Form N-1A
File No. 811-9789
File No. 333-95015
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. __1__
Post-Effective Amendment No._____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. _1_
UNITED TAX-MANAGED EQUITY FUND, INC.
- -------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66201-9217
- -------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering
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As soon as practical after effective date of Registration Statement
===========================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The Registrant requests registration of an indefinite amount of shares of
its capital stock, $.001 per share, by this Registration Statement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, action pursuant to said Section 8(a),
may determine.
<PAGE>
United Tax-Managed Equity Fund, Inc.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
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 prior to registration
or qualification under the securities laws of any such state.
This Fund seeks long-term growth of capital while minimizing taxable gains and
income to shareholders.
Prospectus
March 31, 2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.......................................................3
PERFORMANCE...................................................................5
FEES AND EXPENSES.............................................................6
THE INVESTMENT PRINCIPLES OF THE FUND.........................................8
Investment Goal, Principal Strategies and Other Investments................8
Risk Considerations of Principal Strategies and Other Investments..........9
YOUR ACCOUNT.................................................................11
Choosing a Share Class....................................................11
Sales Charge Reductions and Waivers....................................13
Waivers for Certain Investors..........................................14
Ways to Set Up Your Account...............................................17
Buying Shares.............................................................19
Minimum Investments.......................................................22
Adding to Your Account....................................................22
Selling Shares............................................................23
Telephone Transactions....................................................27
Shareholder Services......................................................28
Personal Service.......................................................28
Reports................................................................28
Exchanges..............................................................29
Automatic Transactions for Class A, Class B and Class C Shareholders...29
Distributions and Taxes...................................................30
Distributions..........................................................30
Taxes..................................................................30
THE MANAGEMENT OF THE FUND...................................................33
Portfolio Management......................................................33
Management Fee............................................................33
2
<PAGE>
An Overview of the Fund
Goal
United Tax-Managed Equity Fund, Inc. seeks long-term growth of capital while
minimizing taxable gains and income to shareholders.
Principal Strategies
The Fund seeks to achieve its goal by investing primarily in a diversified
portfolio of common stocks of U.S. companies that Waddell & Reed Investment
Management Company ("WRIMCO"), the Fund's investment manager, considers to be
high in quality and attractive in their long-term investment potential. The Fund
seeks stocks that are favorably priced in relation to their fundamental value
and will likely grow over time. While the Fund typically invests in the common
stock of large to medium-sized U.S. companies, it may invest in companies of any
size, any industry or any country in order to achieve its goal.
WRIMCO manages the Fund using an investment strategy that is sensitive to the
potential impact of federal income tax on shareholders' investment returns. The
Fund's tax-sensitive investment strategy is intended to lead to lower
distributions of income and realized capital gains than funds managed without
regard to federal income tax consequences.
In selecting companies, WRIMCO typically invests for the long term and chooses
securities that it believes offer strong opportunities for long-term growth of
capital and are attractively valued. While WRIMCO primarily invests in growth
stocks, it may also purchase value stocks. Value stocks are those that WRIMCO
believes are currently selling below their true worth.
When deciding to sell a security, WRIMCO considers the negative tax impact of
realized capital gains and, if applicable, the positive tax impact of realizing
capital losses. However, WRIMCO may sell a security at a realized gain if it
determines that the potential tax cost is outweighed by the risk of owning the
security or more attractive investment opportunities are available. In addition,
redemptions by shareholders may force the Fund to sell securities at an
inappropriate time, potentially resulting in realized gains.
Principal Risks of Investing in the Fund
Because the Fund owns different types of investments, a variety of factors can
affect its investment performance, such as:
o the skill of WRIMCO in evaluating and selecting securities for the Fund;
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o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o the mix of securities in the Fund, particularly the relative weightings in,
and exposure to, different sectors and industries that may result in
performance less favorable than another investment mix might have produced;
o adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
o the Fund's tax-sensitive investment strategy may not be successful in
limiting taxable income and realized capital gains.
Market risk for small companies may be greater than that for medium and large
companies. Smaller companies are more likely to have limited financial resources
and inexperienced management. Stock of smaller companies and growth stock in
general may also experience volatile trading and price fluctuations.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest The Fund is designed for long-term taxable investors. If
you are investing for the short-term (less than one year), you may suffer
negative tax consequences. Market conditions may limit the Fund's ability to
generate tax losses or to avoid dividend income. While the Fund tries to reduce
the extent to which shareholders incur taxes on Fund distributions of income and
net realized gains, the Fund expects to distribute taxable income and/or capital
gains from time to time. Investors may realize capital gains when they sell
their shares. You should consider whether the Fund fits your particular
investment objectives.
4
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Performance
The Fund has not been in operation for a full calendar year; therefore, it does
not have performance information of at least one calendar year to include a
bar chart or table reflecting average annual returns.
5
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ------ ------ ------ ------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage of
offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(1) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
Management Fees 0.65% 0.65% 0.65% 0.65%
Distribution and
Service (12b-1) Fees 0.25% 1.00% 1.00% None
Other Expenses 0.40% 0.40% 0.40% 0.20%
Total Annual Fund
Operating Expenses 1.30% 2.05% 2.05% 0.85%
</TABLE>
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the class expenses remain the same.
- --------
(1) The contingent deferred sales charge ("CDSC"), which is imposed on
the lesser of amount invested or redemption value of Class B shares, declines
from 5% for redemptions made within the first calendar year of purchase, to 4%
for redemptions made within the second calendar year, to 3% for redemptions made
within the third and fourth calendar years, to 2% for redemptions made within
the fifth calendar year, to 1% for redemptions made within the sixth calendar
year and to 0% for redemptions made after the sixth calendar year. Please note
that the CDSC is not based on the length of time that Class B shares are held.
Instead, the CDSC is based on the calendar year of purchase and the calendar
year of redemption. For Class C shares, a 1% CDSC applies to the lesser of
amount invested or redemption value of Class C shares redeemed within twelve
months after purchase.
(2) The expenses shown for Management Fees reflect the maximum annual fee
payable; however, WRIMCO has voluntarily agreed to waive its investment
management fee on any day if the Fund's net assets are less than $25 million,
subject to WRIMCO's right to change or terminate this waiver. The expense ratios
for Other Expenses are based on estimated amounts for the current fiscal year.
Actual expenses may be greater or less than those shown.
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Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
<TABLE>
<CAPTION>
If shares are redeemed
at end of period: 1 Year 3 Years
<S> <C> <C>
Class A Shares $700 $963
Class B Shares $608 $943
Class C Shares $308 $643
Class Y Shares $ 87 $271
</TABLE>
<TABLE>
<CAPTION>
If shares are not
redeemed at end
of period: 1 Year 3 Years
<S> <C> <C>
Class A Shares $700 $963
Class B Shares $208 $643
Class C Shares $208 $643
Class Y Shares $ 87 $271
</TABLE>
7
<PAGE>
The Investment Principles of the Fund
Investment Goal, Principal Strategies and Other Investments
The goal of the Fund is long-term growth of capital while minimizing taxable
gains and income to shareholders. The Fund seeks to achieve its goal by
investing primarily in a diversified portfolio of common stocks of U.S.
companies that WRIMCO considers to be high in quality and attractive in their
long-term investment potential. The Fund seeks stocks that are favorably priced
in relation to their fundamental value and will, likely, grow over time.
The Fund attempts to achieve high after-tax returns for its shareholders by
weighing investment considerations and tax considerations. The Fund seeks to
minimize income distributions and distributions of realized short-term gains
(taxed as ordinary income), as well as distributions of realized long-term
gains. The Fund seeks to achieve returns primarily in the form of price
appreciation (not subject to current tax until shares are redeemed). There is no
guarantee that the Fund will achieve its goal.
WRIMCO ordinarily uses one or more of the following strategies in its management
of the Fund:
o a long-term, low turnover approach to investing;
o an emphasis on lower-yielding securities to require distribution of little,
if any, taxable income;
o an attempt to avoid net realized short-term gains;
o in the sale of portfolio securities, selection of the most tax-favored lots;
and
o selective tax-advantaged hedging techniques as an alternative to taxable
sales.
The Fund will, under normal market conditions, invest at least 65% of its total
assets in equity securities, primarily common stocks and securities convertible
into common stocks. The Fund emphasizes growth stocks; however it may also
invest in value stocks. In addition to common stocks, and securities convertible
into common stocks, the Fund may invest in preferred stocks and debt securities
that are mostly of investment grade (rated BBB and higher by Standard & Poor's
or Baa and higher by Moody's Investors Service, Inc.). The Fund may also buy
foreign
8
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securities; however, it may not invest more than 25% of its total assets in
foreign securities.
When WRIMCO believes that a temporary defensive position is desirable or
necessary, the Fund may invest up to all of its assets in debt securities
(including commercial paper or short-term U.S. Government securities) or
preferred stocks, or both. By taking a temporary defensive position, the Fund
may not achieve its investment objective.
WRIMCO may also invest in and use other types of assets in seeking to achieve
the Fund's goal. For example, the Fund may invest in options, futures contracts,
asset-backed securities and other derivative instruments if it is permitted to
invest in the type of asset by which the return on, or value of, the derivative
is measured. WRIMCO may use tax-advantage heading techniques to protect the
value of a holding without selling the security. At this time, the Fund does not
anticipate investing in derivative instruments except to a limited extent.
You will find more information about the Fund's permitted investments and
strategies, as well as the restrictions that apply to them, in the Statement of
Additional Information ("SAI").
Risk Considerations of Principal Strategies
and Other Investments
Risks exist in any investment. The Fund is subject to equity risk and other
market risk, financial risk and risks associated with tax-management investment
strategies.
o Market risk is the possibility of a change in the price of the security. The
prices of common stocks and other equity securities generally fluctuate more
than those of other investments. The Fund may lose a substantial part, or
even all, of its investment in a company's stock. Growth stocks may
experience greater price volatility than value stocks. To the extent the
Fund invests in fixed income securities the price of a fixed income security
may be affected by changes in interest rates. Bonds with longer maturities
are more interest-rate sensitive. For example, if interest rates increase,
the value of a bond with a longer maturity is more likely to decrease.
Because of market risk, the share price of the Fund will likely change as
well.
o Financial risk is based on the financial situation of the issuer of the
security. The financial risk of the Fund may depend, for example, on the
earnings performance of the issuer of stock held by the Fund. To the extent
the Fund invests in debt securities, the financial risk of the Fund may also
depend on the credit quality of the securities in which it invests.
o Notwithstanding the Fund's use of tax investment management strategies, the
Fund may have taxable income and may realize taxable capital gains from time
to time. In addition, investors purchasing Fund shares when the Fund has
large accumulated capital gains could receive a significant part of the
purchase price of their shares back as a taxable capital gain distribution.
Over time,
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<PAGE>
securities with unrealized gains may comprise a substantial portion of the
Fund's assets. As well, state or federal tax laws or regulations may be
amended at any time including adverse changes to applicable tax rates or
capital gains holding periods.
Certain types of the Fund's authorized investments and strategies, such as
foreign securities and derivative instruments, involve special risks. Depending
on how much the Fund invests or uses these strategies, these special risks may
become significant. For example, foreign investments may subject the Fund to
restrictions on receiving the investment proceeds from a foreign country,
foreign taxes, and potential difficulties in enforcing contractual obligations.
Also, fluctuations in foreign currency values and other political and economic
developments may adversely affect a foreign country. Derivative instruments may
expose the Fund to greater volatility than an investment in a more traditional
stock, bond or other security.
Because the Fund owns different types of investments, its performance will be
affected by a variety of factors. In general, the value of the Fund's
investments and the income it may generate will vary from day to day, generally
due to changes in market conditions, interest rates and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments.
10
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for the Fund: Class A, Class B,
Class C and Class Y. Each class has its own sales charge, if any, and expense
structure. The decision as to which class of shares is best suited to your needs
depends on a number of factors that you should discuss with your financial
advisor. Some factors to consider are how much you plan to invest and how long
you plan to hold your investment. If you are investing a substantial amount and
plan to hold your shares for a long time, Class A shares may be the most
appropriate for you. Class B and Class C shares are not available for
investments of $2 million or more. If you are investing a lesser amount, you may
want to consider Class B shares (if investing for at least seven calendar years)
or Class C shares (if investing for less than seven calendar years). Class Y
shares are designed for institutional investors and others investing through
certain intermediaries, as described below.
Since your objectives may change over time, you may want to consider another
class when you buy additional Fund shares. All of your future investments in the
Fund will be made in the class you select when you open your account, unless you
inform the Fund otherwise, in writing, when you make a future investment.
General Comparison of Class A, Class B and Class C Shares
<TABLE>
<CAPTION>
Class A Class B Class C
- ------- ------- -------
<S> <C> <C>
o Initial sales charge o No initial sales charge o No initial sales charge
o No deferred sales charge o Deferred sales charge on shares o A 1% deferred sales charge on
you sell within six calendar shares you sell within twelve
years after purchase months after purchase
o Maximum distribution and service o Maximum distribution and o Maximum distribution and
(12b-1) fees of 0.25% service (12b-1) fees of 1.00% service (12b-1) fees of 1.00%
o For an investment of $2 o Converts to Class A shares at o Does not convert to Class A
million or more, only Class the end of the shares, so annual
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
A shares are seventh calendar year expenses do not decrease
available following the
year of purchase, thus
reducing future annual
expenses
o For an investment of $300,000
or more, Waddell & Reed
financial advisors typically
will recommend purchase of
Class A shares due to a reduced
sales charge and lower annual
expenses
</TABLE>
The Fund has adopted a Distribution and Service Plan ("Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, for each of its
Class A, Class B and Class C shares. Under the Class A Plan, the Fund may pay
Waddell & Reed, Inc. a fee of up to 0.25%, on an annual basis, of the average
daily net assets of the Class A shares. This fee is to reimburse Waddell & Reed,
Inc. for the amounts it spends for distributing the Fund's Class A shares,
providing service to Class A shareholders and/or maintaining Class A shareholder
accounts. Under the Class B Plan and the Class C Plan, the Fund may pay Waddell
& Reed, Inc., on an annual basis, a service fee of up to 0.25% of the average
daily net assets of the class to compensate Waddell & Reed, Inc. for providing
service to shareholders of that class and/or maintaining shareholder accounts
for that class and a distribution fee of up to 0.75% of the average daily net
assets of the class to compensate Waddell & Reed, Inc. for distributing shares
of that class. Because a class's fees are paid out of the assets of that class
on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Class A shares are subject to an initial sales charge when you buy them, based
on the amount of your investment, according to the table below. Class A shares
pay an annual 12b-1 fee of up to 0.25% of average Class A net assets. The
ongoing expenses of this class are lower than those for Class B or Class C
shares and higher than those for Class Y shares.
12
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<TABLE>
<CAPTION>
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- -------
<S> <C> <C>
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
</TABLE>
Sales Charge Reductions and Waivers
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the funds in the
United Group, except shares of United Cash Management, Inc., unless acquired
by exchange for Class A shares, on which a sales charge was paid (or as a
dividend or distribution on such acquired shares), with the net asset value
13
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("NAV") of Class A shares already held ("Rights of Accumulation");
o Grouping all purchases of Class A shares, except shares of United Cash
Management, Inc., made during a thirteen-month period ("Letter of Intent");
and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell & Reed
financial advisors.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
o The Directors and officers of the Fund or of any affiliated entity of Waddell
& Reed, Inc., employees of Waddell & Reed, Inc., employees of their
affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each; and
o Certain retirement plans and certain trusts for these persons.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A CDSC may be assessed against your redemption
amount of Class B or Class C shares and paid to Waddell & Reed, Inc. (the
"Distributor"), as further described below. The purpose of the CDSC is to
compensate the Distributor for the costs incurred by it in connection with the
sale of the Fund's Class B or Class C shares. The CDSC will not be imposed on
Class B or Class C shares representing payment of dividends or other
distributions or on amounts which represent an increase in the value of a
shareholder's account resulting from capital appreciation above the amount paid
for Class B or Class C shares purchased during the CDSC period. The CDSC is
applied to the lesser of amount invested or redemption value.
To keep your CDSC as low as possible, each time you place a request to redeem
shares, the Fund first redeems shares in your account not subject to a deferred
sales charge (including shares which represent appreciation on shares held,
reinvested dividends and distributions) and then shares that represent the
lowest sales charge.
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<PAGE>
Unless instructed otherwise, the Fund, when requested to redeem a specific
dollar amount, will redeem additional Class B or Class C shares equal in value
to the CDSC. For example, should you request a $1,000 redemption and the
applicable CDSC is $27, the Fund will redeem shares having an aggregate NAV of
$1,027, absent different instructions.
Class B shares are not subject to an initial sales charge when you buy them.
However, you may pay a CDSC if you sell your Class B shares within six calendar
years of their purchase, based on the table below. Class B shares pay an annual
12b-1 service fee of up to 0.25% of average net assets and a distribution fee of
up to 0.75% of average net assets. Over time, these fees will increase the cost
of your investment and may cost you more than if you had purchased Class A
shares. Class B shares will automatically convert to Class A shares of the Fund
at the end of the seventh calendar year following the year of purchase. Class A
shares have lower ongoing expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
stated below.
<TABLE>
<CAPTION>
Deferred
Date of Sales
Redemption Charge
<S> <C>
anytime within 1st calendar year 5%
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
</TABLE>
All Class B investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the CDSC. For
Class B, the date of redemption is measured, in calendar years, from the first
calendar year of purchase. For example, if a shareholder opens an account on
April 1, 2000, then redeems all Class B shares on March 1,
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<PAGE>
2001, the shareholder will pay a CDSC of 4%, the rate applicable to redemptions
made within the second calendar year of purchase. Please note that the CDSC is
not based on the length of time that shares are held. Instead, the CDSC is based
on the calendar year of purchase and the calendar year of redemption.
Class C shares are not subject to an initial sales charge when you buy them, but
if you sell your Class C shares within twelve months of buying them, you will
pay a 1% CDSC. For purposes of a CDSC, purchases of Class C shares within a
month will be considered as being purchased on the first day of the month. Class
C shares pay an annual 12b-1 service fee of up to 0.25% of average net assets
and a distribution fee of up to 0.75% of average net assets. Over time, these
fees will increase the cost of your investment and may cost you more than if you
had purchased Class A shares. Class C shares do not convert to any other class.
For Class C shares, the CDSC will be applied to the lesser of amount invested or
redemption value of shares that have been held for twelve months or less.
The CDSC will not apply in the following circumstances:
o redemptions of Class B or Class C shares requested within one year of the
shareholder's death or disability, provided the Fund is notified of the death
or disability at the time of the request and furnished proof of such event
satisfactory to the Distributor.
o redemptions of Class B or Class C shares purchased by current or retired
Directors of the Fund, and Directors of affiliated companies, current or
retired officers or employees of the Fund, WRIMCO, the Distributor or their
affiliated companies, financial advisors or Waddell & Reed, Inc., and by the
members of immediate families of such persons.
o redemptions of Class B or Class C shares made pursuant to a shareholder's
participation in any systematic withdrawal service adopted for a Fund. (The
service and this exclusion from the CDSC do not apply to a one-time
withdrawal.)
o redemptions the proceeds of which are reinvested within forty-five days
in shares of the same class of the Fund as that redeemed.
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<PAGE>
o the exercise of certain exchange privileges.
o redemptions effected pursuant to the Fund's right to liquidate a
shareholder's Class B or Class C shares if the aggregate NAV of those shares
is less than $500.
o redemptions effected by another registered investment company by virtue of a
merger or other reorganization with the Fund or by a former shareholder of
such investment company of Class B or Class C shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time without
prior notice to shareholders, except with respect to redemptions effected
pursuant to the Fund's right to liquidate a shareholder's shares, which requires
certain notice.
Class Y shares are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
o banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records; and
o government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
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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
- -------------------------------------------------
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Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform 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
financial advisor for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its financial
advisors. To open your account you must complete and sign an application. Your
Waddell & Reed financial advisor can help you with any questions you might have.
19
<PAGE>
To purchase any class of shares by check, make your check payable to Waddell &
Reed, Inc. Mail the check, along with your completed application, to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
To purchase Class Y shares by wire, you must first obtain an account number by
calling 800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest, along with the account
number and registration, to UMB Bank, n.a., ABA Number 101000695, for the
account of Waddell & Reed Number 9800007978, Special Account for Exclusive
Benefit of Customers FBO Customer Name and Account Number.
You may also buy Class Y shares of the Fund indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements regarding the purchase of
Class Y shares.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a share (the price to buy one share of a particular class)
is the NAV per share of that class, plus, for Class A shares, the sales charge
shown in the table.
In the calculation of the Fund's NAV:
o The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which approximates
market value.
o Other investment assets for which market prices are unavailable are valued at
their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the "NYSE")
is open. The Fund normally calculates the NAVs of its shares as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held
20
<PAGE>
by the Fund may be priced at the close of the regular session of any other
securities or commodities exchange on which that instrument is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on U.S. national business holidays when the NYSE is closed.
Consequently, the NAV of Fund shares may be significantly affected on days when
the Fund does not price its shares and when you are not able to purchase or
redeem the Fund's shares. Similarly, if an event materially affecting the value
of foreign investments or foreign currency exchange rates occurs prior to the
close of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair value
as determined in good faith by or under the direction of the Board of Directors.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
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 shares of the Fund.
o If you purchase Class Y shares of the Fund from certain broker-dealers, banks
or other authorized third parties, the Fund will be deemed to have received
your purchase order when that third party (or its designee) has received your
order. Your order will receive the Class Y offering price next calculated
after the order has been received in proper form by the authorized third
party (or its designee). You should consult that firm to determine the time
by which it must receive your order for you to purchase shares of the Fund at
that day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
21
<PAGE>
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
For Class A, Class B and Class C:
To Open an Account $500
For certain exchanges $100
For certain accounts opened with Automatic Investment
Service $50
For certain accounts opened through payroll deductions for or by employees of
WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account Any amount
For certain exchanges $100
For Automatic Investment Service $25
For Class Y:
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
To Add to an Account Any amount
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail the
check to Waddell & Reed, Inc., along with:
22
<PAGE>
o the detachable form that accompanies the confirmation of a prior purchase or
your year-to-date statement; or
o a letter stating your account number, the account registration and the class
of shares that you wish to purchase.
To add to your Class Y account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, for the account of Waddell & Reed Number 9800007978,
Special Account for Exclusive Benefit of Customers FBO Customer Name and Account
Number.
If you purchase Class Y shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class) is the NAV
per share of that class, subject to any CDSC applicable to Class B or Class C
shares.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, 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, and the class, 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 financial advisor, or
mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
23
<PAGE>
Unless otherwise instructed, Waddell & Reed Services Company will send a check
to the address on the account.
To sell Class Y shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 888-WADDELL, or fax your
request to 913-236-1599, and give your instructions to redeem Class Y shares and
make payment by wire to your predesignated bank account or by check to you at
the address on the account.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated, subject to any applicable CDSC, after receipt of a written request
for redemption in good order by Waddell & Reed Services Company at the address
listed above. Note the following:
o 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 that
the check has cleared and been honored. If you do not, payment of the
redemption proceeds on these shares will be delayed until the earlier of 10
days or the date the Fund can verify that your purchase check has cleared and
been honored.
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 redemptions may be made in
portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. The Fund 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.
o If you purchased Class Y shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms, some
of which may charge you a fee and may have additional requirements to sell
Fund shares. The Fund will be deemed to have received your order to sell
Class Y shares when that firm (or its designee) has received your order. Your
order will receive the Class Y NAV next calculated after the order has been
received in proper form by the authorized
24
<PAGE>
firm (or its designee). You should consult that firm to determine the time by
which it must receive your order for you to sell Class Y shares at that day's
price.
25
<PAGE>
Special Requirements for Selling Shares
<TABLE>
<CAPTION>
Account Type Special Requirements
<S> <C>
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.
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 or The written instructions must be
Other Fiduciary signed by the person properly
authorized by court order to act
in the particular fiduciary
capacity.
</TABLE>
26
<PAGE>
The Fund may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or fiduciary;
o a redemption request made by someone other than the owner of record; or
o the check is made payable to someone other than the owner of record.
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but not
from a notary public.
The Fund reserves the right to redeem at NAV all of your Fund shares if their
aggregate NAV is less than $500. The Fund will give you notice and a 60-day
opportunity to purchase a sufficient number of additional shares to bring the
aggregate NAV of your shares to $500.
You may reinvest, without charge, all or part of the amount of Class A shares
you redeemed by sending to the Fund the amount you want to reinvest. The
reinvested amounts must be received by the Fund within forty-five days after the
date of your redemption. You may do this only once with Class A shares of the
Fund.
The CDSC will not apply to the proceeds of Class B or Class C shares which are
redeemed and then reinvested in Class B or Class C shares, as applicable, within
forty-five days after such redemption. The Distributor will, with your
reinvestment, restore an amount equal to the deferred sales charge attributable
to the amount reinvested by adding the deferred sales charge amount to your
reinvestment. For purposes of determining future deferred sales charges, the
reinvestment will be treated as a new investment. You may do this only once as
to Class B shares of the Fund and once as to Class C shares of the Fund.
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
27
<PAGE>
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 financial advisor is available to provide personal
service. Additionally, a toll-free call, 888-WADDELL, connects you to a
Client Services Representative or our automated customer telephone service.
During normal business hours, our Client Services staff is available to answer
your questions or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or from
our web site, www.waddell.com, to:
o obtain information about your accounts;
o obtain price information about other funds in the United Group; or
o request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone number listed for Client Services if
you need additional copies of annual or semiannual reports or account
information.
28
<PAGE>
Exchanges
You may sell your shares and buy shares of the same class of other funds in the
United Group without the payment of an additional sales charge if you buy Class
A shares or payment of a CDSC when you exchange Class B or Class C shares. For
Class B and Class C shares, the time period for the CDSC will continue to run.
In addition, exchanging Class Y shareholders may buy Class A shares of United
Cash Management, Inc. You may exchange only into funds that are legally
permitted 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 for Class A, Class B and Class C Shareholders
Flexible withdrawal service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
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 financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
<TABLE>
<CAPTION>
Minimum Amount Minimum Frequency
<S> <C>
$25 Monthly
</TABLE>
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the same
or a different account in the same class
<TABLE>
<CAPTION>
Minimum Amount Minimum Frequency
<S> <C>
$100 Monthly
</TABLE>
29
<PAGE>
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Usually the Fund distributes net
investment income annually in December. Net capital gains (and any net gains
from foreign currency transactions) usually are distributed in December.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividends, capital gains and other distributions
with respect to a class will be automatically paid in additional shares of
the same class of the Fund. If you do not indicate a choice on your
application, you will be assigned this option.
2. Income-Earned Option. Your capital gains and other non-dividend distributions
with respect to a class will be automatically paid in additional shares of
the same class, but you will be sent a check for each dividend distribution.
However, if the dividend distribution is less than five dollars, the
distribution will be automatically paid in additional shares of the same
class of the Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is equal to or greater than
five dollars. If the distribution is less than five dollars, it will be
automatically paid in additional shares of the same class of the Fund.
Taxes
As with any investment, you should consider how your investment in the Fund will
be taxed. You should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income (which includes net short-term gains), if any, generally are taxable to
you as ordinary income whether received in cash or paid in additional Fund
shares. Distributions of the Fund's net capital gains, when designated as such,
are taxable to you as long-term capital gains, whether received in
30
<PAGE>
cash or paid in additional Fund shares and regardless of the length of time you
have owned your shares. For Federal income tax purposes, your long-term capital
gains generally are taxed at a maximum rate of 20%.
The Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
A portion of the dividends paid by 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 Federal alternative minimum
tax.
Withholding. The Fund must withhold 31% of all dividends, capital gains and
other distributions and redemption proceeds payable to individuals and certain
other noncorporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends, capital
gains and other distributions also is required for shareholders subject to
backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other fund in
the United Group generally will have similar tax consequences. However, special
rules apply when you dispose of Class A Fund shares through a redemption or
exchange within ninety days after your purchase and then reacquire Class A Fund
shares or acquire Class A shares of another fund in the United Group without
paying a sales charge due to the forty-five day reinvestment privilege or
exchange privilege. See "Your Account." In these cases, any gain on the
disposition of the original Class A Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
State and local income taxes. The portion of the dividends paid by the Fund
attributable to interest earned on its U.S. Government securities generally is
not subject to state and local income
31
<PAGE>
taxes, although distributions by the Fund to its shareholders of net realized
gains on the sale of those securities are fully subject to those taxes. You
should consult your tax adviser to determine the taxability of dividends and
other distributions by the Fund in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; you will find
more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
32
<PAGE>
The Management of the Fund
Portfolio Management
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. WRIMCO and/or its predecessors have served as investment
manager to each of the registered investment companies in the United Group of
Mutual Funds, Waddell & Reed Funds, Inc., and Target/United Funds, Inc. since
the inception of each company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
Cynthia P. Prince-Fox is primarily responsible for the management of the
portfolio of the Fund. Ms. Prince-Fox has held her Fund responsibilities since
the inception of the Fund. She is Vice President of WRIMCO, Vice President of
the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. From January 1993 to March 1998, Ms. Prince-Fox
was Vice President of, and a portfolio manager for, Waddell & Reed Asset
Management Company, a former affiliate of WRIMCO. Ms. Prince-Fox has served as
the portfolio manager for investment companies managed by WRIMCO since January
1993. From 1983 to January, 1993 Ms. Prince-Fox served as an investment analyst
for WRIMCO and its predecessors.
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.
Management Fee
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 in the SAI.
The management fee is payable by the Fund at the annual rates of: 0.65% of net
assets up to $1 billion, 0.60% of net assets over $1 billion and up to $2
billion, 0.55% of net assets over $2 billion and up to $3 billion, and 0.50% of
net assets over $3 billion. However, WRIMCO has agreed to waive its management
fee on any day if the Fund's net assets are less than $25 million, subject to
WRIMCO's right to change or modify this waiver.
33
<PAGE>
United Tax-Managed Equity Fund, Inc.
<TABLE>
<S> <C>
Custodian Underwriter
928 Grand Boulevard Waddell & Reed, Inc.
UMB Bank, n.a. 6300 Lamar Avenue
Kansas City, Missouri P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. 913-236-2000
Washington, D. C. 20036 888-WADDELL
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Boulevard Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment 913-236-2000
Management Company 888-WADDELL
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
913-236-2000 6300 Lamar Avenue
888-WADDELL P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
888-WADDELL
</TABLE>
34
<PAGE>
United Tax-Managed Equity Fund, Inc.
You can get more information about the Fund in--
o its Statement of Additional Information (SAI), which contains detailed
information about the Fund, particularly its investment policies and
practices. You may not be aware of important information about the Fund
unless you read both the Prospectus and the SAI. The current SAI is on file
with the Securities and Exchange Commission (SEC) and it is incorporated into
this Prospectus by reference (that is, the SAI is legally part of the
Prospectus).
o its Annual and Semiannual Reports to Shareholders, which detail the Fund's
actual investments and include financial statements as of the close of the
particular annual or semiannual period. The annual report also contains a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the year covered by the
report.
To request a copy of the current SAI or copies of the Fund's most recent Annual
and Semiannual reports once available, without charge, or for other inquiries,
contact the Fund or Waddell & Reed, Inc. at the address and telephone number
below. Copies of the SAI, Annual and/or Semiannual reports may also be requested
via e-mail at [email protected].
Information about the Fund (including its current SAI and most recent Annual and
Semiannual Reports once available) is available from the SEC's web site at
http://www.sec.gov and from the SEC's Public Reference Room in Washington, D.C.
You can find out about the operation of the Public Reference Room and applicable
copying charges by calling 800-SEC-0330.
The Fund's SEC file number is: 811-9789.
WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
NUP2019(3-00)
35
<PAGE>
UNITED TAX-MANAGED EQUITY FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
888-WADDELL
March 31, 2000
STATEMENT OF ADDITIONAL INFORMATION
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities is being filed with the
Securities and Exchange Commission. These securities may not be sold nor any
offers to buy accepted prior to the time the registration statement becomes
effective.
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the prospectus
("Prospectus") for United Tax-Managed Equity Fund, Inc. (the "Fund") dated
March 31, 2000, which may be obtained from the Fund or its underwriter,
Waddell & Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Performance Information ........................................ 2
Investment Strategies, Policies and Practices................... 3
Investment Management and Other Services ....................... 37
Purchase, Redemption and Pricing of Shares ..................... 43
Directors and Officers ......................................... 59
Payments to Shareholders ....................................... 64
Taxes ....................................................... 65
Portfolio Transactions and Brokerage ........................... 70
Other Information .............................................. 72
Financial Statements ........................................... 74
</TABLE>
<PAGE>
United Tax-Managed Equity Fund, Inc. is a mutual fund; an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the Fund is an open-end, diversified management company
organized as a Maryland corporation on November 30, 1999.
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
Total return is the overall change in the value of an investment over a
given period of time. An average annual total return quotation is computed by
finding the average annual compounded rates of return over the one-, five-, and
ten-year periods that would equate the initial amount invested to the ending
redeemable value. Standardized total return information is calculated by
assuming an initial $1,000 investment and, for Class A shares, from deducting
the maximum sales load of 5.75%. 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 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
2
<PAGE>
formula indicated above but without averaging the rate for the number of years
in the period.
Performance Rankings and Other Information
Waddell & Reed, Inc. or the Fund also may, from time to time, publish
in advertisements and sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each class of the Fund may also compare its
performance to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average. Performance information may be quoted numerically
or presented in a table, graph or other illustration. In connection with a
ranking, the Fund may provide additional information, such as the particular
category to which it related, the number of funds in the category, the criteria
upon which the ranking is based, and the effect of sales charges, fee waivers
and/or expense reimbursements.
Performance information for the Fund may be accompanied by information
about market conditions and other factors that affect the Fund's performance for
the period(s) shown.
All performance information that the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of the Fund's shares when redeemed may be
more or less than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Fund's investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which the Fund may
invest, in pursuit of the Fund's goal. A summary of the risks associated with
these instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by the Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help the Fund achieve its goal. See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of the
Fund.
Tax-Managed Investing. Taxes are a major influence on the net returns
that investors receive on their taxable investments. There are four components
of the returns of an equity mutual fund--price appreciation, distributions of
investment income and
3
<PAGE>
distributions of realized net short-term and long-term capital gains--which are
treated differently for federal income tax purposes. Distributions of a fund's
net investment income and net realized short-term gains (on stocks held less
than 12 months) are taxed as ordinary income, at federal rates as high as 39.6%.
Distributions of realized net long-term gains (on stocks held at least 12
months) are taxed at federal rates up to 20%. Returns derived from fund share
price appreciation are untaxed until the shareholder redeems. Upon redemption, a
capital gain or loss equal to the difference between the net proceeds of the
redemption and the shareholder's adjusted tax basis is realized.
The Fund is similar to retirement planning products such as variable
annuities and individual retirement accounts ("IRAs") in that they are vehicles
for long-term, tax-managed investing. As a mutual fund, however, the Fund avoids
a number of structural disadvantages inherent in a variable annuity--including
the limitations and penalties on early withdrawals, the taxing of all income and
gain upon withdrawal at ordinary income rates, and the inability to gain a step
up in basis at death. Variable annuities offer tax-free exchanges and a death
benefit, which are not offered by the Fund. Eligibility to invest in IRAs and
annual contributions to IRAs are limited. However, in contrast to Fund purchases
and distributions, contributions to IRAs may be made from pre-tax dollars and
distributions from Roth IRAs are not taxed if certain requirements are met.
An analysis of long-term hypothetical returns achievable from a
tax-managed equity fund that achieves returns predominately from unrealized
gains compared to a conventional equity mutual fund and a variable annuity can
illustrate the fundamental soundness of a tax-managed equity fund investment.
Assuming identical annual pre-tax returns, over a holding period of several
years a tax-managed fund can generate liquidation proceeds higher than a
conventional managed equity mutual fund and a variable annuity. If the
investments are passed into an estate (thereby triggering a step-up in basis),
the relative performance advantage of a tax-managed fund compared to a
conventional fund or to a variable annuity can be substantial, again assuming
equivalent annual returns before taxes. Of course, actual returns achieved by
long-term investors in the Fund cannot be predicted.
Securities - General
The Fund may invest in securities including common stock, preferred
stock, debt securities and convertible securities. 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 Fund may invest in preferred stock rated in any rating category
of the established rating services or, if unrated, judged by WRIMCO to be of
equivalent quality. Debt securities have varying levels of sensitivity to
changes in interest rates and varying degrees of
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quality. As a general matter, however, when interest rates rise, the values of
fixed-rate securities fall and, conversely, when interest rates fall, the values
of fixed-rate debt securities rise. Similarly, long-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
Lower quality debt securities (commonly called "junk bonds" and rated
BB and lower by Standard & Poor's ("S&P") or Ba and lower by Moody's Investor
Services ("MIS")) 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. The market for lower-rated debt securities may be thinner and less
active than that for higher-rated debt securities, which can adversely affect
the prices at which the former are sold. Adverse publicity and changing investor
perceptions may decrease the values and liquidity of lower-rated debt
securities, especially in a thinly traded market. Valuation becomes more
difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default is
higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by the
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities in
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 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.
The Fund may invest in debt securities rated in any rating category of
the established rating services, including securities rated in the lowest
category (securities rated D by S&P and C by MIS). 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. 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. In
addition, the Fund will treat unrated securities judged by WRIMCO to be of
equivalent quality to a rated security as having that rating.
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. Credit ratings for individual securities may change from time
to time, and the Fund may retain a portfolio security whose rating has been
changed.
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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 invest in 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 different issuer within a particular period of time at a specified price or
formula. Convertible securities generally have higher yields than 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.
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
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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
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") are high quality debt
instruments issued or guaranteed as to principle or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
securities include Treasury Bills (which mature within one year of the date they
are issued), Treasury Notes (which have maturities of one to ten years) and
Treasury Bonds (which generally have maturities of more than 10 years). All such
Treasury securities are backed by the full faith and credit of the United
States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (also known as the Federal National Mortgage Association), Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith
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and credit of the United States. Some, such as securities issued by the Federal
Home Loan Banks, are backed by the right of the agency or instrumentality to
borrow from the Treasury. Others, such as securities issued by Fannie Mae, are
supported only by the credit of the instrumentality and by a pool of mortgage
assets. If the securities are not backed by the full faith and credit of the
United States, the owner of the securities must look principally to the agency
issuing the obligation for repayment and may not be able to assert a claim
against the United States in the event that the agency or instrumentality does
not meet its commitment.
U.S. Government securities may include mortgage-backed securities
issued by U.S. Government agencies or instrumentalities including, but not
limited to, Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed
securities include pass-through securities, participation certificates and
collateralized mortgage obligations. See "Mortgage-Backed and Asset-Backed
Securities." Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments
that present minimal credit risk. They may include U.S. Government securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit and other financial institution obligations. These instruments may carry
fixed or variable interest rates.
Zero Coupon Securities
Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin to pay current interest; instead, they are
sold at a deep discount from their face value and are redeemed at face value
when they mature. Because zero coupon securities do not pay current income,
their prices can be very volatile when interest rates change and generally are
subject to greater price fluctuations in response to changing interest rates
than prices of comparable maturities that make current distributions of interest
in cash.
The Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with
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original issue discount ("OID"). The Federal tax law requires that a holder of a
security with OID accrue a ratable portion of the OID on the security as income
each year, even though the holder may receive no interest payment on the
security during the year. Accordingly, although the Fund will receive no
payments on its zero coupon securities prior to their maturity or disposition,
it will have current income attributable to those securities and includable in
the dividends paid to its shareholders. Those dividends will be paid from the
Fund's cash assets or by liquidation of portfolio securities, if necessary, at a
time when the Fund otherwise might not have done so.
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
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 and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, mortgage
loans secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
in this SAI as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of the
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class.
The U.S. Government mortgage-backed securities in which the Fund may
invest include mortgage-backed securities issued or guaranteed as to the payment
of principal and interest (but not as to market value) by Ginnie Mae, Fannie Mae
or Freddie Mac. Other mortgage-backed securities are issued by private issuers,
generally originators of and investors in mortgage loans, including savings
associations, mortgage bankers, commercial banks, investment bankers and special
purpose entities. Payments of principal and interest (but not the market value)
of such
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private mortgage-backed securities may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. Government or one of its agencies or instrumentalities, or they may
be issued without any government guarantee of the underlying mortgage assets but
with some form of non-government credit enhancement. These credit enhancements
do not protect investors from changes in market value.
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 goal and investment policies.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities are created when a U.S. Government agency or a financial institution
separates the interest and principal components of a mortgage-backed security
and sells them as individual securities. The holder of the "principal-only"
security ("PO") receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only" security
("IO") receives interest payments from the same underlying security.
For example, IO classes are entitled to receive all or a portion of the
interest, but none (or only a nominal amount) of the principal payments, from
the underlying mortgage assets. If the mortgage assets underlying an IO
experience greater than anticipated principal prepayments, then the total amount
of interest allocable to the IO class, and therefore the yield to investors,
generally will be reduced. In some instances, an investor in an IO may fail to
recoup all of the investor's initial investment, even if the security is
guaranteed by the government or considered to be of the highest quality.
Conversely, PO classes are entitled to receive all or a portion of the principal
payments, but none of the interest, from the underlying mortgage assets. PO
classes are purchased at substantial discounts from par, and the yield to
investors will be reduced if principal payments are slower than expected. IOs,
POs and other CMOs involve special risks, and evaluating them requires special
knowledge.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets are not first lien mortgage loans or interests
therein, but include assets such as motor vehicle installment sales contracts,
other installment sale contracts, home equity loans, leases of various types of
real and personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts or special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to a
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certain amount and for a certain time period by a letter of credit or pool
insurance policy issued by a financial institution unaffiliated with the issuer,
or other credit enhancements may be present. The value of asset-backed
securities may also depend on the creditworthiness of the servicing agent for
the loan pool, the originator of the loans or the financial institution
providing the credit enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage-backed and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the
mortgage-backed securities, and this delay reduces the effective yield to the
holder of such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the
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average life of a particular pool. In the past, a common industry practice has
been to assume that prepayments on pools of fixed-rate 30-year mortgages would
result in a 12-year average life for the pool. At present, mortgage pools,
particularly those with loans with other maturities or different
characteristics, are priced on an assumption of average life determined for each
pool. In periods of declining interest rates, the rate of prepayment tends to
increase, thereby shortening the actual average life of a pool of
mortgage-related securities. Conversely, in periods of rising interest rates,
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. Changes in the rate or "speed" of these payments can cause the
value of the mortgage backed securities to fluctuate rapidly. However, these
effects may not be present, or may differ in degree, if the mortgage loans in
the pools have adjustable interest rates or other special payment terms, such as
a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in a
manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and may carry
rights that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial intermediaries on
dates prior to their stated maturities. Floating rate securities have interest
rates that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in the
interest rate. These formulas are designed to result in a market value for the
instrument that approximates its par value.
Foreign Securities and Currencies
The Fund may invest in the securities of foreign issuers, including
depositary receipts. In general, depositary receipts are securities convertible
into and evidencing ownership of securities of foreign corporate issuers,
although depositary
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receipts may not necessarily be denominated in the same currency as the
securities into which they may be converted. American depositary receipts, in
registered form, are U.S. dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are designed to facilitate the trading of securities of foreign issuers
by U.S. and non-U.S. investors and traders.
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. Thus, 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. WRIMCO believes that the Fund's ability to
invest its assets abroad might enable it to take advantage of these differences
and strengths where they are favorable.
However, foreign securities and foreign currencies involve additional
significant risks, apart from the risks inherent in U.S. investments. 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 conditions and operations.
In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than for U.S.
investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S.
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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 greater possibility of default by foreign governments
or 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. These is no assurance that
WRIMCO will be able to anticipate these potential events or counter their
effects.
The considerations noted above generally are intensified in developing
countries. A developing country is a nation that, in WRIMCO's opinion, is likely
to experience long-term gross domestic product growth above that expected to
occur in the United States, the United Kingdom, France, Germany, Italy, Japan
and Canada. Developing countries may have relatively unstable governments,
economies based on only a few industries and securities markets that trade a
small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States 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.
The Fund may purchase and sell foreign currency and invest in foreign
currency deposits, and may enter into forward currency contracts. The Fund may
incur a transaction charge in connection with the exchange of currency. Currency
conversion involves dealer spreads and other costs, although commissions are not
usually charged. See "Options, Futures and Other Strategies - Forward Currency
Contracts".
Borrowing
As a temporary measure for extraordinary or emergency purposes, the
Fund may borrow only from banks and only up to 5% of its total assets. In
general, the Investment Company Act of 1940, as amended (the "1940 Act"),
requires that the value of the Fund's assets, less its liabilities other than
borrowings, be equal to at least 300% of all borrowings including the proposed
borrowing. If the value of the Fund's assets so computed should fail to meet the
300% asset coverage requirement, it is required within three days to reduce its
bank debt to the extent necessary to meet that requirement and may have to sell
a portion of its investments at a time when independent investment judgment
would not dictate such sale.
Interest on money borrowed is an expense the Fund would not otherwise
incur, so that it may have reduced net investment income during periods of
outstanding borrowings.
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Warrants and Rights
Warrants are options to purchase equity securities at specific prices
that are valid for a specific period of time. The prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
Lending Securities
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing the Fund's income. If the Fund lends securities, the
borrower pays the Fund an amount equal to the dividends or interest on the
securities that the Fund would have received if it had not lent the securities.
The Fund also receives additional compensation. Under the Fund's current
securities lending procedures, the Fund may lend securities only to
broker-dealers and financial institutions deemed creditworthy by WRIMCO.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). At the
time of each loan, the Fund must receive collateral equal to no less than 102%
of the daily market value of the securities loaned. Under the present
Guidelines, the collateral must consist of cash, U.S. Government securities or
bank letters of credit, at least equal in value to the market value of the
securities lent on each day that the loan is outstanding. If the market value of
the lent securities exceeds the value of the collateral, the borrower must add
more collateral so that it at least equals the market value of the securities
lent. If the market value of the securities decreases, the borrower is entitled
to return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for
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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 New York Stock Exchange ("NYSE"),
which presently require the borrower to give the securities back to the Fund
within five business days after the Fund gives notice to do so. If the Fund
loses its voting rights on securities loaned, it will have the securities
returned to it in time to vote them if a material event affecting the investment
is to be voted on. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with loans of securities.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not, however, cover the present rules, which may be changed without shareholder
vote, as to (i) whom securities may be loaned; (ii) the investment of cash
collateral; or (iii) voting rights.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, as well as
risks of delay in recovering the securities loaned or even loss of rights in the
collateral should the borrower of the securities fail financially.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 15%
of its net assets to be invested in illiquid investments, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or
broker-dealer) agrees, at the time of purchase, that it will repurchase the
security at a specified time and price. The amount by which the resale price is
greater than the purchase price reflects an agreed-upon market interest rate
effective for the period of the agreement. The return on the securities subject
to the repurchase agreement may be more or less than the return on the
repurchase agreement.
The majority of the repurchase agreements in which the Fund will engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the
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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. In other words, the value of the underlying securities,
which will be held by the Fund's custodian bank or by a third party that
qualifies as a custodian under Section 17(f) of the 1940 Act, is and, during the
entire term of the agreement, will remain at least equal to the value of the
loan, including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
Investment Company Securities
The Fund may purchase 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.
Indexed Securities
The Fund may purchase securities the value of which varies in relation
to the value of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators, subject to its
operating policy regarding derivative instruments. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or statistic.
The performance of indexed securities depends to a great extent on the
performance of the security, 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 investments.
Currency-indexed securities, for example, 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,
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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.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. However, restricted securities generally can
be sold in privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, as amended, or in a registered
public offering. Where registration is required, the Fund may be obligated to
pay all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to seek
registration of the security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent the Fund from reselling the
securities at a time when such sale would be desirable. Restricted securities in
which the Fund seeks to invest need not be listed or admitted to trading on a
foreign or domestic exchange and may be less liquid than listed securities.
Certain restricted securities, e.g., Rule 144A securities, may be determined to
be liquid in accordance with guidelines adopted by the Board of Directors. See
"Illiquid Investments."
Illiquid Investments
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Investments currently
considered to be illiquid include:
(i) repurchase agreements not terminable within seven days;
(ii) securities for which market quotations are not readily available;
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(iii) restricted securities not determined to be liquid pursuant to
guidelines established by the Board of Directors;
(iv) bank deposits, unless they are payable at principal plus accrued
interest on demand or within seven days after demand;
(v) securities involved in swap, cap, floor and collar transactions;
(vi) non-government stripped fixed-rate mortgage-backed securities;
and
(vii) over-the-counter ("OTC") options and their underlying collateral.
The assets used as cover for OTC options written by the Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
If through a change in values, net assets, or other circumstances, the
Fund was in a position where more than 15% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Options, Futures and Other Strategies
General. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts, forward currency
contracts, swaps, caps, floors, collars, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance income
or yield or to attempt to hedge the Fund's investments. The strategies described
below may be used in an attempt to manage the Fund's foreign currency exposure
as well as other risks of the Fund's investments that can affect fluctuation in
its net asset value.
Generally, the Fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, the Fund will only purchase or sell
a particular Financial Instrument if the Fund is authorized to invest in the
type of asset by which the return on, or value of, the Financial Instrument is
primarily measured. Since the Fund is authorized to invest in foreign
securities, it may purchase and sell foreign currency derivatives.
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Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in the Fund's portfolio. Thus, in a short hedge, the Fund
takes a position in a Financial Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that the Fund intends to acquire.
Thus, in a long hedge, the Fund takes a position in a Financial Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that the Fund owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which the Fund has invested or expects to invest. Financial
Instruments on debt securities may be used to hedge either individual securities
or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations
of the Securities and Exchange Commission (the "SEC"), the several exchanges
upon which they are traded and the Commodity Futures Trading Commission (the
"CFTC"). In addition, the Fund's ability to use Financial Instruments will be
limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below,
WRIMCO expects to discover additional opportunities in connection with Financial
Instruments and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new Financial Instruments or
other techniques are developed. WRIMCO may utilize these opportunities to the
extent that they are consistent with the Fund's goal and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Fund might not
use any of these strategies, and there can be no assurance that any strategy
used will succeed. The Fund's Prospectus or SAI will be supplemented to the
extent that new
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products or techniques involve materially different risks than those described
below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general these
techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed and use of Financial Instruments could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of the
investments being hedged. For example, if the value of a Financial Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match the Fund's current or anticipated investments exactly. The Fund
may invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how
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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 accounts or make margin payments when it takes positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If the Fund were unable to close out
its positions in such Financial Instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. These requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
(5) The Fund's ability to close out a position in a Financial
Instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction (the "counterparty") to enter
into a transaction closing out the position. Therefore, there is no assurance
that any position can be closed out at a time and price that is favorable to the
Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or
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forward contracts, or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash or liquid assets in an account with its custodian in the prescribed amount
as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon price
during the option period. A put option gives the purchaser the right to sell,
and obligates the writer to buy, the underlying investment at the agreed-upon
price during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable the Fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the Fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency 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 or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid
Investments."
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
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 or currency at more than its market value. If the put
option is an OTC option, the
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securities or other assets used as cover would be considered illiquid to the
extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing purchase
transaction. Conversely, the Fund may terminate a position in a put or call
option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit the Fund to
realize profits or limit losses on an option position prior to its exercise or
expiration. A type of put that the Fund may purchase is an "optional delivery
standby commitment," which is entered into by parties selling debt securities to
the Fund. An optional delivery standby commitment gives the Fund the right to
sell the security back to the seller on specified terms. This right is provided
as an inducement to purchase the security.
Risks of Options on Securities. Options offer large amounts of
leverage, which will result in the Fund's net asset value being more sensitive
to changes in the value of the related instrument. The Fund may purchase or
write both exchange-traded and OTC options. Exchange-traded options in the
United States are issued by a clearing organization affiliated with the exchange
on which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its counterparty (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when the Fund purchases an OTC
option, it relies on the counterparty from whom it purchased the option to make
or take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. However,
there can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the counterparty, or by a transaction in the secondary market if any such
market exists. There can be no assurance that the Fund will in fact be able to
close out an OTC option position at a
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<PAGE>
favorable price prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any profit.
The inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When the Fund buys a put on
an index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put, upon the Fund's exercise of the put, to deliver
to the Fund an amount of cash if the closing level of the index upon which the
put is based is less than the exercise price of the put, which amount of cash is
determined by the multiplier, as described above for calls. When the Fund writes
a put on an index, it receives a premium and the purchaser of the put has the
right, prior to the expiration date, to require the Fund to deliver to it an
amount of cash equal to the difference between the closing level of the index
and the exercise price times the multiplier if the closing level is less than
the exercise price.
Risks of Options on Indices. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when the Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The Fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, the Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
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Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as 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 securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by the Fund are
European-style options, This means that the option is only exercisable
immediately prior to its expiration. This is in contract to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
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Futures Contracts and Options on Futures Contracts. 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 contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average
duration of the Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of the Fund's fixed-income portfolio, the Fund may sell a debt
futures contract or a call option thereon, or purchase a put option on that
futures contract. If WRIMCO wishes to lengthen the average duration of the
Fund's fixed-income portfolio, the Fund may buy a debt futures contract or a
call option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar
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to closing transactions on options, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Positions in futures
and options on futures may be closed only on an exchange or board of trade that
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for a particular contract at a particular time. In
such event, it may not be possible to close a futures contract or options
position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once that
limit is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move to
the daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on
a futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the futures contract or option or to maintain cash or
liquid assets in an account.
Risk of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
markets), 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 rate, currency exchange 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, currency exchange rate
or stock market movements or the time span within which the movements take
place.
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Index Futures. The risk of imperfect correlation between movements in
the price of an index future and movements in the price of the securities that
are the subject of the hedge increases as the composition of the Fund's
portfolio diverges from the securities included in the applicable index. The
price of the index futures may move more than or less than the price of the
securities being hedged. If the price of the index future moves less than the
price of the securities that are the subject of the hedge, the hedge will not be
fully effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, the Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where the Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices upon which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before the Fund is able to invest in them in an
orderly fashion, it is possible that the market may decline instead. If the Fund
then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case 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
29
<PAGE>
account unrealized profits and unrealized losses on any contracts the Fund has
entered into. (In general, a call option on a futures contract is "in-the-money"
if the value of the underlying futures contract exceeds the strike, i.e.,
exercise, price of the call; a put option on a futures contract is
"in-the-money" if the value of the underlying futures contract is exceeded by
the strike price of the put.) This policy does not limit to 5% the percentage of
the Fund's assets that are at risk in futures contracts, options on futures
contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. The Fund
may use options and futures contracts on foreign currencies (including the
euro), as described above, and forward currency contracts, as described below,
to attempt to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated or to attempt to enhance income or
yield. Currency hedges can protect against price movements in a security that
the Fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated. Such hedges do not, however,
protect against price movements in the securities that are attributable to other
causes.
The Fund might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in
30
<PAGE>
foreign currencies is a global, round-the-clock market. To the extent the U.S.
options or futures markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements might take place in
the underlying markets that cannot be reflected in the markets for the Financial
Instruments until they reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, the Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if the Fund owned securities denominated in euros, it could enter
into a forward currency contract to sell euros in return for U.S. dollars to
hedge against possible declines in the euro's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the euro. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
31
<PAGE>
The Fund also may use forward currency contracts to attempt to enhance
income or yield. The Fund could use forward currency contracts to increase its
exposure to foreign currencies that WRIMCO believes might rise in value relative
to the U.S. dollar, or shift its exposure to foreign currency fluctuations from
one country to another. For example, if the Fund owned securities denominated in
a foreign currency and WRIMCO believed that currency would decline relative to
another currency, it might enter into a forward currency contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or liquid assets in an account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
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<PAGE>
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward currency contracts
when it determines that the best interests of the Fund will be served.
Successful use of forward currency contracts depends on WRIMCO's skill
in analyzing and predicting currency values. Forward currency contracts may
substantially change the Fund's exposure to changes in currency exchange rates
and could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that WRIMCO will hedge at an
appropriate time.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
the Fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
Swaps, Caps, Floors and Collars. The Fund may enter into swaps, caps,
floors and collars to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to attempt to
enhance
33
<PAGE>
yield. Swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive cash flows on a notional principal
amount, e.g., an exchange of floating rate payments for fixed-rate payments. The
purchase of a cap entitles the purchaser, to the extent that a specified index
exceeds a predetermined value, to receive payments on a notional principal
amount from the party selling the cap. The purchase of a floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
value, to receive payments on a notional principal amount from the party selling
the floor. A collar combines elements of buying a cap and selling a floor.
Swap agreements, including caps, floors and collars, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the overall volatility of the Fund's
investments and its share price and yield because, and to the extent, these
agreements affect the Fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates, or other factors such as security prices or
inflation rates.
Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which the Fund enters into swaps,
caps or floors will be monitored by WRIMCO. If a firm's creditworthiness
declines, the value of the agreement would be likely to decline, potentially
resulting in losses. If a default occurs by the other party to such transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction.
The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
an amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. The Fund will also
establish and maintain such account with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the Fund. WRIMCO and the Fund believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to the Fund's borrowing
restrictions. The Fund understands that the position of the SEC is that assets
involved in swap transactions
34
<PAGE>
are illiquid and are, therefore, subject to the limitations on investing in
illiquid securities.
Investment Restrictions and Limitations
Certain of the Fund's investment restrictions and other limitations are
described in this SAI. The following are the Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's goal, cannot be
changed without shareholder approval. For this purpose, shareholder approval
means the approval, at a meeting of Fund shareholders, by the lesser of (1) the
holders of 67% or more of the Fund's shares represented at the meeting, if more
than 50% of the Fund's outstanding shares are present in person or by proxy or
(2) more than 50% of the Fund's outstanding shares. The Fund may not:
(i) Purchase or sell physical commodities; however, this policy
shall not prevent the Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments;
(ii) Buy real estate nor any nonliquid interest in real estate
investment trusts; however, the Fund may buy obligations or
instruments which it may otherwise buy even though the issuer
invests in real estate or interests in real estate;
(iii) Buy shares of other investment companies which redeem their
shares. The Fund can buy shares of investment companies that
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 and other obligations consistent with its goal and
its other investment policies and restrictions; it can also
lend its portfolio securities to the extent allowed, and in
accordance with the requirements, under the 1940 Act and, by
engaging in repurchase agreements with respect to portfolio
securities;
(v) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vi) Sell securities short (unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short) or purchase securities on margin,
except that (1) this policy does not prevent the Fund from
entering into short positions in foreign
35
<PAGE>
currency, futures contracts, options, forward contracts,
swaps, caps, floors, collars and other financial instruments,
(2) the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and (3) the Fund
may make margin payments in connection with futures contracts,
options, forward contracts, swaps, caps, floors, collars and
other financial instruments;
(vii) Engage in the underwriting of securities, that is, the selling
of securities for others;
(viii) With respect to 75% of its total assets, purchase securities
of any one issuer (other than cash items and "Government
securities" as defined in the 1940 Act), if immediately after
and as a result of such purchase, (a) the value of the
holdings of the Fund in the securities of such issuer would
exceed 5% of the value of the Fund's total assets, or (b) the
Fund would own more than 10% of the outstanding voting
securities of such issuer; 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;
(ix) Issue senior securities; or
(x) Borrow money except that, as a temporary measure for
extraordinary or emergency purposes and not for investment
purposes, the Fund may borrow from banks up to 5% of the value
of its total assets.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) At least 65% of the Fund's total assets will be invested
during normal market conditions in equity securities.
(ii) The Fund does not intend to invest in non-investment grade
debt securities if, as a result of such investment, more than
5% of its total assets would consist of such investments.
(iii) The Fund may not purchase a security if, as a result, more
than 15% of its net assets would consist of illiquid
investments.
(iv) The Fund does not currently intend to invest more than 25% of
its total assets in foreign securities.
(v) The Fund does not currently intend to invest more than 5% of
its total assets in the securities of other investment
companies.
(vi) To the extent that the Fund enters into futures contracts,
options on futures contracts and options on foreign currencies
traded on a CFTC-regulated exchange, in each case 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 lossess on any
contracts the Fund has entered into.
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<PAGE>
An investment policy or limitation that states a maximum percentage of
the Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, the Fund's acquisition of an
asset. Accordingly, a subsequent change in the asset's value, net assets, or
other circumstances will not be considered when determining whether the
investment complies with the Fund's investment policies and limitations.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year and
dividing it by the monthly average of the market value of such securities during
the year, excluding certain short-term securities. The Fund cannot accurately
predict its portfolio turnover rate, but it is anticipated that the annual
turnover rate will generally be lower than that of most other equity mutual
funds, except to the extent the Fund sells securities in order to generate
capital losses to offset realized capital gains. Selling securities to generate
capital losses will increase the Fund's turnover rate and result in more
transaction costs incurred by the Fund.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Fund and provide investment advice to the Fund.
The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box
29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
underwriter.
The Management Agreement permits WRIMCO, or an affiliate of WRIMCO, to
enter into a separate agreement for transfer agency services ("Shareholder
Servicing Agreement") and a separate agreement for accounting services
("Accounting Services Agreement") with the Fund. The Management Agreement
contains detailed provisions as to the matters to be considered by the Fund's
Board of Directors prior to approving any Shareholder Servicing Agreement or
Accounting Services Agreement.
Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company which is a
37
<PAGE>
wholly owned subsidiary of Waddell & Reed Financial, Inc., a publicly held
company. The address of these companies is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217.
WRIMCO and its predecessors have served as investment manager to each
of the registered investment companies in the United Group of Mutual Funds,
except United Asset Strategy Fund, Inc. and United Small Cap Fund, Inc., since
1940 or the company's inception date, whichever was later, and to Target/United
Funds, Inc. since that fund's inception. WRIMCO has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September 1992,
United Asset Strategy Fund, Inc. since it commenced operations in March 1995,
and United Small Cap Fund, Inc. since it commenced operations in October 1999.
Waddell & Reed, Inc. serves as principal underwriter for the investment
companies in the United Group of Mutual Funds and Waddell & Reed Funds, Inc. and
acts as principal underwriter and distributor for variable life insurance and
variable annuity policies for which Target/United Funds, Inc. is the underlying
investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund
and Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell &
Reed, Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records, pricing of
the Fund's shares, preparation of prospectuses for existing shareholders,
preparation of proxy statements and certain shareholder reports. A new
Accounting Services Agreement, or amendments to an existing one, may be approved
by the Fund's Board of Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for the WRIMCO's management services,
the Fund pays WRIMCO a fee as described in the Prospectus.
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<PAGE>
The Fund accrues and pays this fee daily. For purposes of calculating
the daily fee, the Fund does not include money owed to it by Waddell & Reed,
Inc. for shares which it has sold but not yet paid the Fund.
Under the Shareholder Servicing Agreement, with respect to Class A,
Class B and Class C shares the Fund pays the Agent a monthly fee of $1.3125 for
each shareholder account that was in existence at any time during the prior
month, plus $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; charges of any sub-agent used by Agent in performing
services under the Shareholder Servicing Agreement; and legal and special
services not provided by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
<S> <C>
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
</TABLE>
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement are
described above. Waddell & Reed, Inc. and affiliates pay the Fund's Directors
and officers who are affiliated with WRIMCO and its affiliates. The Fund pays
the fees and expenses of the Fund's other Directors.
39
<PAGE>
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.
No portion of the sales charge is reallowed to dealers. A major portion
of the sales charge for Class A shares and the contingent deferred sales charge
("CDSC") for Class B and Class C shares is paid to financial advisors and
managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its
financial advisors as to purchases for which there is no sales or deferred sales
charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under the Distribution and Service Plan (the "Plan") for Class A shares
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay
Waddell & Reed, Inc., the principal underwriter for the Fund, a fee not to
exceed 0.25% of the Fund's average annual net assets attributable to Class A
shares, paid monthly, to reimburse Waddell & Reed, Inc. for its costs and
expenses in connection with the distribution of the Class A shares, the service
and/or maintenance of Class A shareholder accounts.
Under the Plans adopted by the Fund for Class B shares and Class C
shares, respectively, the Fund may pay Waddell & Reed, Inc. a service fee not
to exceed 0.25% of the average annual net assets attributable to that class,
paid monthly, to compensate Waddell & Reed, Inc. for its services in connection
with the provision of personal services to shareholders of that class and/or the
maintenance of shareholder accounts of that class and a distribution fee not to
exceed 0.75% of the average annual net assets attributable to that class, paid
monthly, to compensate Waddell & Reed, Inc. for its services in connection with
the distribution of shares of that class. The Class B Plan and the Class C Plan
each permit Waddell & Reed, Inc. to receive compensation, through the
distribution and service fee, respectively, for its distribution activities for
that class, which are similar to the distribution activities described with
respect to the Class A Plan, and for its activities in providing personal
services to shareholders of that class and/or maintaining shareholder accounts
of that class, which are similar to the corresponding
40
<PAGE>
activities for which it is entitled to compensation under the Class A Plan.
Waddell & Reed, Inc. offers the Fund's shares through its financial
advisors, registered representatives and sales managers ("sales force") unless
it elects, which is not currently contemplated for Class A, Class B and Class C
shares, to make distribution of shares also through other broker-dealers. In
distributing shares through its sales force, Waddell & Reed, Inc. will pay
commissions and incentives to the sales force at or about the time of sale and
will incur other expenses including costs for prospectuses, sales literature,
advertisements, sales office maintenance, processing of orders and general
overhead with respect to its efforts to distribute the Fund's shares. The Class
A Plan permits Waddell & Reed, Inc. to receive compensation for these Class
A-related distribution activities through the distribution fee, subject to the
limit contained in the Plan. The Class A Plan also permits Waddell & Reed, Inc.
to be reimbursed for amounts it expends in compensating, training and supporting
registered financial advisors, sales managers and/or other appropriate personnel
in providing personal services to Class A shareholders of the Fund and/or
maintaining Class A shareholder accounts; increasing services provided to Class
A shareholders of the Fund by office personnel located at field sales offices;
engaging in other activities useful in providing personal service to Class A
shareholders of the Fund and/or maintenance of Class A shareholder accounts; and
in compensating broker-dealers who may regularly sell Class A shares of the
Fund, and other third parties, for providing shareholder services and/or
maintaining shareholder accounts with respect to Class A shares.
To the extent that Waddell & Reed, Inc. incurs expenses for which
compensation may be made under the Plan that relate to distribution and service
activities also involving another fund in the United Group of Funds or Waddell &
Reed Funds, Inc., Waddell & Reed, Inc. typically determines the amount
attributable to the Fund's expenses under the Plan on the basis of a combination
of the respective classes' relative net assets and number of shareholder
accounts.
The only Directors or interested persons, as defined in the 1940 Act,
of the Fund who have a direct or indirect financial interest in the operation of
a Plan are the officers and Directors who are also officers of either Waddell &
Reed, Inc. or its affiliate(s) or who are shareholders of Waddell & Reed
Financial, Inc., the indirect parent company of Waddell & Reed, Inc. Each Plan
is anticipated to benefit the Fund and its shareholders of the affected class
through Waddell & Reed, Inc.'s activities not only to distribute the shares of
that class but also to provide personal services to shareholders of that class
and thereby promote the maintenance of their accounts with the Fund. The Fund
anticipates that shareholders of a particular class may benefit to the extent
that Waddell & Reed's activities
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are successful in increasing the assets of the Fund, through increased sales or
reduced redemptions, or a combination of these, and reducing a shareholder's
share of Fund and class expenses. Increased Fund assets may also provide greater
resources with which to pursue the goal of the Fund. Further, continuing sales
of a class's shares may also reduce the likelihood that it will be necessary to
liquidate portfolio securities, in amounts or at times that may be
disadvantageous to the Fund, to meet redemption demands. In addition, the Fund
anticipates that the revenues from the Plan will provide Waddell & Reed, Inc.
with greater resources to make the financial commitments necessary to continue
to improve the quality and level of services to the Fund and the shareholders of
the affected class.
Each Plan was approved by the Fund's Board of Directors, including the
Directors who are not interested persons of the Fund and who have no direct or
indirect financial interest in the operations of the Plan or any agreement
referred to in the Plan (hereafter, the "Plan Directors").
Among other things, each Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the Directors
will review, a report of amounts expended under the Plan and the purposes for
which such expenditures were made, (ii) the Plan will continue in effect only so
long as it is approved at least annually, and any material amendments thereto
will be effective only if approved, by the Directors including the Plan
Directors acting in person at a meeting called for that purpose, (iii) amounts
to be paid by the Fund under the Plan may not be materially increased without
the vote of the holders of a majority of the outstanding shares of the affected
class of the Fund, and (iv) while the Plan remains in effect, the selection and
nomination of the Directors who are Plan Directors will be committed to the
discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., 928 Grand Boulevard, Kansas
City, Missouri. In general, the custodian is responsible for holding the Fund's
cash and securities. Deloitte & Touche LLP, 1010 Grand Boulevard, Kansas City,
Missouri, the Fund's independent accountant, audits the Fund's financial
statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value ("NAV") of each class of the shares of the Fund is
the value of the assets of that class, less the
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class's liabilities, divided by the total number of outstanding shares of that
class.
Class A shares of the Fund are sold at their next determined NAV plus
the sales charge described in the Prospectus. The sales charge is paid to
Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of , 1999,
which is the most recent balance sheet included in this SAI, was as follows:
<TABLE>
<S> <C>
NAV per Class A share (Class A
net assets divided by Class A shares
outstanding) ...................................... $10.00
Add: selling commission (5.75% of offering
price) ............................................ 0.61
------
Maximum offering price per Class A share
(Class A ..............NAV divided by 94.25%) $10.61
======
</TABLE>
The offering price of a Class A share is its NAV next calculated
following acceptance of a purchase order plus the sales charge. The offering
price of a Class B, Class C or a Class Y share is its NAV next calculated
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
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 NAV and offering price per share are ordinarily 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 or the close of the regular session of any domestic
securities or commodities exchange on which an option or futures contract held
by the Fund is traded. The NYSE annually announces the days on which it will not
be open for trading. The most recent announcement indicates that it will not be
open on the following days: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may
close on other days. The NAV will change every business day, since the value of
the assets and the number of shares outstanding change every 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
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and asked prices. Other securities that are traded over-the-counter are priced
using the Nasdaq Stock Market, which provides information on bid and asked
prices quoted by major dealers in such stocks. Bonds, other than convertible
bonds, are valued using a third party pricing system. 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 contracts purchased and held by the Fund are
valued at the last sales price thereof on the securities or commodities
exchanges on which they are traded, or, if there are no transactions, at the
mean between bid and asked prices. (Ordinarily, the close of the regular session
for options 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 Fund's Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability section.
The deferred credit is "marked-to-market" to reflect the current market value of
the put or call. If a call the Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
the Fund received. If the Fund exercised a call it purchased, the amount paid to
purchase the related investment is increased by the amount of the premium paid.
If a put written by the Fund is exercised, the amount that the Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If the Fund exercises a put it purchased, the amount the Fund receives
from the sale of the related investment is reduced by the amount of the premium
it paid. If a put or call written by the Fund expires, it has a gain in the
amount of the premium; if it enters into a closing purchase transaction, it will
have a gain or loss depending on whether the premium was more or less than the
cost of the closing transaction.
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.
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Minimum Initial and Subsequent Investments
For Class A, Class B and Class C shares, initial investments must be at
least $500 with the exceptions described in this paragraph. A $100 minimum
initial investment pertains to certain exchanges of shares from another fund in
the United Group. A $50 minimum initial investment pertains to purchases for
certain accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account by having regular
monthly withdrawals of $25 or more made from a bank account. A minimum initial
investment of $25 is applicable to purchases made through payroll deduction for
or by employees of WRIMCO, Waddell & Reed, Inc., and their affiliates. 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 Gifts to Minors Act ("UGMA") or Uniform Transfers to Minors Act
("UTMA") account;
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6. Purchases by that individual or his or her spouse for his or her IRA,
salary reduction plan account under Section 457 of the Internal Revenue
Code of 1986, as amended (the "Code"), provided that such purchases are
subject to a sales charge (see "Net Asset Value Purchases"), tax-sheltered
annuity account ("TSA") or Keogh Plan account, provided that the individual
and spouse are the only participants in the Keogh Plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens a 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.
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<PAGE>
Example B: H has established a Keogh Plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code. All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer. All
qualified employee benefit plans of an employer who is a franchisor and those of
its franchisee(s) may also be grouped.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee
pension plan ("SEP"), payroll deduction plan or similar arrangement adopted by
an employer or affiliated employers (as defined above) may be grouped provided
that the employer elects to have all such purchases grouped at the time the plan
is set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping
may be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $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.
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<PAGE>
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the NAV of the existing account as of
the date the new purchase is accepted by Waddell & Reed, Inc. for the purpose of
determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a NAV of $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(s) with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under such plan may be combined with the
additional purchase only if the contractual plan has been completed.
Letter of Intent
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Letter of Intent ("LOI"). By signing an LOI
form, which is available from Waddell & Reed, Inc., the purchaser indicates an
intention to invest, over a 13-month period, a dollar amount which is sufficient
to qualify for a reduced sales charge. The 13-month period begins on the date
the first purchase made under the LOI is accepted by Waddell & Reed, Inc. Each
purchase made from time to time under the LOI is treated as if the purchaser
were buying at one time the total amount which he or she intends to invest. The
sales charge applicable to all purchases of Class A shares made under the terms
of the LOI will be the sales charge in effect on the beginning date of the
13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under an LOI, the investor's Rights of
Accumulation (see above) will be taken into account; that is, Class A shares
already held in the same account in which the purchase is being made or in any
account eligible for grouping with that account, as described above, will be
included.
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<PAGE>
Example: H signs an LOI indicating his intent to invest in his own name a
dollar amount sufficient to entitle him to purchase Class A shares
at the sales charge applicable to a purchase of $100,000. H has an
IRA account and the Class A shares held under the IRA in the Fund
have a NAV as of the date the LOI is accepted by Waddell & Reed,
Inc. of $15,000; H's wife, W, has an account in her own name
invested in another fund in the United Group which charges the same
sales load as the Fund, with a NAV as of the date of acceptance of
the LOI of $10,000; H needs to invest $75,000 in Class A shares over
the 13-month period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.
A copy of the LOI signed by a purchaser will be returned to the
purchaser after it is accepted by Waddell & Reed, Inc. and will set forth the
dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
The minimum initial investment under an LOI is 5% of the dollar amount
which must be invested under the LOI. An amount equal to 5% of the purchase
required under the LOI will be held "in escrow." If a purchaser does not, during
the period covered by the LOI, invest the amount required to qualify for the
reduced sales charge under the terms of the LOI, he or she will be responsible
for payment of the sales charge applicable to the amount actually invested. The
additional sales charge owed on purchases of Class A shares made under an LOI
which is not completed will be collected by redeeming part of the shares
purchased under the LOI and held "in escrow" unless the purchaser makes payment
of this amount to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s
request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower than
that available under the LOI, the lower sales charge will apply.
An LOI does not bind the purchaser to buy, or Waddell & Reed, Inc. to
sell, the shares covered by the LOI.
With respect to LOIs for $2,000,000 or purchases otherwise qualifying
for no sales charge under the terms of the LOI, the initial investment must be
at least $200,000.
The value of any shares redeemed during the 13-month period which were
acquired under the LOI will be deducted in computing the aggregate purchases
under the LOI.
LOIs are not available for purchases made under a SEP plan where the
employer has elected to have all purchases under the SEP grouped.
49
<PAGE>
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the Class A shares of any of the funds in the United Group
subject to a sales charge. A purchase of Class A shares, or Class A shares held,
in any of the funds in the United Group subject to a sales charge will be
treated as an investment in the Fund in determining the applicable sales charge.
For these purposes, Class A shares of United Cash Management, Inc. that were
acquired by exchange of another United Group fund's Class A shares on which a
sales charge was paid, plus the shares paid as dividends on those acquired
shares, are also taken into account.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be
purchased at NAV by the Directors and officers of the Fund or of any affiliated
entity of Waddell & Reed, Inc., employees of Waddell & Reed, Inc., or of any of
its affiliates, financial advisors of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and financial advisor. "Child" includes stepchild;
"parent" includes stepparent. Trusts under which the grantor and the trustee or
a co-trustee are each an eligible purchaser are also eligible for NAV purchases
of Class A shares. "Employees" include retired employees. A retired employee is
an individual separated from service from Waddell & Reed, Inc., or from an
affiliated company, with a vested interest in any Employee Benefit Plan
sponsored by Waddell & Reed, Inc. or any of its affiliated companies.
"Employees" also include individuals who, on November 6, 1998, were employees
(including retired employees) of a company that on that date was an affiliate of
Waddell & Reed, Inc. "Financial advisors" include retired financial advisors. A
"retired financial advisor" is any financial advisor who was, at the time of
separation from service from Waddell & Reed, Inc., a Senior Financial Advisor. A
custodian under UGMA or UTMA purchasing for the child or grandchild of any
employee or financial advisor may purchase Class A shares at NAV whether or not
the custodian himself is an eligible purchaser.
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Shares may also be issued at NAV in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund is a party.
Reasons for Difference in Public Offering Price of Class A Shares
As described herein and in the Prospectus for Class A shares, there are
a number of instances in which the Fund's Class A shares are sold or issued on a
basis other than at the maximum public offering price, that is, the NAV plus the
highest sales charge. Some of these instances relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under an LOI or Rights of Accumulation. See the
table of sales charges in the Prospectus. The reasons for these quantity
discounts are, in general, that (i) they are traditional and have long been
permitted in the industry and are therefore necessary to meet competition as to
sales of shares of other funds having such discounts, (ii) certain quantity
discounts are required by rules of the National Association of Securities
Dealers, Inc. (as is elimination of sales charges on the reinvestment of
dividends and 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.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at NAV are
permitted because a sales charge has already been paid on the shares exchanged.
Sales of Class A shares without sales a charge are permitted to Directors,
officers and certain others due to reduced or eliminated selling expenses and
because such sales may aid in the development of a sound employee organization,
encourage 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 NAV per share of all shares sold or issued.
Flexible Withdrawal Service for Class A, Class B and Class C Shareholders
If you qualify, you may arrange to receive through the Flexible
Withdrawal Service (the "Service") regular monthly, quarterly, semiannual or
annual payments by redeeming on an
51
<PAGE>
ongoing basis Class A, Class B or Class C shares that you own of the Fund or 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 the service is in effect
because it would result in duplication of sales charges. Class B and Class C
shares redeemed under the service are not subject to a CDSC. Applicable forms to
start the Service are available through Waddell & Reed Services Company.
The maximum amount of the withdrawal for monthly, quarterly, semiannual
and annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50. The Service, and this exclusion from
the deferred sales charge, does not apply to a one-time withdrawal.
To qualify for the Service, you must have invested at least $10,000 in
Class A, Class B or Class C shares which you still own of any of the funds in
the United Group; or, you must own Class A, Class B or Class C shares having a
value of at least $10,000. The value for this purpose is the value at the
current offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the account (you
select the percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment
is to be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
The dividends and distributions on shares of a class you have made
available for the Service are paid in additional shares of that class. All
payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of shares you own will decrease. When all of the
shares in an account are redeemed, you will not
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<PAGE>
receive any further payments. Thus, the payments are not an annuity, income or
return on your investment.
You may, at any time, change the manner in which you have chosen to
have shares redeemed. You can change to any one of the other choices originally
available to you. You may, at any time, redeem part or all of the shares in your
account; if you redeem all of the shares, the Service is terminated. The Fund
can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges
Once a sales charge has been paid on Class A shares of a fund in the
United Group, these shares and any shares added to them from dividends or
distributions paid in shares 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 Class A 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 exceptions and
special rules apply. Class A shares of these funds may be exchanged for Class A
shares of the Fund only if (i) you received those shares as a result of one or
more exchanges of shares on which a maximum sales charge was originally paid
(currently 5.75%), 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 Class A 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
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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 is
$100, which may be allocated among the Class A shares of different funds in the
United Group so long as each fund receives a value of $25. Minimum initial
investment and minimum balance requirements apply to such automatic exchange
service.
You may redeem your Class A shares of the Fund and use the proceeds to
purchase Class Y shares of the Fund if you meet the criteria for purchasing
Class Y shares.
Class B Share Exchanges
You may exchange Class B shares of the Fund for Class B shares of other
funds in the United Group, without charge.
The redemption of the Fund's Class B shares as part of an exchange is
not subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class B shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class B
shares of the Fund or any other fund in the United Group, provided you already
own Class B shares of a fund. The shares of United Cash Management, Inc. which
you designate must be worth at least $100, which may be allocated among
different Funds so long as each Fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such service.
Class C Share Exchanges
You may exchange Class C shares of the Fund for Class C shares of other
funds in the United Group, without charge.
The redemption of the Fund's Class C shares as part of an exchange is
not subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class C shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class C
shares of the Fund or any other fund in the United Group, provided you already
own Class C shares of a fund. The shares of United Cash Management, Inc. which
you designate must be worth at least $100, which may be allocated among
different Funds so long as each Fund receives a value of at
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least $25. Minimum initial investment and minimum balance requirements apply to
such service.
Class Y Share Exchanges
Class Y shares of the Fund may be exchanged for Class Y shares of any
other fund in the United Group or for Class A shares of United Cash Management,
Inc.
General Exchange Information
When you exchange shares, the total shares you receive will have the
same aggregate NAV as the total shares you exchange. The relative values are
those next figured after your exchange request is received in good order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can, in most instances, be eliminated or modified at
any time and any such exchange may not be accepted.
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56
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Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days from receipt of request unless
delayed because of emergency conditions determined by the SEC, when the NYSE is
closed other than for weekends or holidays, or when trading on the NYSE is
restricted. Payment is made in cash, although under extraordinary conditions
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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
determining NAV. There would be brokerage costs to the redeeming shareholder in
selling such securities. The Fund, however, has elected to be governed by Rule
18f-1 under the 1940 Act, pursuant to which it is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of its NAV during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount of Class A shares you redeem
from the Fund by sending to the Fund the amount you with to reinvest. The amount
you return will be reinvested in Class A shares at the NAV next calculated after
the Fund receives the returned amount. Your written request to reinvest and the
amount to be reinvested must be received within forty-five days after your
redemption request was received, and the Fund must be offering Class A shares at
the time your reinvestment request is received. You can do this only once as to
Class A shares of the Fund. You do not use up this privilege by redeeming Class
A shares to invest the proceeds at NAV in a Keogh Plan or an IRA.
There is also a reinvestment privilege for Class B and Class C shares
under which you may reinvest all or part of any amount of Class B or Class C
shares you redeemed and have the corresponding amount of the deferred sales
charge, if any, which you paid restored to your account by adding the amount of
that charge to the amount you are reinvesting. If Class B or Class C shares of
the Fund are then being offered, you can put all or part of your redemption
payment back into the Class B or Class C shares of the Fund at the NAV next
calculated after you have returned the amount. Your written request to do this
must be received within forty-five days after your redemption request was
received. You can do this only once as to Class B shares of the Fund and only
once as to Class C shares of the Fund. For purposes of determining future
deferred sales charges, the reinvestment will be treated as a new investment.
You do not use up this privilege by redeeming Class B or Class C shares to
invest the proceeds at NAV in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under
any account or any plan if the aggregate NAV of such shares (taken at cost or
value as the Board of Directors may determine) is less than $500. The Board has
no intent to compel redemptions in the foreseeable future. If it should elect to
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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 majority of the
Directors are not affiliated with Waddell & Reed, Inc.
The principal occupation during the past five years of each Director
and officer is stated below. Each of the persons listed through and including
Mr. Vogel is a member of the Fund's Board of Directors. The other persons are
officers of the Fund but are not members of the Board of Directors. For purposes
of this section, the term "Fund Complex" includes each of the registered
investment companies in the United Group of Mutual Funds, Waddell & Reed Funds,
Inc. and Target/United Funds, Inc. Each of the Fund's Directors is also a
Director of each of the other funds in the Fund Complex and each of its officers
is also an officer of one or more of the funds in the Fund Complex.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer and Director of Waddell & Reed Financial, Inc.; President, Chairman of
the Board of Directors and Chief Executive Officer of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc. and Waddell & Reed Services Company; formerly, President of each of the
funds in the Fund Complex; formerly, Chairman of the Board of Directors of
Waddell & Reed Asset Management Company, a former affiliate of Waddell & Reed
Financial, Inc. Date of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
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JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President of JoDill Corp., an agricultural company; President and
Director of Dillingham Enterprises Inc.; formerly, Director and consultant,
McDougal Construction Company; formerly, Instructor at Central Missouri State
University; formerly, Member of the Board of Police Commissioners, Kansas City,
Missouri; formerly, Senior Vice President-Sales and Marketing of Garney
Companies, Inc., a specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
263 West 3rd Avenue
San Mateo, California 94402
Chairman and Chief Executive Officer of George S. and Delores Dor'e
Eccles Foundation; Director of First Security Corp., a bank holding company, and
Director of Fluor Corp., a company with interests in coal; formerly, President
of Hewlett Foundation. Date of birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, Partner of Levy and Craig, P.C., a law
firm. Date of birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents at the University of Oklahoma;
Adjunct Professor of Law at the University of Oklahoma College of Law; Managing
Member, Harroz Investments, L.L.C.; formerly, Vice President for Executive
Affairs of the University of Oklahoma; formerly, Attorney with Crowe & Dunlevy,
a law firm. Date of birth: January 17, 1967.
JOHN F. HAYES
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Chairman of the Board of Directors, Gilliland & Hayes, P.A., a law
firm; formerly, President of Gilliland & Hayes, P.A.; formerly, Director of
Central Properties, Inc. Date of birth: December 11, 1919.
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ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Vice President, Chief
Operating Officer, Director and Treasurer of Waddell & Reed Financial Services,
Inc.; Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal Financial
Officer, Director and Treasurer of Waddell & Reed, Inc.; Director and Treasurer
of Waddell & Reed Services Company; Chairman, Chief Executive Officer, President
and Director of Fiduciary Trust Company of New Hampshire, an affiliate of
Waddell & Reed, Inc.; formerly, Vice President of each of the funds in the Fund
Complex; formerly, Director and Treasurer of Waddell & Reed Asset Management
Company; formerly, President of Waddell & Reed Services Company. Date of birth:
November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, and Director of Waddell & Reed
Financial, Inc.; Vice President, Chief Investment Officer and Director of
Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.;
President, Chief Executive Officer, Chief Investment Officer and Director of
WRIMCO; Chairman of the Board of Directors of Austin, Calvert & Flavin, Inc., an
affiliate of WRIMCO; formerly, President, Chief Executive Officer, Chief
Investment Officer and Director of Waddell & Reed Asset Management Company. Date
of birth: December 8, 1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and its subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
each of the funds in the Fund Complex then in existence. (Mr. Morgan retired as
Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company. Date of birth:
April 27, 1928.
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RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director and Vice President of Network Rehabilitation Services; Board
Member, Member of Executive Committee and Finance Committee of Truman Medical
Center; formerly, Employment Counselor and Director of McCue-Parker Center. Date
of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm;
Director of Columbian Bank and Trust. Date of birth: April 9, 1953.
ELEANOR B. SCHWARTZ
1213 West 95th Court, Chartwell 4
Kansas City, Missouri 64114
Professor of Business Administration, University of Missouri-Kansas
City; formerly, Chancellor, University of Missouri-Kansas City. Date of birth:
January 1, 1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell &
Reed Services Company. Date of birth: July 18, 1942.
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 Asset
Management Company. Date of birth: January 11, 1959.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be "interested persons" as defined
in the 1940 Act of the Fund's underwriter, Waddell & Reed, Inc., or WRIMCO are
indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus. An imcumbent director who has attained the age of 70 may, or if
elected on or after May 31, 1993 and has attained the age of 75, must resign his
or her position as Director and, unless he or she elects otherwise, will serve
as Director Emeritus provided the Director has served as a Director of one or
more of the Funds for at least five years which need not have been consecutive.
A Director Emeritus
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receives fees in recognition of his or her past services whether or not services
are rendered in his or her capacity as Director Emeritus, but he or she has no
authority or responsibility with respect to the management of the Fund.
The funds in the United Group, Target/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director an annual base fee of $52,000 plus $3,250
for each meeting of the Board of Directors attended, plus reimbursement of
expenses for attending such meeting, and $500 for each committee meeting
attended which is not in conjunction with a Board of Directors meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors are divided among the funds in the United Group, Target/United Funds,
Inc. and Waddell & Reed Funds, Inc. based on the funds' relative size.
It is anticipated that the Fund's Directors will receive the following
fees for service as a director:
Compensation Table
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund* Complex**
- -------- ------------ ------------
<S> <C> <C>
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 0 65,000
John A. Dillingham 0 65,000
David P. Gardner 0 65,000
Linda K. Graves 0 65,000
Joseph Harroz, Jr. 0 65,000
John F. Hayes 0 65,000
Glendon E. Johnson 0 65,000
William T. Morgan 0 65,000
Ronald C. Reimer 0 65,000
Frank J. Ross, Jr. 0 65,000
Eleanor B. Schwartz 0 65,000
Frederick Vogel III 0 65,000
</TABLE>
*For the current fiscal year, the Directors have agreed to not allocate any
portion of their total compensation to the Fund.
**No pension or retirement benefits have been accrued as a part of Fund
expenses. This information is based on fees to be earned during the Fund's
fiscal year ending December 31, 2000.
The officers are paid by WRIMCO or its affiliates.
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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 net investment income, which is derived
from the dividends, interest and earned discount on the securities the Fund
holds, less expenses (which will vary by class). The second source is net
realized capital gains, which are derived from the proceeds received from the
Fund's sale of securities at a price higher than the Fund's tax basis (usually
cost) in such securities, less losses from sales of securities at a price lower
than the Fund's basis therein these gains can be either long-term or short-term,
depending on how long the Fund has owned the securities before it sells them.
The 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.
The Fund pays distributions from 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 pay distributions
once each year, in the latter part of the fourth calendar quarter, except to the
extent it has net capital losses carried over from a prior year or years to
offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid. However, a total dividend and/or distribution amount
less than five dollars will be automatically paid in shares of the Fund of the
same class as that with respect to which they were paid. You can change your
instructions at any time. If you give no instructions, your dividends and
distributions will be paid in shares of the Fund of the same class as that with
respect to which they were paid. All payments in shares are at NAV without any
sales charge. The NAV used for this purpose is that computed as of the record
date for the dividend or distribution, although this could be changed by the
Board of Directors.
Even if you receive dividends and distributions on Fund shares in cash,
you can thereafter reinvest them (or
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distributions only) in shares of the Fund at NAV (i.e., no sales charge) next
calculated after receipt by Waddell & Reed, Inc. of the amount clearly
identified as a reinvestment. The reinvestment must be within forty-five days
after the payment.
TAXES
General
The Fund intends to qualify for treatment as a regulated investment
company ("RIC") under the Code, so that it is relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of
taxable net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) that it distributes to its shareholders.
To qualify for treatment as a RIC, the Fund must distribute to its shareholders
for each taxable year at least 90% of its investment company taxable income
("Distribution Requirement") and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or 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) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities ("50% Diversification Test"); and (3) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer.
If the Fund failed to qualify for treatment as a RIC for any taxable
year, (a) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year (even if it distributed that income to its
shareholders) and (b) the shareholders would treat all distributions out of its
earnings and profits, including distributions of net capital gains, as dividends
(that is, ordinary income). In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest and make substantial
distributions before requalifying for RIC treatment.
Dividends and distributions declared by the Fund in December of any
year and payable to its shareholders of record on a date in that month are
deemed to have been paid by the Fund and
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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 the shareholders for the year in which that
December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the investor will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute, by the end of any calendar year,
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. For these purposes, the Fund may defer into the next calendar
year net capital losses incurred between November 1 and the end of the current
calendar year. It is the Fund's policy to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax.
Income from Foreign Securities
Dividends and interest received and gains realized, by the Fund, may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
returns on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is any foreign corporation (with certain
exceptions) that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive; or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under certain
circumstances, a Fund will be subject to Federal income tax on a portion of any
"excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent it distributes that income to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund will be required
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to include in income each year its pro rata share of the QEF's annual ordinary
earnings and net capital gains -- which probably would have to be distributed by
the Fund to satisfy the Distribution Requirement and avoid imposition of the
Excise Tax -- even if those earnings and gains were not distributed to the Fund
by the QEF. In most instances it will be very difficult, if not impossible, to
make this election because of certain requirements thereof.
The Fund may elect to "mark-to-market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of a PFIC's stock over
the Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, the Fund also may deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net
mark-to-market gains with respect to that stock included by the Fund for prior
taxable years under the election (and under regulations proposed in 1992 that
provide a similar election with respect to the stock of certain PFICs). The
Fund's adjusted basis in each PFIC's stock with respect to which it makes this
election will be adjusted to reflect the amounts of income included and
deductions taken under the election.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies,
including forward currency contracts, (2) on the disposition of each debt
security denominated in a 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 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 as ordinary income, rather
than affecting the amount of its net capital gain.
Income from Options, Futures and Forward Currency Contracts and Foreign
Currencies
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
the Fund realizes in connection therewith. Gains from the
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disposition of foreign currencies (except certain gains that may be excluded by
future regulations), and gains from options, futures and forward currency
contracts derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement.
Any income the Fund earns from writing options is treated as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it received for the option it wrote and the premium it pays for the
option it buys. If an option written by the Fund lapses without being exercised,
the premium it received also will be a short-term capital gain. If such an
option is exercised and thus the Fund sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale.
Certain options, futures contracts and forward currency contracts in
which the Fund may invest may be "section 1256 contracts." Section 1256
contracts held by the Fund at the end of its taxable year, other than contracts
subject to a "mixed straddle" election made by the Fund, are "marked-to-market"
(that is, treated as sold at that time for their fair market value) for Federal
income tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gains or losses
recognized on these deemed sales, and 60% of any net realized 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. The Fund may need to distribute any
mark-to-market gains to its shareholders to satisfy the Distribution Requirement
and/or avoid imposition of the Excise Tax, even though it may not have closed
the transactions and received cash to pay the distributions.
Code section 1092 (dealing with straddles) may also affect the taxation
of options and futures contracts in which the Fund may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options, futures contracts and forward currency contracts
are personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent the
loss exceeds the unrealized gain on the offsetting position(s) of the straddle.
In addition, these rules may postpone the recognition of loss that would
otherwise be recognized under the mark-to-market rules discussed above. The
regulations under section 1092 also provide certain "wash sale" rules which
apply to transactions where a position is sold at a loss and a new offsetting
position is acquired within a prescribed period, and "short sale" rules
applicable to
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straddles. If the Fund makes certain elections, the amount, character and timing
of the recognition of gains and losses from the affected straddle positions will
be determined under rules that vary according to the elections made. Because
only a few of the regulations implementing the straddle rules have been
promulgated, the tax consequences of straddle transactions to the Fund are not
entirely clear.
If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the position, the
Fund will be treated as having made an actual sale thereof, with the result that
gain will be recognized at that time. A constructive sale generally consists of
a short sale, an offsetting notional principal contract or futures or forward
currency contract entered into by the Fund or a related person with respect to
the same or substantially identical property. In addition, if the appreciated
financial position is itself a short sale or such a contract, acquisition of the
underlying property or substantially identical property will be deemed a
constructive sale. The foregoing will not apply, however, to any transaction
during any taxable year that otherwise would be treated as a constructive sale
if the transaction is closed within 30 days after the end of that year and the
Fund holds the appreciated financial position unhedged for 60 days after that
closing (i.e., at no time during that 60-day period is the Fund's risk of loss
regarding that position reduced by reason of certain specified transactions with
respect to substantially identical or related property, such as having an option
to sell, being contractually obligated to sell, making a short sale, or granting
an option to buy substantially identical stock or securities).
Zero Coupon and Payment-in-Kind Securities
The Fund may acquire zero coupon or other securities issued with OID.
As the holder of those securities, the Fund must include in its income the OID
that accrues on the securities during the taxable year, even if the Fund
receives no corresponding payment on the securities during the year. Similarly,
the Fund must include in its gross income securities it receives as "interest"
on payment-in-kind securities. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
accrued OID and other non-cash income, in order to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax, it may be required in a
particular year to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. Those distributions will be made from
the Fund's cash assets or from the proceeds of sales of portfolio securities, if
necessary. The Fund may realize capital gains or losses from
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those sales, which would increase or decrease its investment company taxable
income and/or net capital gain.
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 effected 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 individuals
who manage the Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the managers will frequently place
concurrent orders for all or most accounts for which the managers have
responsibility or WRIMCO may otherwise combine orders for the Fund with those of
other funds in the United Group, Target/United Funds, Inc. and Waddell & Reed
Funds, Inc. or other accounts for which it has investment discretion, including
accounts of persons affiliated with WRIMCO. Under current written procedures,
transactions effected pursuant to such combined orders are averaged as to price
and allocated in accordance with the purchase or sale orders actually placed for
each fund or advisory account, except where the combined order is not filled
completely. In this case, WRIMCO will ordinarily allocate the transaction pro
rata based on the orders placed, subject to certain variances provided for in
the written procedures. Sharing in large transactions could affect the price the
Fund pays or receives or the amount it buys and sells. As well, a better
negotiated commission may be available through combined orders.
To effect the portfolio transactions of the Fund, WRIMCO is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to seek "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding but
is expected to minimize the commissions paid to the extent consistent with the
interests and policies of the Fund. Subject to review by the Board of Directors,
such policies include the selection of brokers which provide execution and/or
research services and other services including pricing or quotation services
directly or through others ("research and brokerage services") considered by
WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO has investment discretion.
Research and brokerage services are, in general, defined by reference
to Section 28(e) of the Securities Exchange Act of 1934
70
<PAGE>
as including (i) advice, either directly or through publications or writings, as
to the value of securities, the advisability of investing in, purchasing or
selling securities and the availability of securities and purchasers or sellers,
(ii) furnishing analyses and reports, or (iii) effecting securities transactions
and performing functions incidental thereto (such as clearance, settlement and
custody). "Investment discretion" is, in general, defined as having
authorization to determine what securities shall be purchased or sold for an
account, or making those decisions even though someone else has responsibility.
The commissions paid to brokers that provide such research and/or
brokerage services may be higher than the commission another qualified broker
would charge for effecting comparable transactions if a good faith determination
is made by WRIMCO that the commission is reasonable in relation to the research
or brokerage services provided. Subject to the foregoing considerations WRIMCO
may also consider sales of Fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO, and investment
research received for the commissions of those other accounts may be useful both
to the Fund and one or more of such other accounts. To the extent that
electronic or other products provided by such brokers to assist WRIMCO in making
investment management decisions are used for administration of 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. The Fund may also use its
brokerage to pay for pricing or quotation services to value securities.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
under Rule 17j-1 of the 1940 Act that permits their respective directors,
officers and employees to invest in securities, including securities that may be
purchased or held by the Fund. The Code of Ethics subjects covered personnel to
certain restrictions that include prohibited activities, pre-clearance
requirements and reporting obligations.
71
<PAGE>
OTHER INFORMATION
The Shares of the Fund
The Fund offers four classes of shares: Class A, Class B, Class C and
Class Y. Each class represents an interest in the same assets of the Fund and
differ as follows: each class of shares has exclusive voting rights on matters
appropriately limited to that class; Class A shares are subject to an initial
sales charge and to an ongoing distribution and/or service fee; Class B and
Class C are subject to a CDSC and to ongoing distribution and service fees;
Class B shares convert at the end of the seventh calendar year following the
first year of purchase to Class A shares; and Class Y shares, which are
designated for institutional investors, have no sales charge nor ongoing
distribution and/or service fee. Each class may bear differing amounts of
certain class-specific expenses and each class has a separate exchange
privilege. The Fund does not anticipate that there will be any conflicts between
the interests of holders of the different classes of shares of the Fund by
virtue of those classes. On an ongoing basis, the Board of Directors will
consider whether any such conflict exists and, if so, take appropriate action.
Each share of the Fund is entitled to equal voting, dividend, liquidation and
redemption rights, except that due to the differing expenses borne by the
classes, dividends and liquidation proceeds of Class B shares and Class C shares
are expected to be lower than for Class A shares, which in turn are expected to
be lower than for Class Y shares of the Fund. Each fractional share of a class
has the same rights, in proportion, as a full share of that class. Shares are
fully paid and nonassessable when purchased.
The Fund does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at time which the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the
72
<PAGE>
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.
Initial Investment and Organizational Expenses
On March 2, 2000, Waddell & Reed, Inc. purchased for investment 10,000
Class A shares of the Fund at a NAV of $10.00 per share. As of the date of this
SAI, it was the sole shareholder of the Fund.
73
<PAGE>
UNITED TAX-MANAGED EQUITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 2, 2000
<TABLE>
<S> <C>
Assets
Cash held by the Custodian .......................................................... $100,000
Prepaid registration fees and offering costs ........................................ 69,000
--------
Total assets ..................................................................... 169,000
--------
LIABILITIES
Liabilities and accrued expenses .................................................... (69,000)
--------
NET ASSETS .......................................................................... $100,000
========
Net Assets
$0.001 par value capital stock
Capital stock .................................................................... $ 10
Additional paid-in capital ....................................................... 99,990
--------
Net assets applicable to outstanding units
of capital .................................................................. $100,000
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................................................... $10.00
Capital shares outstanding
Class A .......................................................................... 10,000
Capital shares authorized .............................................................. 1,000,000,000
</TABLE>
1
<PAGE>
UNITED TAX-MANAGED EQUITY FUND, INC.
NOTE TO FINANCIAL STATEMENT
MARCH 2, 2000
NOTE 1 -- Organization
United Tax-Managed Equity Fund, Inc. (the "Fund"), a Maryland
corporation, was organized on November 30, 1999, and has been inactive since
that date except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and the registration
of its shares under the Securities Act of 1933.
Waddell & Reed Investment Management Company, investment manager to the
Fund, and Waddell & Reed Services Company, shareholder servicing agent and
accounting services agent for the Fund, are each wholly owned subsidiaries of
Waddell & Reed, Inc. ("W&R"). W&R is a subsidiary of Waddell & Reed Financial,
Inc., a holding company, and a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company.
On March 2, 2000, W&R purchased for investment 10,000 Class A shares of
the Fund at their net asset value of $10.00 per share.
Prepaid registration fees and offering costs will be amortized over a
twelve month period beginning with the commencement of operations of the Fund.
Prepaid offering costs consist of legal and printing fees related to the initial
registration statement. W&R, on behalf of the Fund, will incur organization
costs estimated at $9,000.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
United Tax-Managed Equity Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of United
Tax-Managed Equity Fund, Inc. (the "Fund") as of March 2, 2000. This financial
statement is the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in all
material respects, the financial position of United Tax-Managed Equity Fund,
Inc. as of March 3, 2000 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Kansas City, Missouri
March 7, 2000
3
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: United Tax-Managed Equity Fund, Inc.
----------------------------------------------
(a) Articles of Incorporation filed by EDGAR on January 20, 1999 as
EX-99.B(a)charter to the initial Registration Statement on Form N-1A*
(b) Bylaws filed by EDGAR on January 20, 1999 as EX-99.B(b)tmbylaw to the
initial Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement attached hereto as EX-99.B(d)tmima
(e) Underwriting Agreement attached hereto as EX-99.B(e)tmua
(f) Not applicable
(g) Custodian Agreement attached hereto as EX-99.B(g)tmca
(h) Shareholder Servicing Agreement attached hereto as EX-99.B(h)tmssa
Fund Class A, Class B and Class C application (Non-Retirement Plan)
attached hereto as EX-99.B(h)tmappnon
Fund Class Y application attached hereto as EX-99.B(h)tmapp-y
Fund NAV application attached hereto as EX-99.B(h)tmappnav
Accounting Services Agreement attached hereto as EX-99.B(h)tmasa
(i) Opinion and Consent of Counsel attached hereto as EX-99.B(i)tmlegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants, attached
hereto as EX-99.B(j)tmconsnt
(k) Not applicable
(l) Agreement with initial shareholder attached hereto as
EX-99.B(l)tminitcap
(m) Distribution and Service Plan for Class A shares attached hereto as
EX-99.B(m)tmdspa
Distribution and Service Plan for Class B shares attached hereto as
EX-99.B(m)tmdspb
<PAGE>
Distribution and Service Plan for Class C shares attached hereto as
EX-99.B(m)tmdspc
(n) Not Applicable
(o) Multiple Class Plan attached hereto as EX-99.B(o)tmmcp
(p) Code of Ethics attached hereto as EX-99.B(p)tmcode
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. Indemnification
---------------
Reference is made to Article TENTH Section 10.2 of the Articles of
Incorporation of Registrant filed by EDGAR on January 20, 1999 as
EX-99.B(a)charter to the initial Registration Statement on Form N-1A*,
Article VIII of the Bylaws filed by EDGAR on January 20, 1999 as
EX-99.B(b)tmbylaw to the initial Registration Statement on Form N-1A* and
to Article V of the Underwriting Agreement attached hereto as
EX-99.B(e)tmua, each of which provide indemnification. Also refer to
section 2-418 of the Maryland Corporation Law regarding indemnification of
directors, officers, employees and agents.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company ("WRIMCO") is the investment
manager of the Registrant. Under the terms of an Investment Management
Agreement between WRIMCO and the Registrant, WRIMCO is to provide
investment management services to the Registrant. WRIMCO 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 Registration Statement and to other investment
advisory clients.
Each director and executive officer of WRIMCO 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 WRIMCO or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant. The address of the officers is
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200.
As to each director and officer of WRIMCO, reference is made to the
Prospectus and SAI of this Registrant.
27. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
<PAGE>
United Funds, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United International Growth Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
United Small Cap Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Waddell & Reed Funds, Inc.
(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.
28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Kristen A. Richards, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
29. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Registration Statement and as listed in response to Items 23.(h) and
23.(m) hereof.
30. Undertakings
-----------
Not applicable
- ---------------------------------
*Incorporated herein by reference
<PAGE>
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., UNITED
SMALL CAP FUND, INC., UNITED TAX-MANAGED EQUITY FUND, INC., TARGET/UNITED FUNDS,
INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called the "Corporation"),
and certain directors and officers for the Corporation, do hereby constitute and
appoint KEITH A. TUCKER, ROBERT L. HECHLER, DANIEL C. SCHULTE and KRISTEN A.
RICHARDS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: February 9, 2000 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
<TABLE>
<S> <C> <C>
/s/Keith A. Tucker Chairman of the Board February 9, 2000
- ------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal February 9, 2000
- -------------------- Financial Officer and ----------------
Robert L. Hechler Director
<PAGE>
/s/Henry J. Herrmann Vice President and February 9, 2000
- -------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard Vice President, Treasurer February 9, 2000
- --------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon Director February 9, 2000
- -------------------- ----------------
James M. Concannon
/s/John A. Dillingham Director February 9, 2000
- --------------------- ----------------
John A. Dillingham
/s/David P. Gardner Director February 9, 2000
- ------------------- ----------------
David P. Gardner
/s/Linda K. Graves Director February 9, 2000
- -------------------- ----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director February 9, 2000
- -------------------- ----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director February 9, 2000
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director February 9, 2000
- --------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director February 9, 2000
- -------------------- ----------------
William T. Morgan
<PAGE>
/s/Ronald C. Reimer Director February 9, 2000
- -------------------- ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr. Director February 9, 2000
- --------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director February 9, 2000
- ---------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director February 9, 2000
- ---------------------- ----------------
Frederick Vogel III
</TABLE>
Attest:
/s/Kristen A. Richards
- ----------------------
Kristen A. Richards
Vice President and Secretary
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Overland Park, and State of Kansas, on the 10th
day of March, 2000.
UNITED TAX-MANAGED EQUITY FUND, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/s/Keith A. Tucker* Chairman of the Board March 10, 2000
- ---------------------- --------------
Keith A. Tucker
/s/Robert L. Hechler* President, March 10, 2000
- ---------------------- Principal Financial Officer --------------
Robert L. Hechler and Director
/s/Henry J. Herrmann* Vice President and Director March 10, 2000
- ---------------------- --------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer March 10, 2000
- ---------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/James M. Concannon* Director March 10, 2000
- ---------------------- --------------
James M. Concannon
/s/John A. Dillingham* Director March 10, 2000
- ---------------------- --------------
John A. Dillingham
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/David P. Gardner* Director March 10, 2000
- -------------------- --------------
David P. Gardner
/s/Linda K. Graves* Director March 10, 2000
- ------------------- --------------
Linda Graves
/s/Joseph Harroz, Jr.* Director March 10, 2000
- ---------------------- --------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director March 10, 2000
- ------------------- --------------
John F. Hayes
/s/Glendon E. Johnson* Director March 10, 2000
- ---------------------- --------------
Glendon E. Johnson
/s/William T. Morgan* Director March 10, 2000
- --------------------- --------------
William T. Morgan
/s/Ronald C. Reimer* Director March 10, 2000
- -------------------- --------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director March 10, 2000
- ---------------------- --------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz* Director March 10, 2000
- ----------------------- --------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director March 10, 2000
- ----------------------- --------------
Frederick Vogel III
*By
/s/Kristen A. Richards
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------
Kristen A. Richards
Attorney-in-Fact
ATTEST:
/s/Daniel C. Schulte
- -----------------------
Daniel C. Schulte
Assistant Secretary
</TABLE>
EX-99.B(d)tmima
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT, made this 25th day of February, 2000, by and between UNITED
TAX-MANAGED EQUITY FUND, INC. (hereinafter called "United"), and WADDELL & REED
INVESTMENT MANAGEMENT COMPANY,
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 Investment Management Company 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 Investment Management Company with respect
to investment of assets of United
A. Waddell & Reed Investment Management Company 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
Investment Management Company 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 one or more of United's portfolios or the industries
in which they engage, or with respect to securities which Waddell & Reed
Investment Management Company considers desirable for inclusion in one or more
of 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 Investment Management Company necessary to carry into
<PAGE>
effect such investment programs and supervisory functions as aforesaid,
including the placing of purchase and sale orders.
B. Waddell & Reed Investment Management Company 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 Investment Management Company under this section, or
any supervisory function taken hereunder by Waddell & Reed Investment Management
Company 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 statement of United, as
amended from time to time, under the Securities Act of 1933 and the Investment
Company Act of 1940, including any supplements to the prospectus(es) and
statement of additional information contained in such registration statement.
C. Any investment programs furnished by Waddell & Reed Investment
Management Company under this section or any supervisory functions taken
hereunder by Waddell & Reed Investment Management Company 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 Investment
Management Company 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 Investment Management Company 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 Investment
Management Company 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 Investment Management
2
<PAGE>
Company 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 Investment Management Company shall pay the fees and expenses of
all directors of United who are affiliated with Waddell & Reed Investment
Management Company or an affiliated corporation and the salaries and employment
benefits of all officers of United who are affiliated persons of Waddell & Reed
Investment Management Company.
B. United shall pay in full for all of its expenses which are not
listed above (other than those assumed by Waddell & Reed Investment Management
Company or one of its affiliates in its capacity as principal underwriter of the
shares of United, as Shareholder Servicing Agent or as Accounting Services Agent
for United), including (a) the costs of preparing and printing prospectuses and
reports to shareholders of United, including mailing costs; (b) the costs of
printing all proxy statements and all other costs and expenses of meetings of
shareholders of United (unless United and Waddell & Reed Investment Management
Company shall otherwise agree); (c) interest, taxes, brokerage commissions 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 Investment Management Company or
an affiliated company; (e) fees and expenses of its directors not affiliated
with Waddell & Reed, Inc.; (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
nonrecurring 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 Investment Management Company, United shall pay the same to
Waddell & Reed Investment Management Company on presentation of a statement with
respect thereto.
C. Waddell & Reed Investment Management Company, or an affiliate
of Waddell & Reed Investment Management Company, 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 Investment
Management Company, or such affiliate. The corporation, whether Waddell & Reed
Investment Management Company, or its affiliate, which is the party to either
such Agreement with United is referred to as the "Agent." Each such Agreement
shall provide in substance that it shall go into effect, or 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 Investment Management Company
to
3
<PAGE>
be such a party even if at the time in question the Agent is an affiliate 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 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 or series 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 or series of United.
IV. Brokerage
(a) Waddell & Reed Investment Management Company 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
Investment Management Company 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 Investment Management
Company 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 Investment Management Company exercises "investment discretion"
(as that term is defined in
4
<PAGE>
Section 3(a)(35) of the Securities Exchange 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 Investment Management
Company 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 Investment Management Company with respect to
the accounts for which it exercises investment discretion. In reaching such
determination, Waddell & Reed Investment Management Company 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 Investment
Management Company 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 Investment Management Company may also consider sales of United's
shares and shares of investment companies distributed by Waddell & Reed, Inc. or
one of 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 Investment Management Company
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 Investment Management Company for
each day the fee specified in Exhibit A hereto.
The amounts payable to Waddell & Reed Investment Management
Company 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 Investment Management Company. In computing
the value of the net assets of United, there shall be excluded the amount owed
to United with respect to shares which have been sold but not yet paid to United
by Waddell & Reed, Inc.
VI. Undertakings of Waddell & Reed Investment Management Company;
Liabilities
Waddell & Reed Investment Management Company shall give to United
the benefit of its best judgment, efforts and facilities in rendering advisory
services hereunder.
Waddell & Reed Investment Management Company shall at all times be
guided by and be subject to United's investment policies, the provisions of
5
<PAGE>
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 Investment Management
Company, as an investment adviser and affiliated person of United, Waddell &
Reed Investment Management Company 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 Investment Management Company, it shall not be subject to liability to
United or to any stockholder of United for any act or omission in the course of
or connected with rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on
the date hereof and shall continue in effect, unless terminated as hereinafter
provided, for a period of one year and from year-to-year thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of a series of United with
respect to that series 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 Investment
Management Company 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
Investment Management Company sixty (60) days' written notice (which notice may
be waived by Waddell & Reed Investment Management Company), 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.
6
<PAGE>
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 TAX-MANAGED EQUITY FUND, INC.
By: /s/ Daniel C. Schulte
---------------------
Daniel C. Schulte,
Vice President
ATTEST:
By: /s/ Kristen A. Richards
-----------------------
Kristen A. Richards, Secretary
(Seal) WADDELL & REED INVESTMENT
MANAGEMENT COMPANY
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler
Executive Vice President
ATTEST:
By: /s/ Daniel C. Schulte
---------------------
Daniel C. Schulte, Secretary
7
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED TAX-MANAGED EQUITY FUND, INC.
FEE SCHEDULE
A cash fee computed each day on the net assets of the Fund at the annual rates
listed below:
<TABLE>
<CAPTION>
Net Assets Fee*
<S> <C>
Up to $1 billion 0.65% of net assets
Over $1 billion and up to $2 billion 0.60% of net assets
Over $2 billion and up to $3 billion 0.55% of net assets
Over $3 billion 0.50% of net assets
</TABLE>
* If the Fund's net assets are less than $25 million, Waddell & Reed Investment
Management Company has agreed to waive the management fee, subject to its
right to change or modify this waiver.
8
EX-99.B(e)tmua
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 25th day of February, 2000, by and between
United Tax-Managed Equity Fund, Inc. (hereinafter the "Company"), a Maryland
corporation, and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware
corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) the shares of each of its classes of shares ("Fund") and of
each sub-class thereof ("Class"), if any, are, as of the date of the
effectiveness of this Agreement as to each such Fund or Class, registered with
the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Company in all states in which the shares are
currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of Securities
Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance sales
organization consisting in part of a number of representatives authorized under
Federal and state securities laws to solicit as representatives of W&R orders
for Company shares and other securities;
4) it maintains and enforces procedures to enable it to
supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for
compliance with applicable securities laws, rules and regulations all sales
literature and promotional materials used by it and authorized to be used by its
representatives in solicitation of orders to buy Company shares, and it files,
when applicable, such literature and materials with the NASD.
<PAGE>
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby appoints W&R, and W&R agrees 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
2
<PAGE>
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) and statement of additional
information;
3
<PAGE>
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) and
statement of additional information 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)
and statement of additional information 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.
4
<PAGE>
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 (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
and statement of additional information 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 statement of additional information 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
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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 TAX-MANAGED EQUITY FUND, INC.
By: /s/ Daniel C. Schulte
---------------------
Daniel C. Schulte,
Vice President
ATTEST:
By: /s/ Kristen A. Richards
-----------------------
Kristen A. Richards, Secretary
WADDELL & REED, INC.
By: /s/ Robert L. Hechler
---------------------
Robert L. Hechler, President
ATTEST:
By: /s/ Daniel C. Schulte
---------------------
Daniel C. Schulte, Secretary
9
EX-99.B(g)tmca
CUSTODIAN AGREEMENT
Dated as of February 25, 2000
Between
UMB BANK, n.a.
and
UNITED TAX-MANAGED EQUITY FUND, 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 Deposits
2.13 Foreign Exchange Transactions
2.14 Securities Loans
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
2
<PAGE>
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; Survival of Obligations
Appendix "A"
3
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the __th day of __________, 2000 between United
Tax-Managed Equity Fund, Inc. (the "Fund") and UMB 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.
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<PAGE>
(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 deliver all 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
5
<PAGE>
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 settlement occurs, 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 , as "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,
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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.
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<PAGE>
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
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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
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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.
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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.
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(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.
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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 and which has been
designated as a Foreign Custody Manager (as such term is defined in Rule 17f-5
of the 1940 Act) by the Custodian and approved by the Fund's board ("Approved
Foreign Custody Manager") may appoint a Foreign Sub-Subcustodian or Interim
Sub-Subcustodian (as each are hereinafter defined) in accordance with this
Article IV; provided that the Fund's board also has approved the agreement
between the Custodian and the Foreign Custody Manager specifying the Foreign
Custody Manager's duties ("Delegation Agreement"). 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. A Domestic Subcustodian which is an
Approved Foreign Custody Manager, or the Domestic Subcustodian, may appoint any
(1)(a) "Qualified Foreign Bank" (as such term is defined in Rule 17f-5) meeting
the requirements of an "Eligible Foreign Custodian" (as such term is defined in
Rule 17f-5) or by SEC order exempt therefrom; (b) majority-owned direct or
indirect subsidiary of a "U.S. bank" (as such term is defined in Rule 17f-5) or
bank holding company meeting the requirements of an Eligible Foreign Custodian
or exempt by SEC order therefrom; or (c) any bank (as such term is 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 (each a
"Foreign Sub-Subcustodian") or (2) any "Securities Depository" (as such term is
defined in Rule 17f-5) or clearing agency meeting the requirements of an
Eligible Foreign Custodian or exempt by SEC order therefrom ("Securities
Depositories
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and Clearing Agencies"), provided that the Foreign Custody Manager's
appointments of such Eligible Foreign Custodians shall at all times be governed
by the Delegation Agreement, except that the Fund's investment adviser, Waddell
& Reed Investment Management Company, shall be responsible for the appointment
of a compulsory depository, as applicable.
(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 the Foreign Custody Manager has not appointed an Eligible
Foreign Custodian, 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 an 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 which
is not an approved Foreign Custody Manager, and (B) shall, upon receipt of
Special Instructions, terminate any Special Subcustodian or Domestic
Subcustodian which is an Approved Foreign Custody Manager with respect to the
Fund, in
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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, or cause any Domestic
Subcustodian that has been approved as a Foreign Custody Manager to 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); (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; or (iii)
any "Sovereign Risk", which for the purpose of this Agreement 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, civil commotion, nuclear fission or
fusion or radioactivity.
(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
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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
19
<PAGE>
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 (defined in Section 5.01(b)) 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.
20
<PAGE>
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.
21
<PAGE>
(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.
22
<PAGE>
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 "A" 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:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Account 2.22(A)
ADRs 2.06
Approved Foreign Custody Manager Article IV
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Delegation Agreement Article IV
Distribution Account 2.16
Domestic Subcustodian 4.01
Eligible Foreign Custodian 4.02(a)
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 and Clearing Agencies 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
</TABLE>
24
<PAGE>
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.
25
<PAGE>
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.
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 Tax-Managed Equity Fund, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
UMB Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
26
<PAGE>
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 TAX-MANAGED UMB BANK, n.a.
EQUITY FUND, INC.
By:/s/ Kristen A. Richards By:/s/ Ralph Santoro
---------------------- -----------------
Name: Kristen A. Richards Name: Ralph Santoro
Title: Vice President Title: Senior Vice President
27
<PAGE>
APPENDIX "A"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED TAX-MANAGED EQUITY FUND, INC.
AND
UMB BANK, N.A.
Dated as of February 25, 2000
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 "A", "United Funds"
shall mean all funds in the United Group of Funds, Target/United Funds, Inc. and
Waddell & Reed Funds, 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):
-------------------------------------------------
<TABLE>
<S> <C>
(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/option contract written $25.00
(d) For each principal/interest paydown $ 6.00
(e) For each interfund note transaction $ 5.00
</TABLE>
* 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.
28
<PAGE>
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:
--------------------
<TABLE>
<CAPTION>
Market: Annual Asset Fees Transaction Fees
------ ----------------- ----------------
<S> <C> <C>
Argentina .0037 $ 85
Australia .0009 $ 85
Austria .0011 $ 70
Belgium .0011 $ 60
Brazil .0035 $ 60
Canada .0008 $ 35
Chile .0045 $ 85
China .0045 $ 75
Czech Republic .0055 $135
Denmark .0011 $ 60
Finland .0011 $ 85
France .0011 $ 85
Germany .0008 $ 60
Hong Kong .0009 $ 85
Hungary .0065 $210
India .0055 $135
Indonesia .0009 $ 85
Ireland .0011 $ 60
Israel .0035 $160
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
Philippines .0035 $ 95
Poland .0060 $110
Portugal .0035 $145
Singapore .0009 $ 85
Spain .0009 $ 85
Sweden .0011 $ 70
Switzerland .0009 $ 85
Taiwan .0035 $ 85
Thailand .0009 $ 85
Turkey .0045 $110
U.K. .0011 $ 60
</TABLE>
Segregated Account Fee: $175 monthly charge per fund holding foreign
assets.
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.)
29
<PAGE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Euroclear $60.00
</TABLE>
30
<PAGE>
SUBCUSTODIAN LIST
PURSUANT TO CUSTODIAN AGREEMENT
BETWEEN
UNITED TAX-MANAGED EQUITY FUND, INC.
AND
UMB BANK, n.a.
Dated as of February 25, 2000
This Subcustodian List relates to the Custodian Agreements between UMB
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as subsequently amended and restated:
<TABLE>
<CAPTION>
Fund Date
<S> <C>
United Asset Strategy Fund, Inc. February 22, 1995
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
Target/United Funds, Inc.*
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Asset Strategy Portfolio May 1, 1995
Science and Technology Portfolio April 4, 1997
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
International Growth Fund April 24, 1992
Growth Fund April 24, 1992
Small Cap Fund April 20, 1995
High Income Fund July 31, 1997
Science and Technology Fund July 31, 1997
United Small Cap Fund, Inc. August 18, 1999
United Tax-Managed Equity Fund, Inc. February 25, 2000
</TABLE>
*Formerly, TMK/United Funds, Inc.
The following is a list of Domestic Subcustodians, Foreign Subcustodian and
Special Subcustodians under the Custodian Agreement as amended:
31
<PAGE>
A. Domestic Custodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Custodians
<TABLE>
<CAPTION>
Country Sub-Custodian Depository
<S> <C> <C>
Argentina Citibank, n.a. CDV; CRYL
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS; The Bank of
Canada
Chile Citibank, n.a. None
China Standard Chartered Bank SSCCRC; SSCC
Czech Republic Ceskoslovenska Obchodni CNB; SCP
Banka A.S.
Denmark Den Danske Bank VP
Finland Merita Securities
Association;
Finnish Central
Securities
Depository Ltd.
France Banque Indosuez SICOVAM; Banque de
France
Germany Deutsche Bank KASSENVEREIN
Hungary Citibank, N.A. KELER Ltd.
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing Company
India Citibank, N.A., Mumbai National Securities
Depository Limited
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement
Office
Israel Bank Hapoalim B.M. TASE Clearinghouse
Ltd.
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of
Japan
Korea Citibank, n.a. Korean Securities
Depository
Corporation (KSD)
Malaysia Hong Kong Bank Malaysia Berhad MCD; Bank Negara
Malaysia
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. Phillipines Central
Depository, Inc.
Poland Bank Polska Kasa Opieki S.A. NPB
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De
Espana
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C>
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository
Center (SDC)
Turkey Citibank, n.a. TvS, Central Bank of
Turkey
United Kingdom Midland Securities PLC CMO; CGO; CrestCo
</TABLE>
C. Special Subcustodians:
Republic National Bank of New York
The Bank of New York, n.a.
33
EX-99.B(h)tmssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 25th day of February, 2000, by and
between UNITED TAX-MANAGED EQUITY FUND, INC. (the "Company"), 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.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
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 under a
particular account registration number 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;
(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;
<PAGE>
(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, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(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;
2
<PAGE>
(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
3
<PAGE>
and charges to Agent made by any Subagent; (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 or any Subagent'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)
4
<PAGE>
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.
5
<PAGE>
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 voting securities
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.
6
<PAGE>
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 TAX-MANAGED EQUITY FUND, INC.
By:/s/ Daniel C. Schulte
---------------------
Daniel C. Schulte, Vice President
ATTEST:
By:/s/ Kristen A. Richards
-----------------------
Kristen A. Richards, Secretary
WADDELL & REED SERVICES COMPANY
By:/s/ Robert L. Hechler
---------------------
Robert L. Hechler, President
ATTEST:
By:/s/ Daniel C. Schulte
---------------------
Daniel C. Schulte, Secretary
7
<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.
8
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 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 B Shares
An amount payable on the first day of each month of $1.3125 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 C Shares
An amount payable on the first day of each month of $1.3125 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.
9
<PAGE>
EXHIBIT C
<TABLE>
<CAPTION>
Bond or
Name of Bond Policy No.
Insurer
<S> <C> <C> <C>
Investment Company 87015199B ICI
Blanket Bond Form Mutual
Insurance
Company
Fidelity $20,400,000
Audit Expense 50,000
On Premises 20,400,000
In Transit 20,400,000
Forgery or Alteration 20,400,000
Securities 20,400,000
Counterfeit Currency 20,400,000
Uncollectible Items of
Deposit 25,000
Phone-Initiated Transactions 20,400,000
Total Limit 20,400,000
Directors and Officers/ 87015199D ICI
Errors and Omissions Liability Mutual
Insurance Form
Insurance
Total Limit $10,000,000
Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
</TABLE>
10
Waddell & Reed, Inc. ------------------------------------
P.O. Box 29217 Division Office Stamp
Shawnee Mission, KS
66201-9217 ------------------------------------
Trans Code: ________________________
Date Transmitted: __________________
United Group of Funds
APPLICATION
(NON-RETIREMENT PLAN)
1
================================================================================
I (We) make application for an account to be established as follows:
REGISTRATION TYPE (check one only)
|_| Single Name |_| Joint Tenants W/ROS
TOD (Transfer On Death) |_| Yes |_| No
|_| Uniform Gifts (Transfers) To Minors (UGMA/UTMA)
|_| Dated Trust Date of Trust |_|_|_|_|_|_|_|_|
(Month/Day/Year)
|_| Declaration of Trust Revocable (Attach CUF 0022)
NOT AVAILABLE IN ILLINOIS
|_| Other: ______________________________________________________
================================================================================
REGISTRATION |_| NEW ACCOUNT or
|_| NEW FUND FOR EXISTING ACCOUNT |_|_|_|_|_|_|_|_|
(must have same ownership):
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Individual Name (exactly as desired)/Trustee/Custodian (Tax-responsible party)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust, if applicable
|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|
Social Security # or Taxpayer Identification # Date of Birth
(Month/Day/Year)
|_|_|_|_|_|_|_|_|
Cumulative Discount Number
(from existing account(s) if applicable)
__________________________________________
Relationship of Joint Owner, if Applicable
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA)
|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|
Social Security # or Taxpayer Identification # Date of Birth
(Month/Day/Year)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Mailing Address
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|_| |_|_|
Telephone (home) City State
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_| |_|_|_|_|_|-|_|_|_|_|
Telephone (work) Zip Code
____________________________
Citizenship (Required in VA)
================================================================================
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
(Check appropriate box)
Automatic Investment Service Dividend/capital gain
Fund Amount to be established? payment options*
(enter code) Enclosed (If Yes Complete Sections 3 and 5) RR CC CR
<S> <C> <C> <C> <C> <C> <C>
|_|_|_| $____________ |_| Yes |_| No |_| |_| |_|
|_|_|_| $____________ |_| Yes |_| No |_| |_| |_|
|_|_|_| $____________ |_| Yes |_| No |_| |_| |_|
|_|_|_| $____________ |_| Yes |_| No |_| |_| |_|
|_|_|_| $____________ |_| Yes |_| No |_| |_| |_|
Total $____________
</TABLE>
* RR = Reinvest Div/Cap Gain
CC = Cash Div/Cap Gain
CR = Cash Div/Reinvest Cap Gain
All Dividends/Capital Gains under $5.00 will be Reinvested.
See Section 10 if you wish your distributions to go to another Fund or Account.
UNITED FUNDS CODES A B C
Shares Shares Shares
Income 621 121 321
Science & Technology 622 122 322
Accumulative 623 123 323
Bond 624 124 324
International Growth 625 125 325
Continental Income 627 127 327
A B C
Shares Shares Shares
High Income 628 128 328
Vanguard 629 129 329
New Concepts 630 130 330
High Income II 634 134 334
Small Cap 677 177 377
Retirement Shares 680 180 380
A B C
Shares Shares Shares
Asset Strategy 684 184 384
Cash Management 750 150 350
Government Securities 753 153 353
Municipal Bond 760 160 360
Municipal High Income 762 162 362
================================================================================
CAP1 Page 1 of 6
<PAGE>
2
================================================================================
CLASS A SHARES ONLY
This purchase may be entitled to a reduced sales charge for the following
reason(s):
|_| Existing Letter of Intent (LOI) for $ ____________________ under LOI
number _________________
|_| Letter of Intent for $ _____________________ is hereby executed. See below
for amounts and Section 11 for terms and conditions.
$100,000 $200,000 $300,000 $500,000 $1,000,000 $2,000,000
|_| Shareholder(s) has CUMULATIVE DISCOUNT NUMBER |_|_|_|_|_|_|_|_|
|_| Shareholder linked to following existing accounts for Rights of
Accumulation purposes:
Account numbers(s)
|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|
|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_|
|_| Other accounts are being opened at this time that qualify to be linked for
Rights of Accumulation. The accounts are being opened under the names and
tax identification numbers as follows:
Tax Identification Number Names(s)
|_|_|_|_|_|_|_|_|_| ________________________________________
|_|_|_|_|_|_|_|_|_| ________________________________________
|_|_|_|_|_|_|_|_|_| ________________________________________
================================================================================
3
================================================================================
FINANCIAL INSTITUTION INFORMATION
This information will be used for electronically processing the following (check
applicable boxes):
|_| Dividend/Capital gain distributions
|_| Automatic Investment Service (Complete Sec. 5)
|_| Flexible Withdrawal Service (Complete Sec. 6)
|_| Expedited redemptions for United Cash Management Fund (Complete Sec. 7)
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
__________________________________________________________________
NAME OF DEPOSITOR (as shown on financial institution records)
__________________________________________________________________
FINANCIAL INSTITUTION NAME
__________________________________________________________________
FINANCIAL INSTITUTION ADDRESS
__________________________________________________________________
CITY/STATE/ZIP
__________________________________________________________________
Account Number at Financial Institution
__________________________________________________________________
Financial Institution ABA Routing Number
Check One
|_| Checking Account |_| Savings Account
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals:
To your checking account, please tape a voided check to provide bank or
credit union account information.
To your savings account, please tape a preprinted deposit slip.
(Do not staple the slips.)
================================================================================
CAP1 Page 2 of 6
<PAGE>
4
================================================================================
BENEFICIARY: For TOD (Transfer On Death) Accounts Only
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
_______________________________________ |_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_| ______________ ________%
(Month/Day/Year)
_______________________________________ |_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_| ______________ ________%
(Month/Day/Year)
_______________________________________ |_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_| ______________ ________%
(Month/Day/Year)
_______________________________________ |_|_|_|_|_|_|_|_|_| |_|_|_|_|_|_|_|_| ______________ ________%
(Month/Day/Year)
</TABLE>
================================================================================
5
================================================================================
ESTABLISH AUTOMATIC INVESTMENT SERVICE
<TABLE>
<CAPTION>
Fund Draft Is To Begin On Draft Amount Frequency (check one - monthly will be used if not checked)
(Enter code) (Month/Day/Year) $25.00 Minimum Per Fund Monthly Quarterly Semi-Annual Annual
<S> <C> <C> <C> <C> <C> <C>
|_|_|_| |_|_|_|_|_|_|_|_| $______________________ |_| |_| |_| |_|
|_|_|_| |_|_|_|_|_|_|_|_| $______________________ |_| |_| |_| |_|
|_|_|_| |_|_|_|_|_|_|_|_| $______________________ |_| |_| |_| |_|
|_|_|_| |_|_|_|_|_|_|_|_| $______________________ |_| |_| |_| |_|
|_|_|_| |_|_|_|_|_|_|_|_| $______________________ |_| |_| |_| |_|
</TABLE>
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge to
my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to pay
the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry. I agree that
your rights in respect to any debit entry shall be the same as if it were a
check signed personally by me. I further agree, that if any such debit entry be
dishonored, whether intentionally or inadvertently, you shall be under no
liability whatsoever.
6
================================================================================
ESTABLISH FLEXIBLE WITHDRAWAL SERVICE
<TABLE>
<CAPTION>
Fund
(See Section 1 Effective Beginning Amount Frequency
for Codes) (Month) (Day) (Year) Indicate dollars, shares or percentage (check one - monthly will be used if not checked)
Monthly Quarterly Semi-Annual Annual
<S> <C> <C> <C> <C> <C> <C>
|_|_|_| |_|_|2|0|_|_|_|_| $______________________ |_|$ |_|SH |_|% |_| |_| |_| |_|
|_|_|_| |_|_|2|0|_|_|_|_| $______________________ |_|$ |_|SH |_|% |_| |_| |_| |_|
|_|_|_| |_|_|2|0|_|_|_|_| $______________________ |_|$ |_|SH |_|% |_| |_| |_| |_|
|_|_|_| |_|_|2|0|_|_|_|_| $______________________ |_|$ |_|SH |_|% |_| |_| |_| |_|
</TABLE>
Make Payable as follows
|_| Electronically as per Section 3 instructions (complete section 3)
|_| By check to owner(s) of the account listed in the registration
|_| By check to alternate payee as shown below (complete Alternate Payee
below)
|_| By check to owner(s) of the account at the alternate address shown below
(complete Alternate Address below).
Designate Alternate Payee or Address
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE (other
than as registered) or SENT TO AN ALTERNATE ADDRESS. If sending FWS to another
fund/account please indicate Account, Fund and Amount. Must be same class of
shares.
<TABLE>
<CAPTION>
Alternate Payee/Address Alternate Account/Fund
<S> <C> <C> <C>
____________________________________________________ |_|_|_|_|_|_|_|_| |_|_|_| $______________________
Name or institution Account Fund Amount
____________________________________________________ |_|_|_|_|_|_|_|_| |_|_|_| $______________________
Street Account Fund Amount
____________________________________________________ |_|_|_|_|_|_|_|_| |_|_|_| $______________________
City/State/Zip Account Fund Amount
____________________________________________________ |_|_|_|_|_|_|_|_| |_|_|_| $______________________
Bank Account Number (if applicable) Account Fund Amount
</TABLE>
================================================================================
CAP1 Page 3 of 6
<PAGE>
================================================================================
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a business
day, on the preceding business day.
2. Allow ten days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds combined accounts should exceed $10,000.
You may add to your account by additional investments of at least $1,000,
except in United Cash Management, Inc., which has no minimum additional
investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If a percentage is shown for monthly withdrawals, 1/12th of the indicated
percentage of the asset value of the shares in the account will be redeemed.
If withdrawals are to be made quarterly, 1/4th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
================================================================================
7
================================================================================
ESTABLISH EXPEDITED REDEMPTION SERVICE
FOR UNITED CASH MANAGEMENT FUND Fund Code |_|_|_|_|
|_| Check Box to Establish Service and Complete Section 3.
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor any requests from anyone for
redemption of fund shares as long as the proceeds are transmitted to the
identified account. All wires must be transmitted exactly as registered on the
United Cash Management Account.
================================================================================
8
================================================================================
CHECK SERVICE (CLASS "A" SHARES ONLY)
(Check appropriate box and complete this section)
|_| United Government Securities Fund Code 753
|_| United Cash Management Fund Code 750
SIGNATURE AUTHORIZATION FOR WRITING CHECKS
The payment of funds on the conditions set forth below is authorized by the
persons signing below (the Shareholder).
UMB BANK, N.A. (the Bank) is authorized by the Shareholder to honor any checks
for not less than $250 presented against this account and is directed to forward
said checks to the redemption agent of United Cash Management, Inc. and United
Government Securities, Inc. (the "Mutual Funds") as authority to pay the checks.
Checks will be paid by redeeming a sufficient number of shares for which share
certificates have not been issued in the Shareholder's account with the Mutual
Funds.
Checks will be subject to the Bank's rules and regulations governing such
checks, including the right of the Bank not to honor checks in amounts exceeding
the value of the Shareholder's account with the Mutual Funds at the time the
check is presented for payment. Shareholder hereby authorizes the Mutual Funds
or their redemption agent to honor redemption requests presented in the above
manner by the Bank.
It is further agreed as follows:
1. Shareholder(s) below waive the right to receive the cancelled check(s)
after each check is processed and the underlying shares of the Mutual
Funds have been redeemed.
2. The account may not be used for any purpose other than the presentment,
forwarding and payment of checks relating to an account in the Mutual
Funds.
3. The Bank reserves the right to change, modify or terminate this
agreement at any time upon notification mailed to the address noted on
the reverse side of this card.
BY SIGNING BELOW, THE SIGNATOR(S) SIGNIFIES AGREEMENT TO BE SUBJECT TO THE RULES
AND REGULATIONS OF UMB BANK, N.A. PERTAINING THERETO AND AS AMENDED FROM TIME TO
TIME, AND TO THE CONDITIONS PRINTED ABOVE.
Authorized Signature(s) "A" SHARES ONLY
|_| Check box if more than one signature required on checks
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
================================================================================
CAP1 Page 4 of 6
<PAGE>
9
================================================================================
ESTABLISH FUNDS PLUS SERVICE (automatically exchange shares of money market fund
into same class of shares of another fund)
Check applicable box and complete requested information
|_| From new money market account established with this application
|_| From existing United Cash Management Account
Account number |_|_|_|_|_|_|_|_| Fund code |_|_|_|
Exchange to be invested in:
<TABLE>
<CAPTION>
FUNDS PLUS Service Frequency (check one - monthly
To Begin On will be used if not checked)
Account number Fund code (Month/Day/Year) Amount Monthly Quarterly Semi-Annual Annual
<S> <C> <C> <C> <C> <C> <C> <C>
|_|_|_|_|_|_|_|_| |_|_|_| |_|_|_|_|_|_|_|_| $____________ |_| |_| |_| |_|
|_|_|_|_|_|_|_|_| |_|_|_| |_|_|_|_|_|_|_|_| $____________ |_| |_| |_| |_|
|_|_|_|_|_|_|_|_| |_|_|_| |_|_|_|_|_|_|_|_| $____________ |_| |_| |_| |_|
|_|_|_|_|_|_|_|_| |_|_|_| |_|_|_|_|_|_|_|_| $____________ |_| |_| |_| |_|
</TABLE>
================================================================================
10
================================================================================
ALTERNATE DIVIDEND AND CAPITAL GAIN PAYMENTS
To send distributions (Section 1) to a third party, or to another United Fund
account, please fill in the appropriate information below.
TO ALTERNATE PAYEE: (complete below) To another United Fund:
____________________________________________
Name Account number Fund code
|_|_|_|_|_|_|_|_| |_|_|_|
____________________________________________
Address (including apartment or box number) Must be to same class of shares
____________________________________________
City/State/Zip
================================================================================
11
================================================================================
LETTER OF INTENT TERMS AND CONDITIONS (Class A shares only)
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc. to
sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked on
the front of this Agreement as described in the prospectus of the fund or
funds being purchased.
4. If the amount invested during the 13-month period covered by this Agreement
exceeds the required amount and is large enough to qualify for a sales
charge lower than that available under this Agreement, the lower sales
charge will be applied to the amount invested. Upon termination of this
Agreement, a price adjustment will be made to give effect to the lower sales
charge and the amount of the price adjustment will be reinvested in
additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this Agreement
is less than the required amount, the sales charge for the investments
reverts back to that outlined in the Fund Prospectus, as if the Agreement
had not been executed. Waddell & Reed, Inc. will subtract shares equal in
value to the amount of the additional sales charge due from escrowed shares.
The investor hereby irrevocably appoints Waddell & Reed, Inc. or its
successors or assigns, as attorney to surrender for redemption shares in an
amount equal to the additional sales charge owed on the purchases made. This
appointment and the authority granted herein shall be binding on the heirs,
legal representatives, successors and assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held by
the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for these purposes.
================================================================================
CAP1 Page 5 of 6
<PAGE>
12
================================================================================
CONFIDENTIAL DATA (Required)
1. Marital Status: __________________
(Required in VA)
2. Gross Family Income: $_______________
3. Taxable Income: $_______________
4. Number of Dependents: ____
5. Occupation: __________________________________________________
6. Employer Name: __________________________________________________
7. Employer Address: __________________________________________________
8. Savings and Liquid Assets: $_____________________
9. Other Assets (excluding home, furnishings, cars): $_____________________
10. Net Worth (Assets minus liabilities): $_____________________
11. Are you associated with an NASD Member? |_| Yes |_| No
12. Investment Objectives (mark all that apply):
|_| Retirement Savings |_| Reserves |_| College Funds
|_| Buy Major Asset |_| Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:_____________________________________________
________________________________________________________________________________
14. Residence Address: _______________________________________________
(if different from Mailing Street City State Zip
Address in Section 1)
(Required in CT)
15. Was this investment solicited by a W&R |_| Yes |_| No
Advisor/Representative?
16. Has any beneficial owner of this account conducted any prior |_| Yes |_| No
investment activity?
If yes, which owner(s)?_____________________________________________________
17. Are proceeds from the sale of another security being used to |_| Yes |_| No
open this account?
If yes, specify:____________________________________________________________
================================================================================
13
================================================================================
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds selected,
and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 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.
o I (we) understand that there may be a deferred sales charge upon the
redemption of any Class B or C shares held in the account for less than the
time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
__________________________________ _________________________ _________________
(Signature) (Printed Name) (Title, if any)
__________________________________ _________________________ _________________
(Signature) (Printed Name) (Title, if any)
__________________________________ _________________________
(Advisor/Representative Signature) (Date)
Advisor/Representative Number |_|_|_|_|_|
================================================================================
- -----------------------------------------
Check Any Items Enclosed With Application
|_| Declaration Trust Revocable (CUF0022)
-------------------------------
|_| Additional Applications ______ OSJ:
(H.O. USE)
|_| Check enclosed # ______
|_| Other: ______
- --------------------------------------------------------------------------------
CAP1 Page 6 of 6
UNITED GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
INSTRUCTIONS You can open an account by calling 1-800-366-2520 Date
Fill in where or by mailing an application and check to Waddell & Reed,
applicable Inc., 6300 Lamar, Shawnee Mission, Kansas 66202.
- --------------------------------------------------------------------------------------------------------------
Account Name _______________________________________________________ Tax I.D. No. _______
Registration
_______________________________________________________
Number and Street __________________________________________
FULL ADDRESS
Please fill in City __________________________ State _______________ Zip Code ______________________
completely, including
telephone number. Telephone __________________________________ Citizen of: |_| U.S. |_| Other (specify)
- --------------------------------------------------------------------------------------------------------------
|_| Please establish an account(s) as follows:
INITIAL Dividends and capital
gains to be paid:*
INVESTMENT(S): Account No. Assigned _________________ Amount Reinvested in Shares Paid in Cash
--------- -------------------- ------------
FUND(S) TO BE PURCHASED (SEE REVERSE
SIDE FOR FUND NAMES)
______________________________________ $________ |_| |_|
______________________________________ $________ |_| |_|
______________________________________ $________ |_| |_|
______________________________________ $________ |_| |_|
Total Amount $________ *If no election is checked,
all payments will be rein-
vested
- --------------------------------------------------------------------------------------------------------------
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 the Fund(s), Waddell & Reed,
Inc. or Waddell & Reed Services, Co. will not 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 must be a member of the Federal Reserve System.
SERVICE
Name of 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 privilege which will
EXCHANGE authorize Waddell & Reed Services Co. to act upon instructions by telephone to
PRIVILEGE 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 I (We) hereby ratify any instructions given pursuant to this authorization and agree
if this service is that the Funds, Waddell & Reed, Inc. or Waddell & Reed Ser vices Co. will not be
NOT requested. |_| 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 and that the organization
is not subject to backup withholding either because it has not been notified that it
is 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 that it is
no longer subject to backup withholding. The undersigned certifies 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 1. _____________________________________ 2. _____________________________________
Resolution on Authorized Signature Authorized Signature
reverse side.
_____________________________________ _____________________________________
Title Title
3. _____________________________________ 4. _____________________________________
Authorized Signature Authorized Signature
_____________________________________ _____________________________________
Title Title
- --------------------------------------------------------------------------------------------------------------
CAP1635-Y(1O/98)
</TABLE>
<PAGE>
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. ITS 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/she 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 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 Group/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 Waddell & Reed Inc, Waddell & Reed Services, Co., and the
United Group/Waddell & Reed Funds 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 hold the title
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. Gross Income: $ ________________ 2. Total Investment Assets: $ ______________
3. Other Assets: _______________________ 4. Net Worth: _________________________
5. Investment Objectives (mark all that apply) |_| Growth |_| Income
|_| Reserves |_| Other needs/goals (specify in Special Remarks)
6. Special Remarks/Considerations: _____________________________________________
________________________________________________________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
o Obtain account number from the Fund. o Complete Purchase Application
Telephone toll free: 1-800-366-2520 o Make check payable to Waddell &
o Instruct bank to transmit investment Reed, Inc.
by Federal funds wire to: o 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 NAMES
737 - United Accumulative - Class Y
785 - United Asset Strategy - Class Y
738 - United Bond - Class Y
745 - United Continental Income - Class Y
744 - United Gold & Government - Class Y
754 - United Government Securities - Class Y
746 - United High Income - Class Y
749 - United High Income II - Class Y
735 - United Income - Class Y
739 - United International Growth - Class Y
761 - United Municipal Bond - Class Y
763 - United Municipal High Income - Class Y
748 - United New Concepts - Class Y
783 - United Retirement Shares - Class Y
736 - United Science and Technology - Class Y
747 - United Vanguard - Class Y
716 - W&R Asset Strategy - Class Y
715 - W&R International Growth - Class Y
712 - W&R Growth - Class Y
713 - W&R Limited-Term Bond - Class Y
714 - W&R Municipal Bond - Class Y
711 - W&R Total Return - Class Y
719 - W&R United High Income - Class Y
718 - W&R United Science and Technology - Class Y
Waddell & Reed, Inc. ---------------------
P.O. Box 29217 Division Office Stamp
Shawnee Mission, KS 66201-9217
---------------------
Mutual Funds
Net Asset Value (NAV)
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) o SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS o
- --------------------------------------------------------------------------------
NON RETIREMENT PLAN
|_| Single Name |_| Joint Tenants W/ROS
TOD |_| Yes |_| No
|_| Uniform Gifts (Transfers) To Minors (UGMA/UTMA)
|_| Dated Trust Date of Trust_____________________________
|_| Declaration of Trust Revocable (attach CUF 0022) NOT AVAILABLE IN ILLINOIS
|_| Other: _____________________________________________________________________
Use this section for Retirement Plans with Custodians other than
Fiduciary Trust Co.
- --------------------------------------------------------------------------------
RETIREMENT PLAN
|_| Individual IRA
|_| Rollover (Qual. plan lump sum distr.)
|_| Simplified Employee Pension (SEP)
(For a new Plan, attach MRP1166-AA)
|_| TSA |_| ORP
|_| 457 Plan
(For a new Plan attach MRP1401)
(If billing is required, attach form CSF 1417)
|_| SIMPLE IRA (For a new Plan, attach MRP1659-AA)
|_| Owner-Only Profit Sharing Plan
(For a new Plan attach MRP0651-AP)
|_| Owner-Only Money Purchase Plan
(For a new Plan attach MRP0651-AM)
|_| Roth IRA
|_| Conversion Roth IRA
|_| Education IRA
________________________________________________________________________________
Employer's Name (Do Not Abbreviate)
________________________________________________________________________________
Street City State Zip
- --------------------------------------------------------------------------------
REGISTRATION |_| NEW ACCOUNT or
|_| NEW FUND FOR EXISTING ACCOUNT: |_|_|_|_|_|_|_|-|_|
(Must have same ownership)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Individual Name (exactly as desired)/Trustee/Custodian
Date of Birth
|_|_|_|_|_|_|
Month Day Year
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA)
|_|_|_|_|_|_| ________________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
__________________________ _________ _____ ______/_______-_____________
City State Zip Telephone
Social Security #: |_|_|_|-|_|_|-|_|_|_|_|
or Taxpayer Identification #: |_|_|-|_|_|_|_|_|_|_|
- --------------------------------------------------------------------------------
BENEFICIARY: For Retirement Plan and TOD (Transfer On Death) Accounts Only
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
________________________ ___________________________ _______________ ______________ _________%
________________________ ___________________________ _______________ ______________ _________%
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed
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
108 - W&R Science & Technology
109 - W&R High Income
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
762 - Municipal High Income
(760 and 762 not available for Retirement Plans)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
OPEN ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
-------------If Retirement Plan------------
IRA Monthly AIS* Div./C.G. Distr*** Existing Accounts
Fund Amount Yr. Deductible or TOP Form or (Assumes RR) To Be Converted
(enter code) Enclosed of Contr. Non-Deductible Another Carrier Payroll Ded.** RR CC CR To NAV
---------- --------- -------------- --------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
|_|_|_| $_________ 19__ ______________ |_| $_____________ |_| |_| |_| |_|_|_|_|_|_|_|_|
Total $_________ $_____________
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Attach AIS Authorization Form #(CUF714)
**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.
<PAGE>
- --------------------------------------------------------------------------------
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 (UCM) Only.
- --------------------------------------------------------------------------------
________________________________________________________________________________
Name & Address of Bank/Financial Institution
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip
________________________________________________________________________________
ABA/Routing # of Bank/Financial Institution
________________________________________________________________________________
Customer's Account Number
On UCM Accounts where epedited redemption is requested, Waddell & Reed, Inc. is
authorized to honor any requests from anyone for redemption of fund shares so
long as the proceeds are transmitted to the identified account. All wires must
be transmitted exactly as registered on the UCM 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 with 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 purchased 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 - The minimum initial purchase is generally $500 for the United
Group of Funds and $1000 for Waddell & Reed Funds. Lower minimums apply to
certain Retirement Plan purchases. See a prospectus for minimum purchase
amounts.
G. GENERAL -
1. Shares purchased at net asset value will not be added to existing sales
load accounts. New accounts will be established.
2. 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 any time without notice.
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT
- --------------------------------------------------------------------------------
o I (we) have received a copy of the current prospectus(es) of the Funds
selected.
o If purchasing an IRA, 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.
o In the case of a 401(k) plan, I (we) certify that more than 100 employees
are currently eligible to participate.
- --------------------------------------------------------------------------------
o 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.
- --------------------------------------------------------------------------------
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid 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
________________________________________________________________________________
Signature of Division Manager/RVP or
Supervisor for Home Office Personnel
________________________________________________________________________________
Name of Waddell & Reed Employee or Representative,
if applicable
________________________________________________________________________________
Representative Number, if applicable
________________________________________________________________________________
Date
________________________________________________________________________________
Applicant's relationship to Employee or Representative
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HOME OFFICE USE ONLY
- --------------------------------------------------------------------------------
If a Retirement Plan, Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the Custody Agreement, as evidenced
by the authorized signature/initials in the OSJ box below.
- --------------------------------------------------------------------------------
OSJ:
------------------------------------------
CUF0025(12/97)
EX-99.B(h)tmasa
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the 25th day of February, 2000, by and
between United Tax-Managed Equity Fund, 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
<PAGE>
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:
2
<PAGE>
<TABLE>
<CAPTION>
Fund's Average Daily Net Assets for Monthly
the Month Fee
<S> <C>
$ 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
</TABLE>
D. Right of Fund to Inspect; 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,
including any supplements to the prospectus(es) and statement of additional
information contained in such registration statement.
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
3
<PAGE>
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 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
4
<PAGE>
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 voting securities 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
voting securities 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
5
<PAGE>
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 Act 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 TAX-MANAGED EQUITY FUND, INC.
By:/s/ Daniel C. Schulte
---------------------
Daniel C. Schulte, Vice President
ATTEST:
By:/s/ Kristen A. Richards
-----------------------
Kristen A. Richards, Secretary
WADDELL & REED SERVICES COMPANY
By:/s/ Robert L. Hechler
---------------------
Robert L. Hechler, President
ATTEST:
By:/s/ Daniel C. Schulte
---------------------
Daniel C. Schulte, Secretary
6
EX-99.B(i)tmlegopn
March 10, 2000
United Tax-Managed Equity Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: United Tax-Managed Equity Fund, Inc.
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of United
Tax-Managed Equity Fund, Inc. (the "Fund"), I have examined such corporate
records and documents and have made such further investigation and examination
as I deemed necessary for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
/s/Kristen A. Richards
- ----------------------------
Kristen A. Richards
Vice President and Secretary
KAR:sw
EX-99.B(j)-tmconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-95015 of United Tax-Managed Equity Fund, Inc. on Form N-1A of
our report dated March 7, 2000 appearing in the Statement of Additional
Information, which is part of such Registration Statement.
/s/Deloitte & Touche LLP
- -------------------------------
Deloitte & Touche LLP
Kansas City, Missouri
March 7, 2000
EX-99.B(l)tminitcap
AGREEMENT
Waddell & Reed, Inc., in consideration of the issuance and sale to it by United
Tax-Managed Equity Fund, Inc. (Fund) of 10,000 shares of the Fund's Class A
common stock for the total payment of $100,000.00, the receipt of which is
acknowledged by the Fund, hereby recognizes that said amount was paid to the
Fund in order for the Fund to comply with Section 14 of the Investment Company
Act of 1940, and agrees that it shall hold said shares for investment and not
with a view toward resale or requesting their redemption.
Dated this 2nd day of March, 2000.
WADDELL & REED, INC.
By /s/Robert L. Hechler
--------------------------------------
Robert L. Hechler, President
Accepted:
UNITED TAX-MANAGED EQUITY FUND, INC.
By /s/Kristen A. Richards
- -----------------------------------------------
Kristen A. Richards, Vice President
EX-99.B(m)tmdspa
DISTRIBUTION AND SERVICE PLAN
FOR CLASS A SHARES
(Adopted on February 9, 2000)
This Plan is adopted by United Tax-Managed Equity Fund, Inc. (the "Fund"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") to provide for payment by the Fund of certain expenses in connection with
the distribution of the Fund's Class A shares, provision of personal services to
the Fund'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 Fund under the terms of the
Underwriting Agreement pursuant to which W&R offers and sells the shares of the
Fund.
Distribution Fee and Service Fee
The Fund is authorized to pay to W&R an amount not to exceed on an annual basis
.25 of 1% of the Fund's average net assets of the Class A shares as either (1) a
"distribution fee" to finance the distribution of the Fund's Class A shares, or
(2) a "service fee" to finance shareholder servicing by W&R, its affiliated
companies, broker-dealers who may sell Class A shares and other third-parties to
encourage and foster the maintenance of Class A shareholder accounts, or as a
combination of the two fees. 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 "distribution fee" may be considered as a sales
charge that is deducted from the Class A net assets of the Fund and does not
include the service fee. The "service fee" shall be considered a payment made by
the Fund 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 Rule 2830 of the NASD Conduct Rules 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.
<PAGE>
Quarterly Reports
W&R shall provide to the board of directors of the Fund and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or 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 the
board of directors of the Fund and of the directors who are not interested
persons of the Fund 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 Fund) ("independent directors") cast in person
at a meeting called for the purposes of voting on such Plan.
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 the Plan by the directors and independent directors.
Director Continuation
In considering whether to adopt, continue or implement 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 Fund or by a vote of the majority of the
outstanding Class A voting securities of the Fund without penalty. On
termination, the payment of all distribution fees and service fees shall cease,
and the Fund shall have no obligation to W&R to reimburse it for any cost or
expenditure it has made or may make to distribute the Class A shares or service
Class A shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class A shares, personal service and/or maintenance of
shareholder accounts without approval of the Class A shareholders, and all
<PAGE>
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove. The distribution and service
fees may be reduced by action of the board of directors without shareholder
approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan, the Underwriting Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B(m)tmdspb
DISTRIBUTION AND SERVICE PLAN
FOR CLASS B SHARES
(Adopted on February 9, 2000)
This Plan is adopted by United Tax-Managed Equity Fund, Inc. (the "Fund"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") to provide for payment by the Fund of certain expenses in connection with
the distribution of the Fund's Class B shares, provision of personal services to
the Fund's Class B shareholders and/or maintenance of its Class B shareholder
accounts. Payments under the Plan are to be made to Waddell & Reed, Inc. ("W&R")
which serves as the principal underwriter for the Fund under the terms of the
Underwriting Agreement pursuant to which W&R offers and sells the shares of the
Fund.
Distribution Fee
The Fund is authorized to pay to W&R an amount not to exceed on an annual basis
.75 of 1% of the Fund's average net assets of its Class B shares as a
"distribution fee" to finance the distribution of the Fund's Class B shares
payable to W&R daily or at such other intervals as the board of directors may
determine.
Service Fee
The Fund is authorized to pay to W&R an amount not to exceed on an annual basis
.25 of 1% of the Fund's average net assets of its Class B shares as a "service
fee" to finance shareholder servicing by W&R or its affiliated companies to
encourage and foster the maintenance of shareholder accounts of the Fund's Class
B shares. The amounts shall be payable to W&R daily or at such other intervals
as the board of directors may determine.
NASD Definition
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the Class B net assets of the Fund and does not
include the service fee. The "service fee" shall be considered a payment made by
the Fund for personal service and/or maintenance of Class B 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 Rule 2830 of the NASD Conduct Rules 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.
<PAGE>
Quarterly Reports
W&R shall provide to the board of directors of the Fund and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or 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 the
board of directors of the Fund and of the directors who are not interested
persons of the Fund 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 Fund) ("independent directors") cast in person
at a meeting called for the purposes of voting on such Plan.
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 the Plan by the directors and independent directors.
Director Continuation
In considering whether to adopt, continue or implement 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 Fund or by a vote of the majority of the
outstanding Class B voting securities of the Fund without penalty. On
termination, the payment of all distribution fees and service fees shall cease,
and the Fund shall have no obligation to W&R to reimburse it for any cost or
expenditure it has made or may make to distribute the Class B shares or service
Class B shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class B shares, personal service and/or maintenance of
shareholder accounts without approval of the Class B shareholders, and all
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove. The distribution and service
fees may be
2
<PAGE>
reduced by action of the board of directors without shareholder approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan, the Underwriting Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
3
EX-99.B(m)tmdspc
DISTRIBUTION AND SERVICE PLAN
FOR CLASS C SHARES
(Adopted on February 9, 2000)
This Plan is adopted by United Tax-Managed Equity Fund, Inc. (the "Fund"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") to provide for payment by the Fund of certain expenses in connection with
the distribution of the Fund's Class C shares, provision of personal services to
the Fund's Class C shareholders and/or maintenance of its Class C shareholder
accounts. Payments under the Plan are to be made to Waddell & Reed, Inc. ("W&R")
which serves as the principal underwriter for the Fund under the terms of the
Underwriting Agreement pursuant to which W&R offers and sells the shares of the
Fund.
Distribution Fee
The Fund is authorized to pay to W&R an amount not to exceed on an annual basis
.75 of 1% of the Fund's average net assets of its Class C shares as a
"distribution fee" to finance the distribution of the Fund's Class C shares
payable to W&R daily or at such other intervals as the board of directors may
determine.
Service Fee
The Fund is authorized to pay to W&R an amount not to exceed on an annual basis
.25 of 1% of the Fund's average net assets of its Class C shares as a "service
fee" to finance shareholder servicing by W&R or its affiliated companies to
encourage and foster the maintenance of shareholder accounts of the Fund's Class
C shares. The amounts shall be payable to W&R daily or at such other intervals
as the board of directors may determine.
NASD Definition
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the Class C net assets of the Fund and does not
include the service fee. The "service fee" shall be considered a payment made by
the Fund for personal service and/or maintenance of Class C 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 Rule 2830 of the NASD Conduct Rules 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.
<PAGE>
Quarterly Reports
W&R shall provide to the board of directors of the Fund and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or 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 the
board of directors of the Fund and of the directors who are not interested
persons of the Fund 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 Fund) ("independent directors") cast in person
at a meeting called for the purposes of voting on such Plan.
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 the Plan by the directors and independent directors.
Director Continuation
In considering whether to adopt, continue or implement 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 Fund or by a vote of the majority of the
outstanding Class C voting securities of the Fund without penalty. On
termination, the payment of all distribution fees and service fees shall cease,
and the Fund shall have no obligation to W&R to reimburse it for any cost or
expenditure it has made or may make to distribute the Class C shares or service
Class C shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class C shares, personal service and/or maintenance of
shareholder accounts without approval of the Class C shareholders, and all
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove. The distribution and service
fees may be
2
<PAGE>
reduced by action of the board of directors without shareholder approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan, the Underwriting Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
3
EX-99.B(o)tmmcp
UNITED TAX-MANAGED EQUITY FUND, 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 of United Tax-Managed Equity Fund, Inc. (the "Fund"). The Fund's
initial multiple class structure was approved by the Board of Directors of
United Tax-Managed Equity Fund, Inc. on August 18, 1999, and adopted pursuant to
Rule 18f-3 of the Investment Company Act of 1940. This Plan describes the
classes of shares of stock of the Fund -- Class A shares, Class B shares, Class
C shares and Class Y shares -- that are offered to the public on or after the
effectiveness of the Fund's registration statement.
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 5.75% 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 distribution and/or service fee
charged pursuant to a Distribution and Service Plan adopted pursuant to Rule
12b-1 under the 1940 Act ("Rule 12b-1") that provides for a maximum fee of 0.25%
of the average annual net assets of the Class A shares of the Fund.
Class B Shares. Class B shares will be sold subject to a contingent
deferred sales charge, which will be imposed on redemption proceeds. The maximum
contingent deferred sales charge will be 5.0% and will decline 1% per year after
the first full calendar year after investment to 0% after seven years, as
follows: in the first year, the contingent deferred sales charge will be 5%; in
the second year, 4%; in the third and fourth years, 3%; in the fifth year, 2%;
in the sixth year, 1%; and in the seventh year, 0%. Class B shares will also be
subject to distribution and service fees charged pursuant to a Distribution and
Service Plan adopted pursuant to Rule 12b-1 that provides for a maximum service
fee of 0.25% and a maximum distribution fee of 0.75% of the average annual net
assets of the Class B shares of the Fund. Class B shares convert automatically
into Class A shares in the eighth year held.
Class C Shares. Class C shares will be sold without an initial sales charge
and will be subject to a contingent deferred sales charge of 1% if the shares
are redeemed within twelve months of purchase. Class C shares will be subject to
distribution and service fees charged pursuant to a Distribution and Service
Plan adopted pursuant to Rule 12b-1 that provides for
<PAGE>
a maximum service fee of 0.25% and a maximum distribution fee of 0.75% of the
average annual net assets of the Class C shares of the Fund.
Class Y Shares. Class Y shares will be sold without an initial sales charge
and without a Rule 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,
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,
investment fund administrators and other third parties investing for their own
accounts or for the accounts of their customers where such investments for
customer accounts are held in an omnibus account on the Fund's records; (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 differences with respect to 12b-1 fees, Class A, Class
B, and Class C shares differ from Class Y shares of the Fund with respect to the
applicable shareholder servicing fees. Class A, Class B and Class C shares,
respectively, pay a monthly shareholder servicing fee of $1.0208 for each Class
A, Class B or Class C shareholder account which was in existence during the
prior month, plus $0.30 for each Class A, Class B or Class C 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) stationary, 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 of shares;
(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;
2
<PAGE>
(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.
These expenses may, but are not required to, be directly attributed and
charged to a particular Class. The shareholder servicing fees and other expenses
listed above that are attributed and charged to a particular Class are borne on
a pro rata basis by the outstanding shares of that Class.
Certain expenses that may be attributable to the Fund, but not 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 Class A shares of any other
fund in the United Group of Mutual Funds.
Class B shares of the Fund may be exchanged for Class B shares of any other
fund in the United Group of Mutual Funds.
Class C shares of the Fund may be exchanged for Class C shares of any other
fund in the United Group of Mutual Funds.
Class Y shares of the Fund 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.
Adopted February 9, 2000
3
EX-99.B(p)tmcode
CODE OF ETHICS
--------------
Waddell & Reed Financial, Inc.
Waddell & Reed, Inc.
Waddell & Reed Investment Management Company
Austin, Calvert & Flavin, Inc.
Fiduciary Trust Company of New Hampshire
United Group of Mutual Funds
Waddell & Reed Funds, Inc.
Target/United Funds, Inc.
As Revised: February 9, 2000
<PAGE>
1. Preface
-------
Rule 17j-1 of the Investment Company Act of 1940 (the "Act") requires
registered investment companies and their investment advisers and principal
underwriters to adopt codes of ethics and certain other requirements to
prevent fraudulent, deceptive and manipulative practices. Each investment
company in the United Group of Mutual Funds, Waddell & Reed Funds, Inc. and
Target/United Funds, Inc. (each a "Fund," and collectively the "Funds") is
registered as an open-end management investment company under the Act.
Waddell & Reed, Inc. ("W&R") is the principal underwriter of each of the
Funds. Waddell & Reed Investment Management Company ("WRIMCO") is the
investment adviser of the Funds and may also serve as investment adviser to
institutional clients other than the Funds. Austin, Calvert & Flavin, Inc.
("ACF") is a subsidiary of WRIMCO and serves as investment adviser to
individuals and institutional clients other than the Funds. Fiduciary Trust
Company of New Hampshire ("FTC"), is a trust company and a subsidiary of
W&R, Waddell & Reed Financial, Inc. ("WDR") is the public holding company.
Except as otherwise specified herein, this Code applies to all employees,
officers and directors of W&R, WRIMCO, ACF and the Funds, (collectively,
the "Companies").
This Code of Ethics (the "Code") is based on the principle that the
officers, directors and employees of the Companies have a fiduciary duty to
place the interests of their respective advisory clients first, to conduct
all personal securities transactions consistently with this Code and in
such a manner as to avoid any actual or potential conflict of interest or
any abuse of their position of trust and responsibility, and to conduct
their personal securities transactions in a manner which does not interfere
with the portfolio transactions of any advisory client or otherwise take
unfair advantage of their relationship to any advisory client. Persons
covered by this Code must adhere to this general principle as well as
comply with the specific provisions of this Code. Technical compliance with
this Code will not insulate from scrutiny trades which indicate an abuse of
an individual's fiduciary duties to any advisory client.
This Code has been approved, and any material change to it must be
approved, by each Fund's board of directors, including a majority of the
Fund's Disinterested directors.
2
<PAGE>
2. Definitions
-----------
"Access Person" means (i) any employee, director, officer or general
partner of a Fund, WRIMCO or ACF, (ii) any director or officer of W&R, FTC
or WDR or any employee of any company in a control relationship to the
Companies who, in the ordinary course of his or her business, makes,
participates in or obtains information regarding the purchase or sale of
securities for an advisory client or whose principal function or duties
relate to the making of any recommendation to an advisory client regarding
the purchase or sale of securities and (iii) any natural person in a
control relationship to the Companies who obtains information concerning
recommendations made to an advisory client with regard to the purchase or
sale of a security. A natural person in a control relationship or an
employee of a company in a control relationship does not become an "Access
Person" simply by virtue of the following: normally assisting in the
preparation of public reports, but not receiving information about current
recommendations or trading; or a single instance of obtaining knowledge of
current recommendations or trading activity, or infrequently and
inadvertently obtaining such knowledge. The Legal Department, in
cooperation with department heads, is responsible for determining who are
Access Persons.
"Advisory Client" means any client (including both investment companies and
managed accounts) for which WRIMCO or ACF serves as an investment adviser,
renders investment advice or makes investment decisions.
A security is "being considered for purchase or sale" when the order to
purchase or sell such security has been given to the trading room, or prior
thereto when, in the opinion of the portfolio manager or division head, a
decision, whether or not conditional, has been made (even though not yet
implemented) to make the purchase or sale, or when the decision-making
process has reached a point where such a decision is imminent.
"Beneficial Ownership" shall be interpreted in the same manner as it would
be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 in
determining whether a person is the beneficial owner of a security for
purposes of Section 16 of the Securities Exchange Act of 1934. (See
Appendix A for a more complete description.)
"Control" shall have the same meaning as that set forth in Section 2(a)(9)
of the Act.
3
<PAGE>
"De Minimis Transaction" is equal to or less than 300 shares, or is a
fixed-income security (or an equivalent security) which is equal to or less
than $15,000 principal amount. Purchases and sales, as the case may be, in
the same security or an equivalent security within 30 days will be
aggregated for purposes of determining if the transaction meets the
definition of a De Minimis Transaction.
"Disinterested Director" means a director who is not an "interested person"
within the meaning of Section 2(a)(19) of the Act.
"Equivalent Security" means any security issued by the same entity as the
issuer of a subject security, including options, rights, warrants,
preferred stock, restricted stock, phantom stock, bonds and other
obligations of that company, or security convertible into another security.
"Immediate Family" of an individual means any of the following persons who
reside in the same household as the individual:
<TABLE>
<S> <C> <C>
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
</TABLE>
Immediate Family includes adoptive relationships and any other relationship
(whether or not recognized by law) which the Legal Department determines
could lead to possible conflicts of interest, diversions of corporate
opportunity, or appearances of impropriety which this Code is intended to
prevent.
"Investment Personnel" means those employees who provide information and
advice to a portfolio manager or who help execute the portfolio manager's
decisions.
"Large Cap Transaction" means a purchase or sale of securities issued by
(or equivalent securities with respect to) companies with market
capitalization of at least $2.5 billion.
4
<PAGE>
"Non-Affiliated Director" is a Director that is not an affiliated person of
W&R.
"Portfolio Manager" means those employees entrusted with the direct
responsibility and authority to make investment decisions affecting an
Advisory Client.
"Purchase or sale of a security" includes, without limitation, the writing,
purchase or exercise of an option to purchase or sell a security,
conversions of convertible securities and short sales.
"Security" shall have the meaning set forth in Section 2(a)(36) of the Act,
except that it shall not include shares of registered open-end investment
companies, securities issued by the Government of the United States,
short-term debt securities which are "government securities" within the
meaning of Section 2(a)(16) of the Act, bankers' acceptances, bank
certificates of deposit, commercial paper, high quality short-term debt
instruments, including repurchase agreements, and such other money market
instruments as are designated by the boards of directors of the Companies.
Security does not include futures contracts or options on futures contracts
(provided these instruments are not used to indirectly acquire an interest
which would be prohibited under this Code), but the purchase and sale of
such instruments are nevertheless subject to the reporting requirements of
this Code.
"Security held or to be acquired" by an Advisory Client means (a) any
security which, within the most recent 15 days, (i) is or has been held by
an Advisory Client or (ii) is being or has been considered for purchase by
an Advisory Client, and (b) any option to purchase or sell, and any
security convertible into or exchangeable into, a security described in the
preceding clause (a).
3. Pre-Clearance Requirements
--------------------------
Except as otherwise specified in this Code, all Access Persons, except a
Non-Affiliated Director or a member of his or her Immediate Family, shall
clear in advance through the Legal Department any purchase or sale, direct
or indirect, of any Security in which such Access Person has, or by reason
of such transaction acquires, any direct or indirect Beneficial Ownership;
provided, however, that an Access Person shall not be required to clear
transactions effected for or securities held in any account over which such
Access
5
<PAGE>
Person does not have any direct or indirect influence or control. The Legal
Department shall retain written records of such clearance requests. For
accounts affiliated with Waddell & Reed, Inc. or any of its affiliates or
related companies ("affiliated accounts"), WRIMCO must clear in advance
purchases of equity securities in initial public offerings only.
Except as otherwise provided in Section 5, the Legal Department will not
grant clearance for any purchase by an Access Person if the Security is
currently being considered for purchase or being purchased by any Advisory
Client or for sale by an Access Person if currently being considered for
sale or being sold by any Advisory Client. If the Security proposed to be
purchased or sold by the Access Person is an option, clearance will not be
granted if the securities subject to the option are being considered for
purchase or sale as indicated above. If the Security proposed to be
purchased or sold is a convertible security, clearance will not be granted
if either that security or the securities into which it is convertible are
being considered for purchase or sale as indicated above. The Legal
Department will not grant clearance for any purchase by an affiliated
account of any security in an initial public offering if an Advisory Client
is considering the purchase or has submitted an indication of interest in
purchasing shares in such initial public offering. For all other purchases
and sales of securities for affiliated accounts, no clearance is necessary,
but such transactions are subject to WRIMCO's Procedures for Aggregation of
Orders for Advisory Clients, as amended from time to time.
The Legal Department may refuse to preclear a transaction if it deems the
transaction to involve a conflict of interest, possible diversion of
corporate opportunity, or an appearance of impropriety.
Clearance is effective, unless earlier revoked, until the earlier of (1)
the close of business on the fifth trading day, beginning on and including
the day on which such clearance was granted, or (2) such time as the Access
Person learns that the information provided to the Legal Department in such
Access Person's request for clearance is not accurate. If an Access Person
places an order for a transaction within the five trading days but such
order is not executed within the five trading days (e.g., a limit order),
clearance need not be reobtained unless the person who placed the original
order amends such order in any way. Clearance may be revoked at any time
and is deemed revoked if, subsequent to receipt of clearance, the Access
Person has knowledge that a Security to which the clearance relates is
being considered for purchase or sale by an Advisory Client.
6
<PAGE>
4. Exempted Transactions
---------------------
The pre-clearance requirements in Section 3 and the prohibited actions and
transactions in Section 5 of this Code shall not apply to:
(a) Purchases or sales which are non-volitional on the part of either the
Access Person or the Advisory Client.
(b) Purchases which are part of an automatic dividend reinvestment plan.
(c) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such
rights so acquired.
(d) Transactions in securities of WDR; however, individuals subject to the
Insider Trading Policy remain subject to such policy. (See Appendix
B).
(e) Purchases or sales by a Non-Affiliated Director or a member of his or
her Immediate Family.
5. Prohibited Actions and Transactions
-----------------------------------
Clearance will not be granted under Section 3 hereof with respect to the
following prohibited actions and transactions. Engaging in any such actions
or transactions by Access Persons will result in sanctions, including, but
not limited to, the sanctions expressly provided for in this Section.
(a) Except with respect to Large Cap Transactions, Investment Personnel
and Portfolio Managers shall not acquire any security for any account
in which such Investment Personnel or Portfolio Manager has a
beneficial interest, excluding the Funds, in an initial public
offering of that security.
(b) Except with respect to Large Cap Transactions, Access Persons shall
not execute a securities transaction on a day during which an Advisory
Client has a pending buy or sell order in that same security or an
equivalent security until that order is
7
<PAGE>
executed or withdrawn. An Access Person shall disgorge any profits
realized on trades within such period.
(c) Except for De Minimis Transactions and Large Cap Transactions, a
Portfolio Manager shall not buy or sell a Security within seven (7)
trading days before or after an Advisory Client that the Portfolio
Manager manages trades in that Security or an equivalent security. A
Portfolio Manager shall disgorge any profits realized on such trades
within such period.
(d) Except for De Minimis Transactions and Large Cap Transactions,
Investment Personnel and Portfolio Managers shall not profit in the
purchase or sale, or sale and purchase, of the same (or equivalent)
securities within sixty (60) calendar days. The Legal Department will
review all such short-term trading by Investment Personnel and
Portfolio Managers and may, in its sole discretion, allow exceptions
when it has determined that an exception would be equitable and that
no abuse is involved. Investment Personnel and Portfolio Managers
profiting from a transaction shall disgorge any profits realized on
such transaction. This section shall not apply to options on
securities used for hedging purposes for securities held longer than
sixty (60) days.
(e) Investment Personnel and Portfolio Managers shall not accept from any
person or entity that does or proposes to do business with or on
behalf of an Advisory Client a gift or other thing of more than de
minimis value or any other form of advantage. The solicitation or
giving of such gifts by Investment Personnel and Portfolio Managers is
also prohibited. For purposes of this subparagraph, "de minimis" means
$75 or less if received in the ordinary course of business.
(f) Investment Personnel and Portfolio Managers shall not serve on the
board of directors of publicly traded companies, absent prior
authorization from the Legal Department. The Legal Department will
grant authorization only if it is determined that the board service
would be consistent with the interests of any Advisory Client. In the
event board service is authorized, such individuals serving as
directors shall be isolated from those making investment decisions
through procedures designed to safeguard against potential conflicts
of interest, such as a Chinese Wall policy or investment restrictions.
8
<PAGE>
(g) Except with respect to Large Cap Transactions, Investment Personnel
and Portfolio Managers shall not acquire a security in a private
placement, absent prior authorization from the Legal Department. The
Legal Department will not grant clearance for the acquisition of a
security in a private placement if it is determined that the
investment opportunity should be reserved for an Advisory Client or
that the opportunity to acquire the security is being offered to the
individual requesting clearance by virtue of such individual's
position with the Companies. An individual who has been granted
clearance to acquire securities in a private placement shall disclose
such investment when participating in an Advisory Client's subsequent
consideration of an investment in the issuer. A subsequent decision by
an Advisory Client to purchase such a security shall be subject to
independent review by Investment Personnel with no personal interest
in the issuer.
(h) An Access Person shall not execute a securities transaction while in
possession of material non-public information regarding the security
or its issuer.
(i) An Access Person shall not execute a securities transaction which is
intended to result in market manipulation, including but not limited
to, a transaction intended to raise, lower, or maintain the price of
any security or to create a false appearance(s) of active trading.
(j) Except with respect to Large Cap Transactions, an Access Person shall
not execute a securities transaction involving the purchase or sale of
a security at a time when such Access Person intends, or knows of
another's intention, to purchase or sell that security (or an
equivalent security) on behalf of an Advisory Client. This prohibition
would apply whether the transaction is in the same (e.g., two
purchases) or the opposite (a purchase and sale) direction as the
transaction of the Advisory Client.
(k) An Access Person shall not cause or attempt to cause any Advisory
Client to purchase, sell, or hold any security in a manner calculated
to create any personal benefit to such Access Person or his or her
Immediate Family. If an Access Person or his or her Immediate Family
stands to materially benefit from an investment decision for an
Advisory Client that the Access Person is recommending or in which the
Access Person is participating, the Access Person
9
<PAGE>
shall disclose to the persons with authority to make investment
decisions for the Advisory Client, any beneficial interest that the
Access Person or his or her Immediate Family has in such security or
an equivalent security, or in the issuer thereof, where the decision
could create a material benefit to the Access Person or his or her
Immediate Family or result in the appearance of impropriety.
6. Reporting by Access Persons
---------------------------
(a) Each Access Person, except a Non-Affiliated Director or a member of
his or her Immediate Family, shall require a broker-dealer or bank
effecting a transaction in any security in which such Access Person
has, or by reason of such transaction acquires, any direct or indirect
Beneficial Ownership in the security to timely send duplicate copies
of each confirmation for each securities transaction and periodic
account statement for each brokerage account in which such Access
Person has a beneficial interest to Waddell & Reed, Inc., Attention:
Legal Department.
(b) Each Access Person, except a Non-Affiliated Director or a member of
his or her Immediate Family, shall report to the Legal Department no
later than 10 days after the end of each calendar quarter the
information described below with respect to transactions during the
quarter in any security in which such Access Person has, or by reason
of such transaction acquired, any direct or indirect Beneficial
Ownership in the security and with respect to any account established
by the Access Person in which securities were held during the quarter
for the direct or indirect benefit of the Access Person; provided,
however, that an Access Person shall not be required to make a report
with respect to transactions effected for or securities held in any
account over which such Access Person does not have any direct or
indirect influence or control:
(i) The date of the transaction, the name, the interest rate and
maturity date (if applicable), the number of shares and the
principal amount of the security;
(ii) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition);
(iii) The price at which the transaction was effected;
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(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected and, with respect to an account
described above in this paragraph, with whom the Access Person
established the account;
(v) The date the account was established; and
(vi) The date the report is submitted.
(c) Upon commencement of employment, or, if later, at the time he or she
becomes an Access Person each such Access Person, except a
Non-Affiliated Director or a member of his or her Immediate Family,
shall provide the Legal Department with a report that discloses:
(i) The name, number of shares and principal amount of each security
in which the Access Person had any direct or indirect Beneficial
Ownership when he or she became an Access Person;
(ii) The name of any broker, dealer or bank with which the Access
Person maintained an account in which securities were held for
the direct or indirect benefit of the Access Person as of the
date he or she became an Access Person; and
(iii) The date of the report.
Annually thereafter, each Access Person, except a Non-Affiliated
Director or a member of his or her Immediate Family, shall provide the
Legal Department with a report that discloses the following
information (current as of a date no more than 30 days before the
report is submitted):
(i) The name, number of shares and principal amount of each security
in which the Access Person had any direct or indirect Beneficial
Ownership;
(ii) The name of any broker, dealer or bank with which the Access
Person maintains an account in which securities were held for the
direct or indirect benefit of the Access Person; and
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(iii) The date the report is submitted.
However, an Access Person shall not be required to make a report with
respect to securities held in any account over which such Access
Person does not have any direct or indirect influence or control.
In addition, each Access Person, except a Non-Affiliated Director or a
member of his or her Immediate Family, shall annually certify in
writing that all transactions in any security in which such Access
Person has, or by reason of such transaction has acquired, any direct
or indirect Beneficial Ownership have been reported to the Legal
Department. If an Access Person had no transactions during the year,
such Access Person shall so advise the Legal Department.
(d) A Non-Affiliated Director or a member of his or her Immediate Family
need only report a transaction in a security if such director, at the
time of that transaction, knew or, in the ordinary course of
fulfilling his or her official duties as a director, should have known
that, during the 15-day period immediately preceding the date of the
transaction by the director, such security was purchased or sold by an
Advisory Client or was being considered for purchase or sale by an
Advisory Client.
(e) In connection with a report, recommendation or decision of an Access
Person to purchase or sell a security, the Companies may, in their
discretion, require such Access Person to disclose his or her direct
or indirect Beneficial Ownership of such security. Any such report may
contain a statement that the report shall not be construed as an
admission by the person making such report that he or she has any
direct or indirect Beneficial Ownership in the security to which the
report relates.
(f) The Legal Department shall identify all Access Persons who are
required to make reports under this section and shall notify those
persons of their reporting obligations hereunder. The Legal Department
shall review, or determine other appropriate personnel to review, the
reports submitted under this section.
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7. Reports to Board
----------------
At least annually, each Fund, WRIMCO and W&R shall provide the Fund's board
of directors, and the board of directors shall consider, a written report
that:
(a) Describes any issues arising under this Code or the related procedures
instituted to prevent violation of this Code since the last report to
the board of directors, including, but not limited to, information
about material violations of this Code or such procedures and
sanctions imposed in response to such violations; and
(b) Certifies that the Fund, WRIMCO and W&R, as applicable, has adopted
procedures reasonably necessary to prevent Access Persons from
violating this Code.
In addition to the written report otherwise required by this section,
all material violations of this Code and any sanctions imposed with
respect thereto shall be periodically reported to the board of
directors of the Fund with respect to whose securities the violation
occurred.
8. Confidentiality of Transactions and Information
-----------------------------------------------
Every Access Person shall treat as confidential information the fact that a
security is being considered for purchase or sale by an Advisory Client,
the contents of any research report, recommendation or decision, whether at
the preliminary or final level, and the holdings of an Advisory Client and
shall not disclose any such confidential information without prior consent
from the Legal Department. Notwithstanding the foregoing, with respect to a
Fund, the holdings of the Fund shall not be considered confidential after
such holdings by the Fund have been disclosed in a public report to
shareholders or to the Securities and Exchange Commission.
Access Persons shall not disclose any such confidential information to any
person except those employees and directors who need such information to
carry out the duties of their position with the Companies.
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9. Sanctions
---------
Upon discovering a violation of this Code, the Companies may impose such
sanctions as it deems appropriate, including, without limitation, a letter
of censure or suspension or termination of the employment of the violator.
10. Certification of Compliance
---------------------------
Each Access Person, except a Non-Affiliated Director and members of his or
her Immediate Family, shall annually certify that he or she has read and
understands this Code and recognizes that he or she is subject hereto.
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Appendix A to the Code of Ethics
"Beneficial Ownership"
For purposes of this Code, "Beneficial Ownership" is interpreted in the same
manner as it would be under Rule 16a-1(a)(2) of the Securities Exchange Act of
1934 in determining whether a person is the beneficial owner of a security for
purposes of Section 16 of the Securities Exchange Act of 1934. In general, a
"beneficial owner" of a security is any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares any direct or indirect pecuniary interest in the security. The
Companies will interpret Beneficial Ownership in a broad sense.
The existence of Beneficial Ownership is clear in certain situations, such as:
securities held in street name by brokers for an Access Person's account, bearer
securities held by an Access Person, securities held by custodians, pledged
securities, and securities held by relatives or others for an Access Person. An
Access Person is also considered the beneficial owner of securities held by
certain family members. The SEC has indicated that an individual is considered
the beneficial owner of securities owned by such individual's Immediate Family.
The relative's ownership of the securities may be direct (i.e., in the name of
the relative) or indirect.
An Access Person is deemed to have Beneficial Ownership of securities owned by a
trust of which the Access Person is the settlor, trustee or beneficiary,
securities owned by an estate of which the Access Person is the executor or
administrator, legatee or beneficiary, securities owned by a partnership of
which the Access Person is a partner, and securities of a corporation of which
the Access Person is a director, officer or shareholder.
An Access Person must comply with the provisions of this Code with respect to
all securities in which such Access Person has a Beneficial Ownership. If an
Access Person is in doubt as to whether she or he has a Beneficial Ownership
interest in a security, the Access Person should report the ownership interest
to the Legal Department. An Access Person may disclaim Beneficial Ownership as
to any security on required reports.
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APPENDIX B
POLICY STATEMENT ON INSIDER TRADING
December 8, 1994
I. Prohibition on Insider Trading
------------------------------
All employees, officers, directors and other persons associated with
the Companies as a term of their employment or association are forbidden to
misuse in violation of Federal securities laws or other applicable laws material
nonpublic information.
This prohibition covers transactions for one's own benefit and also for
the benefit of or on behalf of others, including the investment
companies in the United Group of Mutual Funds, Waddell & Reed Funds,
Inc. and Target/United Funds, Inc. (the "Funds") or other
investment Advisory Clients. The prohibition also covers the unlawful
dissemination of such information to others. Such conduct is frequently
referred to as "insider trading". The policy of the Companies applies
to every officer, director, employee and associated person of the
Companies and extends to activities within and outside their duties at
the Companies. The prohibition is in addition to the other policies and
requirements under the Companies' Code of Ethics and other policies
issued from time to time. It applies to transactions in any securities,
including publicly traded securities of affiliated companies (e.g.,
Waddell & Reed Financial, Inc.(1))
This Policy Statement is intended to inform personnel of the issues so
as to enable them to avoid taking action that may be unlawful or to
seek clearance and guidance from the Legal Department when in doubt. It
is not the purpose of this Policy Statement to give precise and
definitive rules which will relate to every situation, but rather to
furnish enough information so that subject persons may avoid
unintentional violations and seek guidance when necessary.
- --------
(1)Reporting transactions in affiliated corporation securities is in addition to
and does not replace the obligation of certain senior officers to file reports
with the Securities and Exchange Commission.
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All employees, officers and directors of the Companies will be
furnished with or have access to a copy of this Policy Statement. Any
questions regarding the policies or procedures described herein should
be referred to the Legal Department. To the extent that inquiry of
employees reveals that this Policy Statement is not self-explanatory or
is likely to be substantively misunderstood, appropriate personnel will
conduct individual or group meetings from time to time to assure that
policies and procedures described herein are understood.
The term "insider trading" is not defined in the Federal securities
laws, but generally is used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider")
or to communications of material nonpublic information to others. In
addition, there is no definitive and precise law as to what constitutes
material nonpublic information or its unlawful use. The law in these
areas has been developed through court decisions primarily interpreting
basic anti-fraud provisions of the Federal securities laws. There is no
statutory definition, only statutory sanctions and procedural
requirements.
While the law concerning insider trading is not static, it is generally
understood that the law is as follows:
(a) It is unlawful for any person, directly or indirectly, to
purchase, sell or cause the purchase or sale of any security,
either personally or on behalf of or for the benefit of others,
while in the possession of material, nonpublic information
relating thereto, if such person knows or recklessly disregards
that such information has been obtained wrongfully, or that such
purchase or sale would constitute a wrongful use of such
information. The law relates to trading by an insider while in
possession of material nonpublic information or trading by a
non-insider while in possession of material nonpublic
information, where the information either was disclosed to the
non-insider in violation of an insider's duty to keep it
confidential or was misappropriated.
(b) It is unlawful for any person involved in any transaction which
would violate the foregoing to communicate material nonpublic
information to others (or initiate a chain of communication to
others) who purchase or sell the subject security if such sale or
purchase is reasonably foreseeable.
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The major elements of insider trading and the penalties for such
unlawful conduct are discussed below. If, after reviewing this Policy
Statement, you have any questions, you should consult the Legal
Department.
1. Who is an Insider? The concept of "insider" is broad. It includes
officers, directors and employees of the company in possession of
nonpublic information. In addition, a person can be a "temporary
insider" if he or she enters into a special confidential
relationship in the conduct of the company's affairs and as a
result is given access to information solely for the company's
purposes. A temporary insider can include, among others, a
company's attorneys, accountants, consultants, bank lending
officers, and certain of the employees of such organizations. In
addition, the Companies may become a temporary insider of a
company it advises or for which it performs services.
2. What is Material Information? Trading on inside information is
not a basis for liability unless the information is material.
"Material information" includes information that a reasonable
investor would be likely to consider important in making an
investment decision, information that is reasonably certain to
have a substantial effect on the price of a company's securities
if publicly known, or information which would significantly alter
the total mix of information available to shareholders of a
company. Information that one may consider material includes
information regarding dividends, earnings, estimates of earnings,
changes in previously released earnings estimates, merger or
acquisition proposals or agreements, major litigation,
liquidation problems, new products or discoveries and
extraordinary management developments. Material information is
not just information that emanates from the issuer of the
security, but includes market information such as the intent of
someone to commence a tender offer for the securities, a
favorable or critical article in an important financial
publication or information relating to a Fund's buying program.
3. What is Nonpublic Information? Information is nonpublic until it
has been effectively communicated to the marketplace and is
available to investors generally. One must be able to point to
some fact to show that the
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information is generally public. For example, information found
in a report filed with the SEC, or appearing in The Wall Street
Journal or other publications of general circulation would be
considered public.
4. When is a Person in Possession of Information? Once a person has
possession of material nonpublic information, he or she may not
buy or sell the subject security, even though the person is
prompted by entirely different reasons to make the transaction,
if such person knows or recklessly disregards that such
information was wrongfully obtained or will be wrongfully used.
Advisory personnel's normal analytical conclusions, no matter how
thorough and convincing, can temporarily be of no use if the
analyst has material nonpublic information, which he knows or
recklessly disregards is information which was wrongfully
obtained or would be wrongfully used.
5. When Is Information Wrongfully Obtained or Wrongfully Used?
Wrongfully obtained connotes the idea of gaining the information
from some unlawful activity such as theft, bribery or industrial
espionage. It is not necessary that the subject person gained the
information through his or her own actions. Wrongfully obtained
includes information gained from another person with knowledge
that the information was so obtained or with reckless disregard
that the information was so obtained. Wrongful use of information
concerns circumstances where the person gained the information
properly, often to be used properly, but instead using it in
violation of some express or implied duty of confidentiality. An
example would be the personal use of information concerning
Funds' trades. The employee may need to know a Fund's pending
transaction and may even have directed it, but it would be
unlawful to use this information in his or her own transaction or
to reveal it to someone he or she believes may personally use it.
6. When Is Communicating Information (Tipping) Unlawful? It is
unlawful for a person who, although not trading himself or
herself, communicates material nonpublic information to those who
make an unlawful transaction if the transaction is reasonably
foreseeable. The reason for tipping the information is not
relevant. The tipper's motivation is not of concern, but
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it is relevant whether the tipper knew the information was
unlawfully obtained or was being unlawfully used. For example, if
an employee tips a friend about a large pending trade of a Fund,
why he or she did so is not relevant, but it is relevant that he
or she had a duty not to communicate such information. It is
unlawful for a tippee to trade while in possession of material
nonpublic information if he or she knew or recklessly ignored
that the information was wrongfully obtained or wrongfully
communicated to him or her directly or through a chain of
communicators.
II. Penalties for Insider Trading
-----------------------------
Penalties for unlawful trading or communication of material nonpublic
information are severe, both for individuals involved in such unlawful
conduct and their employers. A person can be subject to some or all the
penalties below even if he or she does not personally benefit from the
violation. Penalties include civil injunctions, treble damages,
disgorgement of profits, jail sentences, fines for the person who
committed the violation and fines for the employer or other controlling
person. In addition, any violation of this Policy Statement can be
expected to result in serious sanctions by any or all of the Companies,
including, but not limited to, dismissal of the persons involved.
III. Monitoring of Insider Trading
-----------------------------
The following are some of the procedures which have been established to
aid the officers, directors and employees of the Companies in avoiding
insider trading, and to aid the Companies in preventing, detecting and
imposing sanctions against insider trading. Every officer, director and
employee of the Companies must follow these procedures or risk serious
sanctions, including dismissal, substantial liability and criminal
penalties. If you have any questions about these procedures, you should
consult the Legal Department.
A. Identifying Inside Information
------------------------------
Before trading for yourself or others in the securities of a
company about which you may have potential inside information,
ask yourself the following questions:
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(1) Is the information material? Is this information that an
investor would consider important in making his or her
investment decisions? Is this information that would
substantially affect the market price of securities if
generally disclosed?
(2) Is the information nonpublic? To whom has this information
been provided? Has the information been effectively
communicated to the marketplace by being published in a
publication of general circulation?
(3) Do you know or have any reason to believe the information
was wrongfully obtained or may be wrongfully used?
If after consideration of the above, you believe that the
information is material and nonpublic and may have been
wrongfully obtained or may be wrongfully used, or if you have
questions as to whether the information is material or nonpublic
or may have been wrongfully obtained or may be wrongfully used,
you should take the following steps:
(1) Report the matter immediately to the Legal Department.
(2) Do not purchase or sell the securities on behalf of
yourself or others.
As Revised September 1, 1999, and
As Revised February 9, 2000
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