, to the extent
permitted by any applicable agreement and applicable law, the Fund's rights
against any Subcustodian, Securities System or other Person for loss, damage or
expense caused the Custodian by such Subcustodian, Securities System or other
Person, which the Fund may have as a consequence of any such loss, damage or
expense, if and to the extent that the Custodian has not been made whole for
any such loss, expense or damage. If the Fund makes the Custodian whole for
any such loss, expense or damage, the Fund shall retain the ability to enforce
its rights directly against such Subcustodian, Securities System or other
Person. Upon the Custodian's election to enforce any rights of the Fund under
this Section 5.07, the Custodian shall reasonably prosecute all actions and
proceedings directly relating to the rights of the Fund in respect of the loss,
damage and expense incurred by the Custodian; provided that, so long as the
Custodian has acknowledged in writing its obligation to indemnify the Fund
under Section 5.06 hereof with respect to such claim, the Custodian shall
retain the right to settle, compromise and/or terminate any action or
proceeding in respect of the loss, damage or expense incurred by the Custodian
without the Fund's consent and provided further, that if the Custodian has not
made an acknowledgement of its obligation to indemnify, the Custodian shall not
settle, compromise or terminate any such action or proceeding without the
written consent of the Fund, which consent shall not be unreasonably withheld
or delayed. The Fund agrees to cooperate with the Custodian and take all
actions reasonably requested by the Custodian in connection with the
Custodian's enforcement of any rights of the Fund. Nothing contained in this
Section 5.07 shall be construed as an obligation of the Custodian to enforce
the Fund's rights. The Custodian agrees to reimburse the Fund for out-of-
pocket expenses incurred by it in connection with the fulfillment of its
obligations under this Section 5.07; provided, however, that such reimbursement
shall not apply to expenses occasioned by or resulting from the negligence,
misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund,
such termination to take effect not sooner than ninety (90) days after the date
of such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by
an instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other
Assets of the Fund shall, upon termination of this Agreement, be delivered. In
the event that securities and other Assets remain in the possession of the
Custodian after the date of termination hereof owing to failure of the Fund to
appoint a successor custodian, the Custodian shall be entitled to compensation
for its services in accordance with the fee schedule most recently in effect,
for such period as the Custodian retains possession of such securities and
other Assets, and the provisions of this Agreement relating to the duties and
obligations of the Custodian and the Fund shall remain in full force and effect
for such period. In the event of the appointment of a successor custodian, the
cash, securities and other Assets owned by the Fund and held by the Custodian,
any Subcustodian or nominee shall be delivered, at the terminating party's
expense, to the successor custodian; and the Custodian agrees to cooperate with
the Fund in the execution of documents and performance of other actions
necessary or desirable in order to substitute the successor custodian for the
Custodian under this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective
obligations under this Agreement or any applicable subcustodian agreement,
provided that the exercise by the Custodian or any Subcustodian of any such
rights shall in all events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Fund to the Custodian, at all times during the
term of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of
or default under or conflict with any existing law, order, regulation or ruling
of any governmental or regulatory agency or authority, or (B) violate any
provision of the Fund's corporate charter or other organizational document, or
bylaws, or any amendment thereof or any provision of its most recent Prospectus
or Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true,
correct and complete as of the date of execution of this Agreement and, unless
notice to the contrary is provided by the Custodian to the Fund, at all times
during the term of this Agreement: (i) the Custodian is duly organized under
the laws of its jurisdiction of organization and qualifies to serve as a
custodian to open-end management investment companies under the provisions of
the 1940 Act; and (ii) the execution, delivery and performance by the Custodian
of this Agreement are (w) within its power (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of
or default under or conflict with any existing law, order, regulation or ruling
of any governmental or regulatory agency or authority, or (B) violate any
provision of the Custodian's corporate charter, or other organizational
document, or bylaws, or any amendment thereof. The Custodian acknowledges
receipt of a copy of the Fund's most recent Prospectus and Statement of
Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by
the party against which enforcement of such waiver, amendment or deletion is
sought; provided, however, the Subcustodian List may be amended from time to
time by the Fund's execution and delivery to the Custodian of an amended
Subcustodian List, in which case such amendment shall take effect immediately
upon execution by the Custodian.
Section 9.05. Interpretation. In connection with the operation of
this Agreement, the Custodian and the Fund may agree in writing from time to
time on such provisions interpretative of or in addition to the provisions of
this Agreement as may in their joint opinion be consistent with the general
tenor of this Agreement. No interpretative or additional provisions made as
provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
United Retirement Shares, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
United Missouri Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and
shall inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section
7.01 hereof, neither party hereto may assign this Agreement or any of its
rights or obligations hereunder without the prior written consent of the other
party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other
regarding its business and operations. All confidential information provided
by a party hereto shall be used by any other party hereto solely for the
purpose of rendering services pursuant to this Agreement and, except as may be
required in carrying out this Agreement, shall not be disclosed to any third
party without the prior consent of such providing party. The foregoing shall
not be applicable to any information that is publicly available when provided
or thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07,
Section 2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article
VI hereof and any other rights or obligations incurred or accrued by any party
hereto prior to termination of this Agreement shall survive any termination of
this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
UNITED RETIREMENT SHARES, UNITED MISSOURI BANK, n.a.
INC.
By: /s/Rodney O. McWhinney By: /s/David F. Larrabee
Name: Rodney O. McWhinney Name: David F. Larrabee
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
UNITED RETIREMENT SHARES, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of July 18, 1995
The following is a list of Domestic Subcustodians, Foreign Sub-
Subcustodian and Special Subcustodians under the Custodian Agreement as
amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New Yor
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of BOVESPA, CLC
Boston, Brazil
Canada Canadian Imperial Bank CDS
of Commerce
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De France
Germany Berliner Handels Und KASSENVEREIN
Frankfurter Bank
Hong Kong HongKong & Shanghai HongKong Securities Clearing
Banking Corp. Company
India Citibank, n.a. Bombay None
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking MCD; Bank Negara Malaysia
Corp.
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. None
Portugal Banco Espirito Santo E Interbolsa
Comercial De Lisboa, S.A.
Singapore HongKong & Shanghai Banking CDP
Corp.
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCO
Thailand HongKong & Shanghai Banking Share Depository Center (SDC)
Corp.
Turkey Citibank, n.a. TvS, Central Bank of Turkey
United
Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED RETIREMENT SHARES, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of January 1, 1995
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depositary
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
CEDEL. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all
the United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(c)For each futures/options contract written 25.00
(d)For each principal/interest paydown 6.00
(e)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and
cash management balances of each Fund at the Custodian to earn the
Custodian's daily repurchase agreement rate less reserve requirements and
FDIC premiums. Negative earnings credits will be charged on all
uncollected custody and cash management balances of each Fund at the
Custodian's prime rate less 150 basis points on each day a negative
balance occurs. Positive and/or negative earnings credits will be
monitored daily for each Fund and the net positive or negative amount for
each Fund will be included in the monthly statements. Excess positive
credits for each Fund will be carried forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note:Fee Schedule eliminates sub-custodian asset and transaction-based out-of-
pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits
(1) An annual fee to be computed as of month end and payable each month
of the Fund's fiscal year (after receipt of the bill issued to the
Fund based upon its portion of short-term dollar denominated assets),
at the annual rate of:
.0004 on all short-term dollar denominated assets of the United
Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month
of the Fund's fiscal year (after receipt of the bill issued to the
Fund based upon its portion of Euroclear issues), at the annual rate
of:
2.5 basis points on all United Funds Euroclear assets held in account
at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-rsssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 29th day of August, 1995, by and between
UNITED RETIREMENT SHARES, INC., and Waddell & Reed Services Company (the
"Agent"),
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder
Servicing Agent for the Company and agrees to act as such upon, and subject to,
the terms and provisions of this Agreement.
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder and
includes shares subject to instructions by the shareholder with respect to
periodic redemptions and/or reinvestment in additional shares of any dividends
payable on said shares. An account does not include shares held under a plan
or program issued by a unit investment trust for which Waddell & Reed, Inc. was
or is the depositor or sponsor;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by
any one or more persons authorized to do so by the Company's Board of
Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and
cancellation of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation
of stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or
otherwise delivered to shareholders payment checks and notices of reinvestment
in additional shares of dividends, stock dividends or stock splits declared by
the Company on shares and of redemption proceeds due by the Company on
redemption of shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared
by or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and
records for such periods as may be required by any such law, rule or
regulation; furnishing the Company such information as to such transactions and
at such time as may be reasonably required by it to comply with applicable laws
and regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this
Paragraph 3, as may be required by or be reasonably necessary to comply with
any statute, act, governmental rule, regulation or directive or court order,
including, without limitation, the requirements imposed by the Tax Equity and
Fiscal Responsibility Act of 1982 and the Income and Dividend Tax Compliance
Act of 1983 relating to the withholding of tax from distributions to
shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in
Exhibit B of this Agreement or any amendment thereof. In addition, the Company
agrees to reimburse the Agent for the following "out-of-pocket" expenses of the
Agent within five days after receipt of an itemized statement of such expenses,
to the extent that payment of such expenses has not been or is not to be made
directly by the Company: (i) costs of stationery, appropriate forms, envelopes,
checks, postage, printing (except cost of printing prospectuses, annual and
semi-annual reports and proxy materials) and mailing charges, including
returned mail and proxies, incurred by the Agent with respect to materials and
communications sent to shareholders in carrying out its duties to the Company
under this Agreement; (ii) long distance telephone costs incurred by the Agent
for telephone communications and microfilm and storage costs for transfer
agency records and documents; (iii) costs of all ancillary and supporting
services and related expenses (other than insurance premiums) reasonably
required by and provided to the Agent, other than by its employees or employees
of an affiliate, with respect to functions of the Company being performed by it
in its capacity as Agent hereunder, including legal advice and representation
in litigation to the extent that such payments are permitted under Paragraph 7
of this Agreement; (iv) costs for special reports or information furnished on
request pursuant to this Agreement and not specifically required by the Agent
by Paragraph 3 of this Agreement; and (v) reasonable costs and expenses
incurred by the Agent in connection with the duties of the Agent described in
Paragraph (3)(1)(i). In addition, the Company agrees to promptly pay over to
the Agent any fees or payment of charges it may receive from a shareholder for
services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under
this Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's facilities in accordance with reasonable procedures at the
frequency necessary to assure proper administration of the Agreement. The
Agent will cooperate with the Company's auditors or representatives of
appropriate regulatory agencies and furnish all reasonably requested records
and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or
decrease such coverage during the term of this Agreement without receiving the
approval of the Fund in advance of any change, except the Agent, after giving
reasonable notice to the Company, may eliminate or decrease any coverage if the
premiums for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties (except with respect to the
Agent's employees), fire, mechanical breakdown beyond its control, flood or
catastrophe, acts of God, insurrection, war, riots, or failure beyond its
control of transportation, communication or power supply; or (iii) for any
action taken or omitted to be taken by the Agent in good faith in reliance on
(a) the authenticity of any instrument or communication reasonably believed by
it to be genuine and to have been properly made and signed or endorsed by an
appropriate person, (b) the accuracy of any records or information provided to
it by the Company, (c) any authorization or instruction contained in any
officers' instruction, or (d) with respect to the functions performed for the
Company listed under Paragraph 3(1) of this Agreement, any advice of counsel
approved by the Company who may be internally employed counsel or outside
counsel, in either case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for
a period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of
Waddell & Reed Investment Management Company, cast in person at a meeting
called for the purpose of voting on such approval. Such a vote is hereinafter
referred to as a "disinterested director vote."
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 the Company 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 the
Company; (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 the
light of the usual and customary charges made by others for services of the
same nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time
without penalty upon giving the Company 120 days' written notice (which notice
may be waived by the Company) and may be terminated by the Company at any time
without penalty upon giving the Agent sixty (60) days' written notice (which
notice may be waived by the Agent), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Board of
Directors of the Company in office at the time or by the vote of the holders of
a majority (as defined in or under the Act) of the outstanding shares of the
Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment
of a new shareholder servicing agent, including the Company's acting as such on
its own behalf, the Company shall have the non-exclusive right to the use of
the data processing programs used by the Agent in connection with the
performance of its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and
shall not be deemed to constitute a part hereof. Whenever the context
requires, words denoting singular shall be read to include the plural. This
Agreement and the rights and obligations of the parties hereunder, shall be
construed and interpreted in accordance with the laws of the State of Kansas,
except to the extent that the laws of the State of Maryland apply with respect
to share transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject
matter hereof, supersedes and merges all prior discussions between the parties
hereto, and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED RETIREMENT SHARES, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Amy D. Eisenbeis, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire
as to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.0208 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015194B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $25,000,000
Audit Expense 500,000
On Premises 25,000,000
In Transit 25,000,000
Forgery or Alteration 25,000,000
Securities 25,000,000
Counterfeit Currency 25,000,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 25,000,000
Total Limit 25,000,000
Directors and Officers/ 87015194D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
Probate Waiver 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-rsappca
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office Stamp
Shawnee Mission, KS 66201-9217 APPLICATION
I (We make application for an account to be established as follows:
________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: ________
Date Tramsmitted: _____
________________________________________________________________________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other:___________________________
(Use this section for
Retirement Plans with
Custodians other than
Fidciary Trust Co.)
________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new, Plan tear out
page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457 ____________________________________________
(If billing is required, Employer's Name (Do not Abbreviate)
attach form #CUF1417) _____________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________ Amt $______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: _____________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
________________________________________________________________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT:
(Must have same ownership) [][][][][][][]-[]
Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
_________________________
_______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
_________________________ _____________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
____________________________ ______________ ________ ____/_______-______
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS Make check payable to Waddell & Reed
Code Code
621-Income 626-Gold & Government
622-Science and Technology 627-Continental Income
623-Accumulative 628-High Income
624-Bond 629-Vanguard
625-International Growth 630-New Concepts
Code Code
634-High Income II 760-Municipal Bond (not available
680-Retirement Shares for Ret. Plans)
684-Asset Strategy 762-Municipal High Income (not
750-Cash Management available for Reg. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
Fund Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
Total $_________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
$_________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[][][] $__________ $__________ 19_____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
______ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This Purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671) [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___,___,___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time: _______________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_______________________________________________
Name & Address of Bank/Broker/Savings & Loan
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_______________________________________________
Name of Its Commercial Bank
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
___________________________________________________________________________
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents
___ 4. Occupation: _________________________ 5. Employer Name:
_____________________ 6. Employer Address:
___________________________________________________________
7. Savings and Liquid Assets: $___ 11. Investment Objectives (mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $___ [] Retirement
Savings
9. Net Worth (Assets minus liabilities): $___ [] Children's College []Income
10. Are you associated with an NASD Member? Yes ___ No ___ [] Other
needs/goals
(specify in
Special
Remarks)
12. Special Remarks/Considerations: _______________________________________
___________________________________________________________________________
13. Residence Address: ____________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* Under penalities of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct and
(strike the following if not true) that I am not subject to tax withholding
because I have not been notified by the IRS that I am subject to
withholding as a result of a failure to report all interest and dividends
or I was subject to withholding and the IRS has notified me that I am no
longer subject to withholding.
* Since a major portion of the sales charge for Variable Investment Programs
is deducted from payments made in the first year, I understand that a loss
will undoubtedly result if I withdraw or discontinue payments during the
early years of the program.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ______________________________
Date Representative Signature
[OSJ: (H.O.USE) ] [][][][][]
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the
Custody Agreement:
By:____________________________________________
Fiduciary Trust Company Authorized Signature
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Parntership Confidential Questionnaire (CRP1186)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications _______________________________________
[] Check enclosed # _________________________________
[] Other: ___________________________________________
CAP0001(11/94)
EX-99.B9-rsappcy
UNITED FUND GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
INSTRUCTIONS You can open an account by calling 1-800-366-2520 or by mailing
an application and check to Waddell & Reed, Inc., 6300 Lamar, Shawnee Mission,
Kansas 66202 Date:
Fill in where applicable 6300 Lamar, Shawnee Mission, Kansas 66202.
Account Name
___________________________________________________________________
Tax I.D. No. _________________________________
Registration
Name _______________________________________________________________or
______________________________________________________________________
Number and Street _____________________________________________________
Soc. Sec. No. _________________________________
FULL ADDRESS
Please fill in completely, including telephone number.
City______________State _________Zip Code _________
Telephone _________________________________________________ Citizen of: []
U.S. [] Other (specify) ___________________________
[] Please establish an account(s) as follows:
INITIAL Dividends and capital
INVESTMENT(S): gains to be paid in:*
Account No. Assigned _________________Amount Shares Cash
FUND(S) TO BE PURCHASED
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
Total amount $________________ *If no election is checked,
all payments will be made in shares.
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions
received by telephone to have amounts withdrawn from my organization's
account(s) in the Portfolio(s) and wired or mailed to the bank account designed
below.
I (We) hereby ratify any such instructions and agree that none of the Fund(s),
Waddell & Reed, Inc. nor Waddell & Reed Services will be liable for any loss,
liability, cost or expense for acting upon such instructions in accordance with
the procedures set forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank should be a member of the Federal
Reserve System.
SERVICE
Please fill in completely.
Name of Bank
_____________________________________________________________________
Bank A.B.A. No. _________________________
Number and Street
____________________________________________________________________________
City ___________________________________________________ State
_________________________________ Zip Code ___________________
Account Name __________________________________________________________ Account
No. ________________________________________
TELEPHONE This account will be established with a telephone exchange
EXCHANGE privilege which will authorize Waddell & Reed Services Co. to act upon
PRIVILEGE instructions by telephone to exchange Fund shares held in my (our)
account for shares of other Funds eligible under the Exchange Privilege to be
held in an identically registered account(s) (see Prospectus for details),
unless you check the box on the left to indicate your rejection of this
service.
Check box at the right
if this service is NOT requsted. I (We) hereby ratify any instructions given
pursuant to this authorization and agree that none of the funds, Waddell &
Reed, Inc. nor Waddell & Reed Serices Company will be liable for any loss,
liability, cost or expense for acting upon instructions believed to be
genuine.[]
Under penalties of perjury, I (we) certify that the number shown on this
application is the correct Tax Identification Number of my organization (or my
correct Social Security Number if the account is for my personal use) and that
the organization is not (I am not) subject to backup withholding either because
if it has not (I have not) been notified that it is (I am) subject to backup
withholding as a result of a failure to report all interest, dividends or
capital gains, or the Internal Revenue Service has notified it (me) that it is
no (I am no) longer subject to backup withholding. The undersigned certify
that I (we) have full authority and legal capacity to purchase shares of the
Fund and affirm that I (we) have received a current Prospectus and agree to be
bound by its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate resolution on
reverse side.
1.___________________ 2. ___________________________
Authorized Signature Authorized Signature
_____________________ ____________________________
Title Title
3. _________________ 4. ___________________________
Authorized Signature Authorized Signature
____________________ ____________________________
Title Title
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. AFFILIATES AND ITS CUSTODIAN
BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY WRITTEN
NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he is duly elected (title)
__________________________________________ of (corporate name)
_________________________ a corporation organized under the laws of (the State
of) __________________________ and that the following is a true and correct
copy of a resolution adopted by the corporation's Board of Directors at a
meeting duly called and held on (date) ________________________________.
RESOLVED, that any (enter number required to act) _________ of the
corporation's following identified officers (enter titles only)
____________________________________
____________________________________________________________________ are
authorized to execute investment applications with the United Fund Group/W&R
Funds and any Fund investment accounts in the name of the corporation; to
invest such funds of the corporation in shares issued by one or more United
Fund/W&R Funds ("Fund Shares"), as they deem appropriate; and to issue
instructions (including the execution of money fund drafts, if applicable)
pertaining to the redemption, exchange or transfer of Fund Shares.
FURTHER RESOLVED, that each shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals occupy the
offices designated. (Attach additional list if necessary.)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
___________________________________________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes: _______________________________________________
Name and Title
CONFIDENTAL DATA (Must be completed on New Accounts/New Products)
1. Annual Income: $_______________________________ 2. Taxable Income:
$________
3. Total Investment Assets: ________________________________________________
4. Other Assets: _______________________________________
5. Net Worth (Assets minus Liabilities):
_______________________________________________________________________________
_________________
6. Investment Objectives (mark all that apply)6. [] Retirement Needs h
Reserves6. [] Other needs/goals (specify in Special Remarks)
7. Special Remarks/Considerations:
_______________________________________________________________________________
_________________________________
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
Obtain account number from the Fund. Complete Purchase Application
Telephone toll free: 1-800-366-2520 Make check payable to Waddell & Reed, Inc.
Instruct bank to transmit investment by Federal funds wire to: u
Mail application and check to:
United Missouri Bank Waddell & Reed Services
Co.,Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _____________________________________
Fund Acct # _______________________________
FUND CODES
737 - United Accumulative - Class Y 763 - United Municipal High
Income - Class Y
785 - United Asset Strategy - Class Y 748 - United New Concepts -
Class Y
738 - United Bond - Class Y 783 - United Retirement
Shares - Class Y
745 - United Continental Income - Class Y 736 - United Science and
Technology - Class Y
744 - United Gold & Government - Class Y 747 - United Vanguard -Class
Y
754 - United Government Securities - Class Y 716 - W&R Asset Strategy -
Class Y
746 - United High Income - Class Y 715 - W&R International
Growth - Class Y
749 - United High Income II - Class Y 712 - W&R Growth - Class Y
735 - United Income - Class Y 713 - W&R Limited-Term Bond -
Class Y
739 - United International Growth - Class Y 714 - W&R Municipal Bond -
Class Y
761 - United Municipal Bond - Class Y 711 - W&R Total Return Class
Y
EX-99.B9-rsappnav
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P.O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
_______________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
_______________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
_______________________________________________________________________________
RETIREMENT PLAN
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant*(Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant*(Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name
_____________________________________
(Do Not Abbreviate)
(If billing is required, ----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name ____________________________ amt $______
_______________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][][]
(Must have same ownership) Date of Birth
_______________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
_______________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
_______________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-_______________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
_______________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
_______________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
_______________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
_______________________________________________________________________________
_
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction
Authorization(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain
CR=Cash
Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional
Vice President for field personnel and 401(k) plans or Supervisor for Home
Office personnel. Refer to the reverse side for more details.
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales
Representative. A retired sales representative is defined as any sales
representative who was at the time of separation from service from Waddell &
Reed a Senior Account Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to
Minors Act purchasing for the child of an employee or sales representative.
(The Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at
net asset value will be permitted provided the new registration maintains
ownership by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
_______________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
_______________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct (or I
am waiting for a number to be issued to me) and (strike the following if not
true) that I am not subject to backup withholding because (a) I am exempt
from backup withholding, or (b) I have not been notified by the IRS that I am
subject to backup withholding as a result of a failure to report all interest
and dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A
CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree
to notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________
_______________________________________Name of Waddell & Reed Employee or
Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment as
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
EX-99.B9-rsasa
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the 1st day of October, 1990, by and between
United Retirement Shares, Inc. (the "Fund"), a Maryland corporation and Waddell
& Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting
Services Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting Services
Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services
Agent for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this Paragraph B
as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of
the Fund's attorneys and independent accountants, to prepare or assist the
Fund's attorneys and independent accountants to prepare, as may be applicable,
reports required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be required by rules and regulations of the Securities and
Exchange Commission adopted under Section 31(a) of the Investment Company Act
of 1940 as amended (the "Act").
(3) Agent shall cause the subject records of the Fund to be
maintained and preserved pursuant to the requirements under the Act.
(4) In pricing daily the value of shares of the Fund, Agent may make
arrangements to and obtain the value of portfolio securities from pricing
services or quotation services that are compensated by the Fund directly or
indirectly through the placement of portfolio transactions with broker-dealers
who provide such valuation or quotation services to the Agent.
(5) The Agent shall maintain duplicate copies of, or information
from which copies of, the records necessary to the preparation of the Fund's
financial statements and valuations of its assets may be reconstructed. Such
duplicate copies or information shall be maintained at a location other than
where the Agent performs its normal duties hereunder so that in the event the
records established and maintained pursuant to the foregoing provisions of this
Section B are damaged or destroyed, the Agent shall be able to provide the
bookkeeping and accounting services and assistance specified in this Section B.
(6) In the event any of the Agent's facilities or equipment
necessary for the performance of its duties hereunder is damaged, destroyed or
rendered inoperable by reason of fire, vandalism, riot, natural disaster or
otherwise, Agent will use its best efforts to restore all services hereunder to
the Fund and will not seek from the Fund additional compensation to repair or
replace damaged or destroyed facilities or equipment. The Agent shall also
make and maintain arrangements for emergency use of alternative facilities for
use in the event of the aforesaid destruction of or damage to its facilities.
C. Compensation of the Agent.
The Fund agrees to pay to the Agent for its services under this
Agreement, an amount payable on the first day of the month as shown on the
following table pertinent to the average daily net assets of the Fund during
the prior month:
Fund's Average Daily Net Asset for Monthly Fee
the Month
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,333
$200 - $ 350 million $ 4,167
$350 - $ 550 million $ 5,000
$550 - $ 750 million $ 5,833
$750 - $ 1.0 billion $ 7,083
$1.0 billion and over $ 8,333
D. Right of Fund to Inspect, and Ownership of Records.
The Fund will have the right under this Agreement to perform on-site
inspection of records and accounts, and audits directly pertaining to the
Fund's accounting and portfolio records maintained by the Agent hereunder at
the Agent's facilities. The Agent will cooperate with the Fund's independent
accountants or representatives of appropriate regulatory agencies and furnish
all reasonably requested records and data. Agent acknowledges that these
records are the property of the Fund, and that it will surrender to the Fund
all such records promptly on request.
E. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel, facilities and equipment as well as the accurate performance of all
services to be performed by it hereunder within, at a minimum, the time
requirements of any applicable statutes, rules or regulations and in conformity
with the Fund's Articles of Incorporation, Bylaws and representations made in
the Fund's current registration statement as filed with the Securities and
Exchange Commission.
The Agent shall not be responsible for, and the Fund agrees to
indemnify the Agent for, any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or
suit not resulting from the Agent's failure to exercise good faith or due
diligence and arising out of or in connection with the Agent's duties on behalf
of the Fund hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties (except with respect to the
Agent's employees), fire, mechanical breakdown beyond its control, flood
catastrophe, acts of God, insurrection, war, riots or failure beyond its
control of transportation, communication or power supply; or (iii) for any
action taken or omitted to be taken by the Agent in good faith in reliance on
the accuracy of any information provided to it by the Fund or its directors or
in reliance on any advice of counsel who may be internally employed counsel or
outside counsel for the Fund or advice of any independent accountant or expert
employed by the Fund with respect to the preparation and filing of any document
with a governmental agency or authority.
In order for the rights to indemnification to apply, it is understood
that if in any case the Fund may be asked to indemnify or hold the Agent
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend the
Agent against any claim which may be the subject of this indemnification and,
in the event that the Fund so elects, it will so notify the Agent, and
thereupon the Fund shall take over complete defense of the claim, and the Agent
shall sustain no further legal or other expenses in such situation for which
the Agent shall seek indemnification under this paragraph. The Agent will in
no case confess any claim or make any compromise in any case in which the Fund
will be asked to indemnify the Agent except with the Fund's prior written
consent.
F. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for
a period of one (1) year and from year-to-year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended, or a new agreement covering the same topics between the Fund and the
Agent may be entered into only if the terms of this Agreement, such
continuance, the terms of such amendment or the terms of such new agreement
have been approved by the Board of Directors of the Fund, including the vote of
a majority of the directors who are not "interested persons," as defined in the
Act, of either party to this Agreement, the agreement to be continued,
amendment or new agreement, cast in person at a meeting called for the purpose
of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director's vote shall, in favor of continuance,
amendment or execution of a new agreement, include a determination that (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund 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 the Fund; (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 the light of the usual and
customary charges made by others for services of the same nature and quality.
Nothing herein contained shall prevent any disinterested director
vote from being conditioned on the favorable vote of the holders of a majority
(as defined in or under the Act) of the outstanding shares of the Fund.
G. Termination.
(1) This Agreement may be terminated by the Agent at any time
without penalty upon giving the Fund at least one hundred twenty (120) days'
written notice (which notice may be waived by the Fund) and may be terminated
by the Fund at any time without penalty upon giving the Agent at least sixty
(60) days' written notice (which notice may be waived by the Agent), provided
that such termination by the Fund shall be directed or approved by the vote of
a majority of the Board of Directors of the Fund in office at the time or by
the vote of the holders of a majority (as defined in or under the Act) of the
outstanding shares of the Fund.
(2) On termination, the Agent will deliver to the Fund or its
designee all files, documents and records of the Fund used, kept or maintained
by the Agent in the performance of its services hereunder, including such of
the Fund's records in machine readable form as may be maintained by the Agent,
as well as such summary and/or control data relating thereto used by or
available to the Agent.
(3) In addition, on such termination or in preparation therefore at
the request of the Fund and at the Fund's expense, the Agent shall provide, to
the extent that its capabilities then permit, such documentation, personnel and
equipment as may be reasonably necessary in order for a new agent or the Fund
to fully assume and commence to perform the agency functions described in this
Agreement with a minimum disruption to the Fund's activities.
(4) 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 of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date and year first above written.
United Retirement Shares, Inc.
By:/s/Rodney O. McWhinney
-------------------------
ATTEST:
By:/s/Sharon K. Pappas
----------------------
Secretary
WADDELL & REED SERVICES COMPANY
By: /s/Robert L. Hechler
------------------------
ATTEST:
By:/s/Rodney O. McWhinney
-------------------------
Secretary
EX-99.B9-rssa
SERVICE AGREEMENT
THIS AGREEMENT made this 1st day of October, 1993, by and between
United Retirement Shares, Inc. (the "Fund"), and Waddell & Reed, Inc. ("W&R"),
WHEREAS, W&R serves as the principal underwriter and sole distributor
of the Fund's shares, which it markets through its national sales force, and is
the parent company of Waddell & Reed Services Company, which provides transfer
agency and related services to the Fund, including the maintenance of
shareholder records;
AND WHEREAS, the Fund has adopted a plan ("Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended ("Act") to provide
for personal services to Fund shareholders and/or maintenance of shareholder
accounts, as such terms are used in Article III, Section 26(b) of the National
Association of Securities Dealers, Inc.'s Rules of Fair Practice, through the
efforts of W&R and its affiliates under the terms of which the Fund may pay an
amount not to exceed .25 of 1% of the Fund's average annual net assets for
personal services and/or maintenance of shareholder accounts;
NOW THEREFORE, it is mutually agreed as follows:
A. WADDELL & REED, INC. - DUTIES
W&R may provide personal services to the Fund's shareholders and/or
seek to maintain shareholder accounts by taking any or all of the following
actions:
1. Field Compensation, Training and Management - Through compensation
arrangements, training, support and management practices cause its registered
representatives, managers and/or other appropriate personnel to provide
personal services to Fund shareholders with respect to their investments in the
Fund, their rights and privileges as Fund shareholders, status of their Fund
accounts, assistance in handling transactions and other needs shareholders may
have as may be relevant to their holding and maintaining their investments in
the Fund;
2. Field Office Support -Increases the services provided to Fund
shareholders by office personnel located at its field offices;
3. Other. Engage in such other activities as W&R deems appropriate
and useful to provide personal services to Fund shareholders and/or maintain
shareholder accounts.
B. PAYMENTS TO WADDELL & REED, INC.
1. Subject to the limitation in Section B.3. below, the Fund shall
fully reimburse W&R for its cost of providing the services specified in the
foregoing Section A of this Agreement, including W&R's direct expenses,
overhead and administrative costs, and payments made by it to its registered
representatives and managers for providing services.
2. Payments shall be made by the Fund to W&R monthly on presentation
of a statement by W&R to the Fund listing the amounts of expenses incurred by
W&R (including expenses incurred by any subsidiary of W&R providing the
services
through W&R) during the last month ended.
3. Payments by the Fund shall be made pursuant to the Plan. For each
of the Fund's fiscal years the maximum aggregate amount of all payments made
pursuant to Sections B.1. and B.2. above shall not exceed an amount equal to
.25 of 1% of the Fund's average annual net assets (prorated for the fiscal year
in which this Agreement becomes effective).
4. In calculating the amount of costs and expenses for providing
services hereunder where the services are provided also to shareholders of
other funds in the United Group of Mutual Funds listed in Appendix A hereto
which have adopted similar Plans and have entered into similar agreements with
W&R, and the expenses are not specifically attributable to services to a
particular fund or funds, W&R shall allocate its costs and expenses among the
Fund and the other funds on the basis of relative net assets of each fund, on
the basis of the number of shareholder accounts of each fund or a combination
of both as W&R may deem as reasonable and appropriate methods for fairly
allocating such costs and expenses, provided that it periodically reviews such
allocation methods and the fairness thereof with the independent directors of
the Fund and with the Fund's independent accountants if so requested by the
Fund's independent directors as defined in Section D.1. hereafter.
C. REPORTS
W&R shall furnish to the Fund's board of directors at least quarterly
a written report of the amounts it has expended hereunder and the specific
purposes for which expenditures were made.
D. APPROVAL AND TERMINATION
1. The Fund represents that this Agreement has been approved by a
vote of the board of directors of the Fund and of the directors of the Fund who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or this Agreement (the
"independent directors"), which was cast in person by such directors at a
meeting called for the purpose of voting on the Plan and the approval of this
Agreement.
2. This Agreement shall continue in effect for a period of one (1)
year from the date hereof and from year to year thereafter only so long as such
continuance is approved by the directors, including the independent directors,
as specified hereinabove, for the approval of this Agreement by the directors
and independent directors.
3. This Agreement may be terminated by the Fund or by W&R by giving
at least sixty (60) days' notice to the other party.
4. This Agreement shall automatically terminate in the event of its
assignment as such term is defined in the Act and the rules thereunder, and
shall automatically terminate if the Fund terminates the Plan under which this
Agreement was adopted by the Fund.
5. Any termination shall be without payment of any penalty.
IN WITNESS WHEREOF, the parties have executed this Agreement this 1st day of
October, 1993.
United Retirement Shares, Inc.
By: /s/ Rodney O. McWhinney
Rodney O. McWhinney, Vice President
ATTEST:
/s/ Sharon K. Pappas
Sharon K. Pappas, Secretary
WADDELL & REED, INC.
By: /s/ Robert L. Hechler
Robert L. Hechler, President
ATTEST
/s/ Rodney O. McWhinney
Rodney O. McWhinney, Secretary
<PAGE>
APPENDIX A
United Funds, Inc.
United Accumulative Fund
United Bond Fund
United Income Fund
United Science and Technology Fund
United Continental Income Fund, Inc.
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
EX-99.B9-rssaa
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 29th day of August, 1995, by
and between United Retirement Shares, Inc. (the "Company") and Waddell & Reed,
Inc. ("W&R").
WHEREAS, the Company and W&R have entered into a certain Service Agreement
dated October 1, 1993, as amended September 1, 1994, which the parties now
desire to amend to clarify that the Service Agreement, as amended, relates
solely to the Class A shares of the Company, as such shares may now or in the
future exist;
AND WHEREAS, the Company has adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940 a Service Plan applicable to Class A shares.
NOW THEREFORE, it is mutually agreed as follows:
1. It is understood that the Service Agreement, as previously amended, is
applicable only with respect to the Class A shares of the Company, as such
shares may now or in the future exist.
2. The Company represents that this Amendment has been approved by vote of
the Board of Directors of the Company and of the directors of the Company
who are not interested persons of the Company and who have no direct
financial interest in the operation of the Service Plan or this Agreement
("independent directors"), which was cast in person by such directors at a
meeting called for the purpose of voting on approval of this Amendment.
3. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in
the Service Agreement and to the other provisions set forth therein.
UNITED RETIREMENT SHARES, INC.
By:
------------------------
Waddell & Reed, Inc.
By:
-----------------------
EX-99.B11-rsconsnt
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 45 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
August 4, 1995, relating to the financial statements and the financial
highlights of United Retirement Shares, Inc., which appears in such Statement
of Additional Information. We also consent to the reference to us under the
heading "Custodial and Auditing Services" in such Statement of Additional
Information, to the reference to us under the heading "Financial Highlights"
in the Class A Shares Prospectus and to the references to us under the heading
"Independent Accountants" in the Class A Shares and Class Y Shares Prospectuses
which constitute part of this Registration Statement.
Price Waterhouse LLP
Kansas City, Missouri
August 7, 1995
EX-99.B15-rsspca
SERVICE PLAN
FOR CLASS A SHARES
(Adopted on October 1, 1993
and Restated on August 29, 1995)
This Plan is adopted by United Retirement Shares, Inc. (the "Company"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Act") to provide for payment by the Company of certain expenses in
connection with the provision of personal services to the Company's Class A
shareholders and/or maintenance of its Class A shareholder accounts. Payments
under the Plan are to be made to Waddell & Reed, Inc. ("W&R") which serves as
the principal underwriter for the Company under the terms of a written Service
Agreement ("Agreement") separate and apart from the Underwriting Agreement
pursuant to which W&R offers and sells the shares of the Company.
Service Fee
The Company is authorized to pay to W&R an amount not to exceed .25 of 1% of
the average net assets of the Class A shares as a "service fee" to finance
shareholder servicing by W&R, its affiliated companies and broker-dealers who
may sell Class A shares and to encourage and foster the maintenance of Class A
shareholder accounts. The amounts shall be payable to W&R monthly or at such
other intervals as the board of directors may determine to reimburse W&R for
costs and expenses incurred.
NASD Definition
For purposes of this Plan the "service fee" shall be considered a payment made
by the Company for personal service and/or maintenance of Class A shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, Inc. ("NASD"), provided, however, if the NASD adopts a definition of
"service fee" for purposes of Article III, Section 26(b) of its Rules of Fair
Practice that differs from the definition of "service fee" as presently used,
or if the NASD adopts a related definition intended to define the same concept,
the definition of "service fee" as used herein shall be automatically amended
to conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the service fee paid or payable to it under this Plan and the
purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective when it has been approved by a vote of at
least a majority of the outstanding Class A voting securities of the Company
(as defined in the Act) and by a vote of the board of directors of the Company
and of the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purpose of voting on such Plan. The initial Agreement shall become effective
the effective date of this Plan, provided, however, that it has been approved
in accordance with the requirements of Rule 12b-1 under the Act.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year-to-year only so long as such continuance is approved by the
directors, including the independent directors, as specified hereinabove for
the adoption of a Plan by the directors and independent directors.
Director Consideration
In considering whether to adopt, implement or continue this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to
furnish, such information as may be reasonably necessary to an informed
determination of whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Company or by a vote of the majority of the
outstanding Class A voting securities of the Company without penalty. On
termination, the payment of all service fees shall cease, and the Company shall
have no obligation to W&R to reimburse it for any cost or expenditure it has
made or may make to service Class A shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
personal service and/or maintenance of shareholder accounts without approval of
the Class A shareholders, and all material amendments of this Plan must be
approved in the manner prescribed for the adoption of the Plan as provided
hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
Records
Copies of this Plan, the Agreement and reports made pursuant to this Plan shall
be preserved as provided in Rule 12b-1(f) under the Act.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000101185
<NAME> UNITED RETIREMENT SHARES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 453,343,325
<INVESTMENTS-AT-VALUE> 527,989,903
<RECEIVABLES> 4,561,131
<ASSETS-OTHER> 18,296
<OTHER-ITEMS-ASSETS> 27,615
<TOTAL-ASSETS> 532,596,945
<PAYABLE-FOR-SECURITIES> 2,830,050
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,704,939
<TOTAL-LIABILITIES> 4,534,989
<SENIOR-EQUITY> 63,920,608
<PAID-IN-CAPITAL-COMMON> 363,890,147
<SHARES-COMMON-STOCK> 63,920,608
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,187,534
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,417,506
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 74,646,161
<NET-ASSETS> 528,061,956
<DIVIDEND-INCOME> 8,451,414
<INTEREST-INCOME> 10,608,492
<OTHER-INCOME> 0
<EXPENSES-NET> 4,308,796
<NET-INVESTMENT-INCOME> 14,751,110
<REALIZED-GAINS-CURRENT> 29,069,365
<APPREC-INCREASE-CURRENT> 25,469,423
<NET-CHANGE-FROM-OPS> 69,289,898
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,359,196
<DISTRIBUTIONS-OF-GAINS> 16,046,041
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,362,713
<NUMBER-OF-SHARES-REDEEMED> 7,622,986
<SHARES-REINVESTED> 3,899,165
<NET-CHANGE-IN-ASSETS> 75,225,923
<ACCUMULATED-NII-PRIOR> 806,482
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,739,585
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,308,796
<AVERAGE-NET-ASSETS> 484,487,437
<PER-SHARE-NAV-BEGIN> 7.64
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> .86
<PER-SHARE-DIVIDEND> .22
<PER-SHARE-DISTRIBUTIONS> .26
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.26
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B18-rsmcp
UNITED RETIREMENT SHARES, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the
multiple class structure for United Retirement Shares, Inc. ("Fund"). This
multiple class structure was approved by the Board of Directors of United
Retirement Shares, Inc. on February 8, 1995, under an order of exemption issued
by the Securities and Exchange Commission on January 11, 1995. This Plan
describes the classes of shares of stock of the Fund -- Class A shares and
Class Y shares -- offered to the public on or after August 29, 1995
("Implementation Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 4.25% of the amount
invested and declines to 0% based on discounts for volume purchases. The
initial sales charge is waived for certain eligible purchasers.
Class A shares also will be subject to a service fee charged pursuant to a
Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1")
that provides for a maximum fee of .25% of the average annual net assets of the
Class A shares of the Fund. All of the shares of the Fund issued pursuant to a
Fund prospectus effective prior to the Implementation Date and that are
outstanding on the Implementation Date will be designated as Class A shares.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and without a 12b-1 fee. Class Y shares are designed for institutional
investors and will be available for purchase by: (i) participants of employee
benefit plans established under section 403(b) or section 457, or qualified
under section 401, including 401(k) plans, of the Internal Revenue Code of 1986
("Code"), when the plan has 100 or more eligible employees and holds the shares
in an omnibus account on the Fund's records; (ii) banks, trust institutions and
investment fund administrators investing for their own accounts or for the
accounts of their customers where such investments for customer accounts are
held in an omnibus account on the Fund's records; (iii) government entities or
authorities and corporations whose investment within the first twelve months
after initial investment is $10 million or more; and (iv) certain retirement
plans and trusts for employees and sales representatives of Waddell & Reed,
Inc. and its affiliates.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class A shares
and Class Y shares of the Fund differ with respect to the applicable
shareholder servicing fees. Class A shares pay a monthly shareholder servicing
fee of $1.0208 for each Class A shareholder account which was in existence
during the prior month, plus $0.30 for each Class A account on which a dividend
or distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average
daily net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other
expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
The shareholder servicing fees and other expenses listed above which are
attributable to a particular Class are charged directly to the net assets of
the particular Class and, thus, are borne on a pro rata basis by the
outstanding shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class A shares of the Fund may be exchanged for corresponding shares of
any other fund in the United Group of Mutual Funds.
Class Y shares may be exchanged for Class Y shares of any other fund in
the United Group of Mutual Funds.
These exchange privileges may be modified or terminated by the Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the Fund's multiple class structure.
June 30, 1995
