File No. 811-2552
File No. 2-21867
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 122
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACTOF 19 40 X
6
UNITED FUNDS, INC.
- ----------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
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Kristen A. Richards, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
__X__ on April 3, 1999 pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the Registrant's
fiscal year ended December 31, 1998 will be filed on or about March 26, 1999.
<PAGE>
United Funds, Inc.
Class A Shares
Class B Shares
Class C Shares
United Funds, Inc. (the "Corporation") is a management investment company that
has four separate funds (the "Funds"), each of which is designed for investors
with different goals.
United Accumulative Fund seeks capital growth of your investment with current
income a secondary goal.
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
United Income Fund seeks, as a primary goal, the maintenance of current income
subject to market conditions. As a secondary goal, the Fund seeks capital
growth.
United Science and Technology Fund seeks long-term capital growth through
investment in a portfolio emphasizing science and technology securities.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
complete. It is a criminal offense to state otherwise.
Prospectus
April 3, 1999
<PAGE>
Table of Contents
An Overview of the Funds.................................................5
United Accumulative Fund.................................................5
Performance..............................................................7
Fees and Expenses........................................................9
United Bond Fund........................................................11
Performance.............................................................13
Fees and Expenses.......................................................15
United Income Fund......................................................18
Performance.............................................................19
Fees and Expenses.......................................................21
United Science and Technology Fund......................................23
Performance.............................................................25
Fees and Expenses.......................................................27
The Investment Principles of the Funds..................................37
Investment Goals, Principal Strategies and Other Investments........37
Financial Highlights....................................................62
Your Account............................................................66
Choosing a Share Class..............................................66
Sales Charge Reductions and Waivers..............................67
Waivers for Certain Investors....................................68
Ways to Set Up Your Account.........................................71
Buying Shares.......................................................73
Minimum Investments.................................................81
Adding to Your Account..............................................82
2
<PAGE>
Selling Shares......................................................82
Shareholder Services................................................85
Personal Service.................................................86
Reports..........................................................86
Exchanges........................................................86
Automatic Transactions...........................................87
Distributions and Taxes.............................................87
Distributions....................................................87
Taxes............................................................88
The Management of the Funds.............................................91
Portfolio Management................................................92
Management Fee......................................................94
3
<PAGE>
An Overview of the Funds
United Accumulative Fund
Goals
United Accumulative Fund seeks capital growth, with current income a secondary
goal.
Principal Strategies
United Accumulative Fund invests primarily in common stocks, or securities
convertible into common stocks, of U.S. and foreign companies. The Fund may
invest in companies of any size.
Principal Risks of Investing in the Fund
Because United Accumulative Fund owns different types of investments, a variety
of factors can affect its investment performance, such as:
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;
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in (and exposure to) different sectors of the economy;
o the earnings performance, credit quality and other conditions of the companies
whose securities the Fund holds;
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline; and
o the skill of Waddell & Reed Investment Management Company ("WRIMCO") in
evaluating and selecting securities for the Fund.
Market risk for small- to medium-sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. As well, stock of smaller companies may
experience volatile trading and price fluctuations. An investment in foreign
securities presents additional risks such as those relating to currency
fluctuations and political or economic conditions affecting the foreign country.
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
United Accumulative Fund is designed for investors seeking long-term investment
growth not by seeking to maximize the upside potential of the market but rather
by seeking to reduce potential market risk in a declining market. You should
consider whether the Fund fits your particular investment objectives.
4
<PAGE>
Performance
The chart and table below show the past performance of United Accumulative
Fund's Class A shares:
o The chart presents the annual returns and shows how performance has varied
from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to the
market indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1989 28.36%
1990 -11.05%
1991 24.72%
1992 14.04%
1993 9.06%
1994 0.04%
1995 34.21%
1996 12.18%
1997 29.58%
1998 22.62%
In the period shown in the chart, the highest quarterly return was
14.14% (the second quarter of 1997) and the lowest quarterly return
was -13.59% (the third quarter of 1990).
The chart does not reflect any sales charge that you may be required
to pay upon purchase of the Fund's Class A shares. If the sales
charge were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 year 5 years 10 years
------------------------------------------------
Class A Shares of
Accumulative Fund 15.57% 17.67% 14.82%
S&P 500 Index 28.70% 24.08% 19.21%
Lipper Growth Fund
Universe Average 22.86% 18.63% 16.71%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
5
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Accumulative Fund:
Class A Class B Class C
Shares Shares Shares
---- ---- ----
Shareholder Fees
(fees deducted directly from
your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None
Maximum Deferred Sales
Charge (Load)1 None 5% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends
(and other Distributions) None None None
Redemption Fees None None None
Exchange Fee None None None
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)(2)
Management Fees 0. % 0. % 0. %
Distribution and
Service (12b-1) Fees(3) 0. % 1.00% 1.00%
Other Expenses 0. % 0. % 0. %
Total Annual Fund
Operating Expenses 0. % 0. % 0. %
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
- --------
1 The contingent deferred sales charge which is imposed on redemption proceeds
of Class B shares declines from 5% of the amount invested to 0% after 7 years.
For Class C shares, a 1% contingent deferred sales charge applies to the
proceeds of redemption of Class C shares held for less than 12 months.
2 Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended December 31, 1998, and for Class B and
Class C, the expenses attributable to each Class that are anticipated for the
current year. Actual expenses may be greater or less that those shown.
3 It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.
6
<PAGE>
$10,000 in the Fund for each time period specified, (b) your investment has a 5%
return each year, and (c) the Class expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
1 year 3 years 5 years 10 years
Class A $ $ $ $
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
7
<PAGE>
United Bond Fund
Goal
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
Principal Strategies
United Bond Fund seeks to achieve its goal by investing primarily in debt
securities, which may include convertible securities and debt securities with
warrants attached. In selecting the debt securities for the Fund's portfolio,
WRIMCO considers yield and relative safety and, in the case of convertible
securities, the possibility of capital growth. The Fund can invest in securities
of companies of any size.
Principal Risks of Investing in the Fund
Because United Bond Fund primarily owns different types of debt securities, a
variety of factors can affect its investment performance, such as:
o an increase in interest rates, which may cause the value of the Fund's
fixed-income securities to decline;
o prepayment of higher-yielding bonds held by the Fund;
o the credit quality, earnings performance and other conditions of the companies
whose securities the Fund holds; o changes in the maturities of bonds owned by
the Fund;
o adverse bond and stock market conditions sometimes in response to
general economic and industry news that may cause the Fund's holdings to fall
as part of a broad market decline;
o WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund's portfolio.
Market risk for small- or medium-sized companies may be greater than for large
companies. The Fund may invest in "junk bonds" (rated below BBB by Standard &
Poor's ("S&P") or below Baa by Moody's ("MIS")), which are more susceptible to
the risk of non-payment or default, and their prices may be more volatile than
higher-rated bonds.
Also, the Fund can invest in foreign securities, which present additional risks
such as those relating to currency fluctuations and political or economic
conditions affecting the foreign country.
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
United Bond Fund is designed for investors who primarily seek current income
while also seeking to preserve investment principal. You should consider whether
the Fund fits your particular investment objectives.
8
<PAGE>
Performance
The chart and table below show the past performance of United Bond Fund's Class
A shares:
o The chart presents the annual returns and shows how performance has varied
from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to the
market indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1989 10.60%
1990 4.24%
1991 17.76%
1992 7.84%
1993 13.19%
1994 -5.76%
1995 20.50%
1996 3.20%
1997 9.77%
1998 7.27%
In the period shown in the chart, the highest quarterly return was
7.11% (the third quarter of 1991) and the lowest quarterly return was
-7.37% (the first quarter of 1997).
The chart does not reflect any sales charge that you may be required
to pay upon purchase of the Fund's Class A shares. If the sales
charge were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 year 5 years 10 years
---------------------------------------
Class A Shares of Bond Fund 1.10% 5.40% 8.04%
Lehman Brothers Gov't./Corp.
Bond Index 8.76% 7.20% 9.18%
Salomon Brothers Broad
Investment Grade Index 8.71% 7.30% 9.31%
Lipper Corporate Debt Funds
A-Rated Universe Average 7.47% 6.54% 8.82%
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the goal
of the Fund.
9
<PAGE>
10
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Bond Fund:
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
---- ---- ----
<S> <C> <C> <C>
Shareholder Fees
(fees deducted directly from your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None
Maximum Deferred Sales
Charge (Load)4 None 5% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
(and other Distributions)
Redemption Fees None None None
Exchange Fee None None None
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)5
Management Fees 0. % 0. % 0. %
Distribution and
Service (12b-1) Fees6 0. % 1.00% 1.00%
Other Expenses 0. % 0. % 0. %
Total Annual Fund
Operating
Expenses 0. % 0. % 0. %
</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
4 The contingent deferred sales charge which is imposed on redemption proceeds
of Class B shares declines from 5% of the amount invested to 0% after 7 years.
For Class C shares, a 1% contingent deferred sales charge applies to the
proceeds of redemption of Class C shares held for less than 12 months.
5 Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended December 31, 1998, and for Class B and
Class C, the expenses attributable to each Class that are anticipated for the
current year. Actual expenses may be greater or less that those shown.
6 It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.
11
<PAGE>
$10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class A
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
Class A $ $ $ $
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
12
<PAGE>
United Income Fund
Goals
United Income Fund seeks, as a primary goal, the maintenance of current income,
subject to market conditions. As a secondary goal, the Fund seeks capital
growth.
Principal Strategies
United Income Fund seeks to achieve its goals by investing primarily in common
stocks, or securities convertible into common stocks, of U.S. and foreign
companies that have a record of paying regular dividends on common stock or have
the potential for capital appreciation or that WRIMCO expects to resist market
decline. The Fund may invest in securities of any size company.
Principal Risks of Investing in the Fund
Because United Income Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
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;
o the earnings performance, credit quality and other conditions of the companies
whose securities the Fund holds;
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline; and
o WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- or medium-sized companies may be greater than that for
large companies.
Also, investments in foreign securities present additional risks such as those
relating to currency fluctuations and political or economic conditions affecting
the foreign country.
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
United Income Fund is designed for investors who seek dividend income with
potential for capital growth. You should consider whether the Fund fits your
investment objectives.
13
<PAGE>
Performance
The chart and table below show the past performance of United Income Fund's
Class A shares:
o The chart presents the annual returns and shows how performance has varied
from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to the market
indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1989 28.56%
1990 -6.85%
1991 30.66%
1992 11.90%
1993 16.05%
1994 -1.82%
1995 29.60%
1996 20.36%
1997 27.34%
1998 24.02%
In the period shown in the chart, the highest quarterly return was
18.72% (the second quarter of 1997) and the lowest quarterly return
was -17.35% (the third quarter of 1990).
The chart does not reflect any sales charge that you may be required
to pay upon purchase of the Fund's Class A shares. If the sales
charge were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 year 5 years 10 years
----------------------------------
Class A Shares of Income Fund 16.90% 17.93% 16.56%
S&P 500 Index 28.70% 24.08% 19.21%
Lipper Equity Income Fund
Universe Average 10.89% 16.62% 14.47%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
14
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Income Fund:
Class A Class B Class C
Shares Shares Shares
---- ---- ----
Shareholder Fees
(fees deducted directly from
your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None
Maximum Deferred Sales
Charge (Load)7 None 5% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
(and other Distributions)
Redemption Fees None None None
Exchange Fee None None None
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)8
Management Fees 0. % 0. % 0. %
Distribution and
Service (12b-1) Fees9 0. % 1.00% 1.00%
Other Expenses 0. % 0. % 0. %
Total Annual Fund
Operating
Expenses 0. % 0. % 0. %
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing
- ---------------------------
7 The contingent deferred sales charge which is imposed on redemption proceeds
of Class B shares declines from 5% of the amount invested to 0% after 7 years.
For Class C shares, a 1% contingent deferred sales charge applies to the
proceeds of redemption of Class C shares held for less than 12 months.
8 Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended December 31, 1998, and for Class B and
Class C, the expenses attributable to each Class that are anticipated for the
current year. Actual expenses may be greater or less that those shown.
9 It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.
15
<PAGE>
in other mutual funds. The example assumes that (a) you invest $10,000 in the
Fund for each time period specified, (b) your investment has a 5% return each
year, and (c) the Class A expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
Class A $ $ $ $
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
16
<PAGE>
United Science and Technology Fund
Goal
United Science and Technology Fund seeks long-term capital growth.
Principal Strategies
United Science and Technology Fund seeks to achieve its goal by concentrating
its investments primarily in science and technology securities of U.S. and
foreign companies. Science and technology securities are securities of companies
whose products, processes or services, in WRIMCO's opinion, are being or are
expected to be significantly benefited by the use or commercial application of
scientific or technological developments or discoveries. The Fund may invest in
companies of any size.
Principal Risks of Investing in the Fund
Because United Science and Technology Fund owns different types of investments,
a variety of factors can affect its investment performance, such as:
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in (and exposure to) different sectors of the science and
technology industries;
o rapid obsolescence of products or processes of companies in which the Fund
invests;
o governmental regulation in the science and technology industry;
o the earnings performance, credit quality and other conditions of the companies
whose securities the Fund holds;
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 WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- to medium-sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. As well, stock of smaller companies may
experience volatile trading and price fluctuations.
An investment by the Fund in foreign securities presents additional risks such
as those relating to currency fluctuations and political or economic conditions
affecting the foreign country.
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.
17
<PAGE>
Who May Want to Invest
United Science and Technology Fund is designed for investors who seek long-term
capital growth by investing in an actively managed portfolio concentrating in
science and technology securities. This Fund is not suitable for all investors.
You should consider whether the Fund fits with your investment objectives.
18
<PAGE>
Performance
The chart and table below show the past performance of United Science and
Technology Fund's Class A shares:
o The chart presents the annual returns and shows how performance has varied
from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to the market
indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1989 28.04%
1990 -4.57%
1991 60.66%
1992 -4.03%
1993 8.51%
1994 9.78%
1995 55.37%
1996 8.35%
1997 7.22%
1998 59.31%
In the period shown in the chart, the highest quarterly return was
34.47% (the fourth quarter of 1998) and the lowest quarterly return
was -15.89% (the third quarter of 1990).
The chart does not reflect any sales charge that you may be required
to pay upon purchase of the Fund's Class A shares. If the sales
charge were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 year 5 years 10 years
------------------------------------
Class A Shares of Science
and Technology Fund 50.15% 24.37% 19.75%
S&P 400 Index 33.85% 24.84% 19.37%
Lipper Science and Technology
Fund Universe Average 50.81% 24.26% 23.62%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
19
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Science and Technology Fund:
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Shareholder Fees
(fees deducted directly from your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None
Maximum Deferred Sales
Charge (Load)10 None 5% 1%
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
(and other Distributions)
Redemption Fees None None None
Exchange Fee None None None
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)11
Management Fees 0. % 0. % 0. %
Distribution and
Service (12b-1) Fees12 0. % 1.00% 1.00%
Other Expenses 0. % 0. % 0. %
Total Annual Fund
Operating
Expenses 0. % 0. % 0. %
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 The contingent deferred sales charge which is imposed on redemption proceeds
of Class B shares declines from 5% of the amount invested to 0% after 7 years.
For Class C shares, a 1% contingent deferred sales charge applies to the
proceeds of redemption of Class C shares held for less than 12 months.
11 Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended December 31, 1998, and for Class B and
Class C, the expenses attributable to each Class that are anticipated for the
current year. Actual expenses may be greater or less that those shown.
12 It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.
20
<PAGE>
$10,000 in the Fund for each time period specified, (b) your investment has a 5%
return each year, and (c) the Class A expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
1 year 3 years 5 years 10 years
Class A $ $ $ $
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
21
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
United Accumulative Fund
The primary goal of United Accumulative Fund is capital growth. As a secondary
goal, the Fund seeks current income. The Fund seeks to achieve these goals by
investing primarily in a diversified portfolio of common stocks, or securities
convertible into common stocks, of U.S. and foreign companies, the risks of
which are, in WRIMCO's opinion, consistent with the Fund's goals. Generally, the
Fund invests in stocks with large market capitalization that, in WRIMCO's
opinion, have a slightly higher market volatility and slightly higher growth
rates than other stocks. There is no guarantee that the Fund will achieve its
goals.
WRIMCO attempts to select securities with appreciation possibilities by looking
at many factors, including:
o stability and predictability of earnings growth;
o acceleration of earnings and/or revenue;
o improvement in profitability; and
o potential turnaround opportunities.
As a temporary defensive measure at times when WRIMCO believes that common
stocks or securities convertible into common stocks do not offer a good
investment opportunity, the Fund may hold up to all of its assets in cash, debt
securities (typically, of investment grade which means rated at least BBB by S&P
and at least Baa by MIS) or preferred stock, or in common stocks that WRIMCO
chooses because they are less volatile rather than for their growth potential.
Taking a defensive position in any of these ways may reduce the potential for
appreciation in the Fund's portfolio.
United Bond Fund
The goal of United Bond Fund is a reasonable return with more emphasis on
preservation of capital. The Fund seeks to achieve this goal by investing
primarily in a diversified portfolio of debt securities of any quality,
including non-investment grade securities, convertible securities and debt
securities with warrants attached. There is no guarantee that the Fund will
achieve its goal.
The Fund limits its acquisition of securities so that at least 90% of its assets
will consist of debt securities. These debt securities primarily include
corporate bonds, mostly of investment grade and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
22
<PAGE>
In selecting debt securities for the Fund, WRIMCO may look at many factors.
These include the issuer's past, present and estimated future:
o financial strength;
o cash flow;
o management;
o borrowing requirements; and
o responsiveness to changes in interest rates and business conditions.
WRIMCO may also consider the maturity of the obligation and the size or nature
of the bond issue.
When WRIMCO believes that a defensive position is desirable, due to present or
anticipated market or economic conditions, WRIMCO may take a number of actions.
The Fund may:
o sell longer-term bonds and buy shorter-term bonds or money
market instruments with the sales proceeds;
o buy bonds with put options or
exercise put options on bonds held; and
o buy money market instruments.
By taking a defensive position, the Fund's yield may be reduced.
United Income Fund
United Income Fund's primary goal is to maintain current income subject to
market conditions. As a secondary goal, the Fund seeks capital growth. The Fund
seeks to achieve its goals by investing, during normal market conditions,
primarily in a diversified portfolio of income-producing securities, typically
the stocks of large, high-quality U.S. companies that are well known and have
been consistently profitable. There is no guarantee that the Fund will achieve
its goals.
WRIMCO attempts to select securities with income and growth possibilities by
looking at many factors including the company's:
o dividend payment history;
o profitability record;
o history of improving sales and profits;
o management;
o leadership position in its industry; and
o stock price value.
When WRIMCO views stocks with high yields as less attractive than other common
stocks, the Fund may hold lower-yielding common stocks because of their
prospects for appreciation. When WRIMCO believes that the return on debt
securities and preferred stocks is more attractive than the return on common
stocks, or that a temporary defensive position is desirable, the Fund may seek
to achieve its goals by investing up to all of its assets in debt securities
(typically, investment grade) and preferred stocks.
23
<PAGE>
Taking a defensive position may reduce the potential for appreciation in the
Fund's portfolio yield.
United Science and Technology Fund
The goal of United Science and Technology Fund is long-term capital growth. The
Fund seeks to achieve this goal by investing primarily in science and technology
securities. Science and technology securities are securities of companies whose
products, processes or services, in WRIMCO's opinion, are being or are expected
to be significantly benefited by the use or commercial application of scientific
or technological discoveries. There is no guarantee that the Fund will achieve
its goal.
The Fund invests in such areas as:
o aerospace;
o communications and electronic equipment;
o computer systems;
o computer software and services;
o electronics;
o electronic media;
o business machines;
o office equipment and supplies;
o biotechnology;
o medical and hospital supplies and services; and
o medical devices and drugs.
The four main kinds of securities that the Fund may own are:
o common stock;
o preferred stock;
o debt securities; and
o convertible securities.
WRIMCO typically emphasizes growth potential in selecting stocks. A stock has
growth potential if, in WRIMCO's opinion, the earnings of the company are likely
to grow faster than the economy.
Under normal economic and market conditions, the Fund will not invest more than
20% of its total assets in securities other than science or technology
securities. At times, as a temporary defensive measure, the Fund may invest up
to all of its assets in U.S. Government securities or other debt securities,
mostly of investment grade. Taking a defensive position in any manner may reduce
the potential for appreciation in the Fund's portfolio.
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goals. For example, each Fund is permitted to 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. You will find more information in the Statement
of Additional Information ("SAI") about each Fund's
24
<PAGE>
permitted investments and strategies, as well as the restrictions that apply to
them.
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. Each Fund is subject to market risk, financial
risk and, in some cases, prepayment risk.
o Market risk is the possibility of a change in the price of the security
because of market factors, including 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 each
Fund will likely change as well.
o Financial risk is based on the financial situation of the issuer of the
security. To the extent the Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the securities in which it
invests. For an equity investment, a Fund's financial risk may depend, for
example, on the earnings performance of the company issuing the stock.
o Prepayment risk is the possibility that, during periods of falling
interest rates, a debt security with a high stated interest rate will be
prepaid before its expected maturity date.
Because the Funds own different types of investments, their performance will be
affected by a variety of factors. In general, the value of each 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.
United Accumulative Fund and United Science and Technology Fund may each
actively trade securities in seeking to achieve their goals. Doing so may
increase transaction costs (which may reduce performance) and increase
distributions paid by the Funds which may increase your taxable income.
Certain types of each Funds' authorized investments and strategies (such as
foreign securities, "junk bonds" 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 a Fund to restrictions on receiving the investment proceeds from a
foreign country, foreign taxes, and potential difficulties in enforcing
contractual obligations, as well as fluctuations in foreign currency values and
other developments that may adversely affect a foreign country. Junk bonds
(bonds rated BB and below by S&P and Ba and below by MIS) pose a greater risk of
nonpayment of interest or principal than higher-rated bonds. Derivative
instruments may expose a Fund to greater volatility than an investment in a more
traditional stock, bond or other security.
25
<PAGE>
Year 2000 and Euro Issues
Like other mutual funds, financial institutions and business organizations and
individuals around the world, each Fund could be adversely affected if the
computer systems used by WRIMCO and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. WRIMCO is taking steps that it believes are reasonably designed
to address year 2000 computer-related problems with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by a Fund's other, major service providers. Although there can be no
assurances, WRIMCO believes that these steps will be sufficient to avoid any
adverse impact on any of the Funds. Similarly, the companies and other issuers
in which a Fund invests could be adversely affected by year 2000
computer-related problems, and there can be no assurance that the steps taken,
if any, by these issuers will be sufficient to avoid any adverse impact on
a Fund.
Also, the Funds may be adversely affected by the conversion of certain European
currencies into the Euro. This conversion, which is under way, is scheduled to
be completed in 2002. However, problems with the conversion process and delays
could increase volatility in world capital markets and affect European capital
markets in particular.
26
<PAGE>
Financial Highlights
United Accumulative Fund
The following information is to help you understand the financial
performance of the Fund's Class A* shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of
period ....................... $7.75 $7.78 $6.58 $7.19
----- ----- ----- ----- -----
Income from investment operations:
Net investment income........ 0.10 0.11 0.11 0.13
Net realized and
unrealized gain
(loss) on
investments ............. 2.14 0.82 2.12 (0.13)
----- ----- ----- ----- -----
Total from investment
operations ................... 2.24 0.93 2.23 0.00
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................. (0.09) (0.11) (0.11) (0.13)
From capital gains ........... (2.13) (0.85) (0.92) (0.48)
In excess of capital
gains ................... (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- -----
Total distributions ................ (2.22) (0.96) (1.03) (0.61)
----- ----- ----- ----- -----
Net asset value,
end of period ................ $7.77 $7.75 $7.78 $6.58
===== ===== ===== ===== =====
Total return** ..................... 29.58% 12.18% 34.21% 0.04%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) .................... $1,595 $1,285 $1,206 $967
Ratio of expenses to
average net assets ........... 0.82% 0.83% 0.80% 0.71%
Ratio of net investment
income to average
net assets ................... 1.16% 1.34% 1.42% 1.76%
Portfolio turnover
rate ......................... 313.99% 240.37% 229.03% 205.40%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding during the periods shown.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
27
<PAGE>
United Bond Fund
The following information is to help you understand the financial
performance of the Fund's Class A* shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
<TABLE>
<CAPTION>
For a Class A share outstanding throughout each period.*
For the fiscal year ended December 31,
----------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of
period ....................... $6.14 $6.34 $5.62 $6.39
----- ----- ----- ----- -----
Income from investment operations:
Net investment
income .................. 0.39 0.39 0.40 0.39
Net realized and
unrealized gain
(loss) on
investments ............. 0.19 (0.20) 0.72 (0.75)
----- ----- ----- ----- -----
Total from investment
operations ................... 0.58 0.19 1.12 (0.36)
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................. (0.40) (0.39) (0.40) (0.39)
From capital gains ........... (0.00) (0.00) (0.00) (0.02)
----- ----- ----- ----- -----
Total distributions ................ (0.40) (0.39) (0.40) (0.41)
----- ----- ----- ----- -----
Net asset value,
end of period ................ $6.32 $6.14 $6.34 $5.62
===== ===== ===== ===== =====
Total return** ..................... 9.77% 3.20% 20.50% -5.76%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) .................... $524 $519 $563 $518
Ratio of expenses to
average net assets ........... 0.77% 0.77% 0.74% 0.72%
Ratio of net investment
income to average
net assets ................... 6.34% 6.34% 6.54% 6.60%
Portfolio turnover
rate ......................... 35.08% 55.74% 66.38% 127.11%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding during the periods shown.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
28
<PAGE>
United Income Fund
The following information is to help you understand the financial
performance of the Fund's Class A* shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of
period ....................... $32.91 $28.96 $23.34 $24.77
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ....... 0.28 0.33 0.36 0.36
Net realized and
unrealized gain
(loss) on
investments ............. 8.64 5.53 6.53 (0.80)
----- ----- ----- ----- -----
Total from investment
operations ................... 8.92 5.86 6.89 (0.44)
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................. (0.29) (0.32) (0.35) (0.36)
From capital gains ........... (3.59) (1.59) (0.92) (0.63)
----- ----- ----- ----- -----
Total distributions ................ (3.88) (1.91) (1.27) (0.99)
----- ----- ----- ----- ----
Net asset value,
end of period ................ $37.95 $32.91 $28.96 $23.34
===== ===== ===== ===== =====
Total return** ..................... 27.34% 20.36% 29.60% -1.82%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) .................... $6,196 $4,850 $3,976 $3,145
Ratio of expenses to
average net assets ........... 0.84% 0.86% 0.83% 0.74%
Ratio of net investment
income to average
net assets ................... 0.74% 1.03% 1.31% 1.45%
Portfolio turnover
rate ......................... 33.59% 22.24% 17.59% 18.54%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding for the periods shown.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
29
<PAGE>
United Science and Technology Fund
The following information is to help you understand the financial
performance of the Fund's Class A* shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of
period ....................... $23.35 $22.89 $15.21 $14.83
----- ----- ----- ----- -----
Income from investment operations:
Net investment
income (loss) .......... (0.03) (0.07) (0.01) 0.00
Net realized and
unrealized gain
(loss) on
investments ............. 1.39 2.00 8.40 1.40
----- ----- ----- ----- -----
Total from investment
operations ................... 1.36 1.93 8.39 1.40
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................. (0.00) (0.00) (0.00) (0.00)
From capital gains ........... (4.58) (1.47) (0.71) (1.02)
In excess of capital
gains ................... (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- -----
Total distributions ................ (4.58) (1.47) (0.71) (1.02)
----- ----- ----- ----- -----
Net asset value,
end of period ................ $20.13 $23.35 $22.89 $15.21
===== ===== ===== ===== =====
Total return** ..................... 7.22% 8.35% 55.37% 9.78%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) .................... $1,062 $981 $821 $497
Ratio of expenses to
average net assets ........... 1.02% 0.98% 0.93% 0.96%
Ratio of net investment
income (loss) to average
net assets ................... -0.18% -0.33% -0.07% 0.00%
Portfolio turnover
rate ......................... 87.68% 33.90% 32.89% 64.39%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding during the periods shown.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
30
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers three classes of shares for each Fund: Class
A, Class B and Class C. Each class has its own sales charge and expense
structure. You should choose the class that seems best for you, which usually
depends on how much you plan to invest and how long you plan to hold your
shares. For example, 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.
If you are investing a lesser amount, you may want to consider Class B shares
(if investing for a least seven years) or Class C shares (if investing for less
than seven years). 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 a 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 the
future investment.
Class A shares are subject to a 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 service fee of up to 0.25% of average net assets. The
ongoing expenses of this class are lower than those for Class B or Class C
shares.
31
<PAGE>
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- -------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
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 NAV of Class A shares already held
("rights of accumulation");
o Grouping all purchases of Class A shares made during a
thirteen-month period ("Statement of Intention"); and
o Grouping purchases by certain related persons.
32
<PAGE>
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 A purchaser using the proceeds of a redemption, made within 30 days
prior to the Class A shares purchase, of shares of a mutual fund,
other than a fund managed by WRIMCO, on which an initial sales
charge or a contingent deferred sales charge was paid, if this
waiver is requested at the time the Class A share purchase order is
placed and, if required, evidence of qualification for the waiver
is provided to Waddell & Reed, Inc.;
o The Directors and officers of the Fund, 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;
o Certain retirement plans and certain trusts for these persons; and
o A 401(k) plan having 100 or more eligible employees.
You will find more information in the SAI about sales charge
reductions and waivers.
Class B shares are not subject to a sales charge when you buy them.
However, you may pay a contingent deferred sales charge if you sell your Class B
shares within seven 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
an annual distribution fee of up to 0.75% of average net assets. Over time,
these fees will increase the cost our your investment and may cost you more than
if you had bought Class A shares. If you hold your Class B shares for seven
years, they will automatically convert to Class A shares, which have lower
ongoing expenses.
The Corporation 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 contingent deferred sales charge discussed herein.
Deferred
Date of Sales
Redemption Charge
- ---------- --------
any time during the calendar year of investment and the first full calendar
year after the calendar year of investment 5%
second full calendar year 4%
third full calendar year 3%
33
<PAGE>
fourth full calendar year 3%
fifth full calendar year 2%
sixth full calendar year 1%
after sixth full calendar year 0%
The deferred sales charge will be applied to the total amount invested
during a calendar year to acquire shares or the value of the shares redeemed,
whichever is less. All investments made during a calendar year are deemed a
single investment during that calendar year for purposes of calculating the
deferred sales charge.
Contingent Deferred Sales Charge. A contingent deferred sales charge may be
assessed against your redemption amount and paid to Waddell & Reed, Inc. (the
"Distributor"), subject to the limitation described under "Distribution" and as
further described below. The purpose of the deferred sales charge is to
compensate the Distributor for the costs incurred by it in connection with the
sale of a Fund's Class B shares. The deferred sales charge will not be imposed
on Class B shares representing payment of dividends or 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 shares
purchased during the deferred sales charge period.
For purposes of determining the applicability and rate of any deferred
sales charge, it will be assumed that a redemption is made first of Class B
shares purchased during the deferred sales charge period representing capital
appreciation, next of Class B shares purchased during the deferred sales charge
period representing payment of dividends and distributions and then of Class B
shares held by the shareholder for the longest period of time.
Unless instructed otherwise, the Corporation, when requested to redeem a
specific dollar amount, will redeem additional Class B shares equal in value to
the deferred sales charge. For example, should you request a $1,000 redemption
and the applicable deferred sales charge is $27, the Fund will redeem shares
having an aggregate NAV of $1,027, absent different instructions.
The deferred sales charge will not apply in the following circumstances:
o in connection with redemptions of Class B shares requested within one
year of the shareholder's death or disability, provided the Corporation
is notified of the death or disability at the time of the request and
furnished proof of such event satisfactory to the Distributor.
34
<PAGE>
o in connection with redemptions of Class B shares that are made to effect
a distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account,
Keogh plan or Internal Revenue Code section 403(b)(7) custodial account,
or a tax-free return of an excess contribution, or that otherwise results
from the death or disability of the employee, as well as in connection
with redemptions by any tax-exempt employee benefit plan for which, as a
result of a subsequent law or legislation, the continuation of its
investment would be improper.
o in connection with redemptions of Class B shares purchased by current or
retired directors of the Corporation, or current or retired officers or
employees of the Corporation, WRIMCO, the Distributor or their affiliated
companies, registered representatives of Waddell & Reed, Inc., and by the
members of immediate families of such persons.
o in connection with redemptions of Class B shares made pursuant to a
shareholder's participation in any systematic withdrawal plan adopted for
a Fund. (The Plan and this exclusion from the deferred sales charge do
not apply to a one-time withdrawal.)
o in connection with redemptions the proceeds of which are reinvested in
Class B shares of a Fund within thirty days after such redemption.
o in connection with the exercise of certain exchange privileges.
o on redemptions effected pursuant to the Corporation's right to liquidate
a shareholder's Class B shares of a Fund if the aggregate NAV of those
shares is less than $500.
o in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with a Fund or by a
former shareholder of such investment company of Class B shares of a Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any
time without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain notices.
Class C shares are not subject to a sales charge when you buy them, but if
you sell your Class C shares within 12 months of buying them, you will pay a 1%
deferred sales charge. Class C shares pay an annual 12b-1 fee of up to 0.25% of
average net assets and an annual distribution fee of up to 0.75% of average net
assets. Over time, these fees will increase the cost of your
35
<PAGE>
investment and may cost you more than if you had bought Class A shares. Class C
shares do not convert to any other class.
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement Plans
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax deductible.
o Individual Retirement Accounts (IRAs) allow an individual under age 70
1/2, with earned income, to invest up to $2,000 per tax year. The maximum
for an investor and his or her spouse is $4,000 ($2,000 for each spouse)
or, if less, the couple's combined earned income for the taxable year.
o IRA Rollovers retain special tax advantages for certain distributions
from employer-sponsored retirement plans.
o Roth IRAs allow certain individuals to make nondeductible contributions
up to $2,000 per year. Withdrawals of earnings may be tax-free if the
account is at least five years old and certain other requirements are
met.
o Education IRAs are established for the benefit of a minor, with
nondeductible contributions, and permit tax-free withdrawals to pay the
higher education expenses of the beneficiary.
o Simplified Employee Pension Plans (SEP - IRAs) provide small business
owners or those with self-employed income (and their
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<PAGE>
eligible employees)
with many of the same advantages as a Keogh Plan, but with fewer
administrative requirements.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be
established by small employers to contribute to their employees'
retirement accounts and involve fewer administrative requirements than
401(k) or other qualified plans generally.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income,
with a maximum of $30,000 per year.
o 401(k) Programs allow employees of corporations and non-governmental
tax-exempt organizations of all sizes to contribute a percentage of their
wages on a tax-deferred basis. These accounts need to be established by
the administrator or trustee of the plan.
o 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
o 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on
a tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
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
37
<PAGE>
complete and sign an application. Your Waddell & Reed financial advisor can help
you with any questions you might have.
The price to buy a Fund share is its offering price, which is calculated
every business day.
The offering price of a share (price to buy one share of a particular
class) is the net asset value ("NAV") per share of that class plus, for Class A
shares, the sales charge shown in the table above.
In the calculation of a 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.
A Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a Fund may be priced at the close of the regular
session of any other securities exchange on which that instrument is traded.
The Funds 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 a Fund does not price its shares and when you are not able to purchase
or redeem a Fund's shares.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous investment
has cleared.
When you sign your account application, you will be asked to certify that
your Social Security or other taxpayer identification number is correct and
whether you are subject to
38
<PAGE>
backup withholding for failing to report income to the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Funds reserve the right to
discontinue offering Fund shares for purchase.
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to
Rule 12b-1 under the Investment Company Act of 1940. 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 services to Class A shareholders or maintaining Class A
shareholder accounts. Under the Class B Plan and the Class C Plan, the Fund may
pay Waddell & Reed, Inc. a service fee of up to 0.25% and a distribution fee of
up to 0.75%, on an annual basis, of the average daily net assets of the shares
of the class to compensate Waddell & Reed, Inc. for distributing the shares of
that class, providing services to shareholders of that class and/or maintaining
shareholders accounts for that class. Because a class's fees are paid out of the
assets of that class on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll
deductions for or by employees of WRIMCO, Waddell & Reed, Inc. and their
affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you
can make additional investments of any amount at any time.
39
<PAGE>
To add to your account, make your check payable to Waddell & Reed,
Inc. Mail the check along with:
o the detachable form that accompanies the confirmation of a prior purchase 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.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class) is the
NAV per share of that class, subject to any contingent deferred sales charges
applicable to Class B or Class C shares.
To sell shares, your request must be made in writing.
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, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed, Inc. will send a check to the
address on the account.
40
<PAGE>
Special Requirements for Selling Shares
Account Type Special Requirements
- ------------ --------------------
Individual The written instructions
or Joint Tenant must be signed by all persons required to
sign for transactions, exactly as their
names appear on the account.
Sole Proprietorship The written instructions
must be signed by the individual owner of
the business.
UGMA, UTMA The custodian must sign the written
instructions indicating capacity as
custodian.
Retirement Account The written instructions must be
signed by a properly authorized person.
Trust The trustee must sign the written
instructions indicating capacity as
trustee. If the trustee's name is not in
the account registration, provide a
currently certified copy of the trust
document.
Business or Organization At least one person authorized
by corporate resolution to act
on the account must sign the written
instructions.
Conservator, Guardian or Other The written instructions must be signed
Fiduciary by the person properly authorized by court
order to act in the particular fiduciary
capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office, subject to applicable
contingent deferred sales charges. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
o If you hold a certificate, it must be properly endorsed and sent to the
Corporation.
o If you recently purchased the shares by check, a 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
41
<PAGE>
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 under extraordinary conditions
redemptions may be made in portfolio securities.
A 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 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.
Each Fund reserves the right to redeem at NAV all Fund shares in your
account 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 of a Fund you redeemed by sending to the Fund the amount you want to
reinvest. The reinvested amounts must be received by the Fund within thirty days
after the date of your redemption. You may do this only once with Class A shares
of the Fund.
The deferred sales charge 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 within thirty days after such redemption. You may do this only once as
to Class B shares of a Fund, and only once as to Class C shares of a Fund.
Payments of principal and interest on loans made pursuant to Waddell &
Reed's 401(k) prototype plan may be reinvested, without payment of a sales
charge, in Class A shares of any United Group fund in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
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<PAGE>
Personal Service
Your local Waddell & Reed financial advisor is available to provide
personal service. Additionally, one toll-free call, 1-800-366-5465, connects you
to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to answer your questions or update your account records. At almost any
time of the day or night, you may access TeleWaddell from a touch-tone phone 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 of each Fund will be mailed to your household, even if you have more
than one account with a Fund. Call the telephone number listed above for
Customer Service if you need copies of annual or semiannual reports or account
information.
Exchanges
You may sell your shares and buy shares of the same Class of another Fund
or of other funds in the United Group without payment of an additional sales
charge or a contingent deferred sales charge when you exchange the shares. For
Class B and C shares, the time period for the contingent deferred sales charge
will continue to run. You may exchange only into funds that are legally
permitted for sale in your state of residence. Note that exchanges out of a Fund
may have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Funds reserve the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
43
<PAGE>
Automatic Transactions
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, or between Fund accounts, automatically. While Regular Investment Plans
do not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed financial advisor for
more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund whether in the same
or a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income
and net capital gains to its shareholders each year. Usually, a Fund distributes
net investment income at the following times: United Accumulative Fund and
United Science and Technology Fund, semiannually in June and December; United
Income Fund, quarterly in March, June, September and December; and United Bond
Fund, monthly. 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. Each Fund offers three options:
1. Share Payment Option. Your dividends, capital gains and other
distributions 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.
44
<PAGE>
2. Income-Earned Option. Your capital gains and other distributions with
respect to a Class will be automatically paid in shares of the same Class
of the Fund, but you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions.
For retirement accounts, all distributions are automatically paid in Fund
shares.
Taxes
As with any investment, you should consider how your investment in a Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income whether received in cash
or paid in additional Fund shares. Distributions of a Fund's net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in 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 (if you are a noncorporate shareholder of the Fund) may
be taxable at different rates depending on how long the Fund held the assets
generating the gains, but generally are taxed at a maximum rate of 20%.
Each 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 a 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 a 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. Each Fund must withhold 31% of all dividends, capital gains
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and capital gains
distributions also is required for shareholders subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the
45
<PAGE>
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 Fund Class A shares or acquire Class A shares of another fund
in the United Group without paying a sales charge due to the thirty-day
reinvestment privilege or exchange privilege. See "Your Account." In these
cases, any gain on the disposition of the original 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 shares of a Fund
within thirty days before or after redeeming other shares of a Fund (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 United
Bond Fund and United Income Fund (and, to a lesser extent, the other Funds)
attributable to interest earned on its U.S. Government securities generally is
not subject to state and local income taxes, although distributions by any 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 Funds in your state
and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting each 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.
46
<PAGE>
The Management of the Funds
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. WRIMCO and 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 1940 or the inception of the company, whichever
was later. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Antonio Intagliata is primarily responsible for the management of the
portfolio of United Accumulative Fund. Mr. Intagliata has held his Fund
responsibilities since November 1979. He is Senior Vice President of WRIMCO and
Vice President of the Fund. Mr. Intagliata has served as the portfolio manager
for investment companies managed by WRIMCO since February 1979 and has been an
employee of WRIMCO since June 1973.
James C. Cusser is primarily responsible for the management of the
portfolio of United Bond Fund. Mr. Cusser has held his Fund responsibilities
since September 1992. He is Vice President of WRIMCO, Vice President of the Fund
and Vice President of other investment companies for which WRIMCO serves as
investment manager. Mr. Cusser has served as the portfolio manager for the Fund
and other investment companies managed by WRIMCO and has been an employee of
WRIMCO since August 1992.
Russell E. Thompson and James D. Wineland are primarily responsible for the
management of the portfolio of United Income Fund. Mr. Thompson has held his
Fund responsibilities since February 1979. He is Senior Vice President of
WRIMCO. He is Vice President of the Fund and Vice President of other investment
companies for which WRIMCO serves as investment manager. From January 1992 to
March 1998, Mr. Thompson was Senior Vice President of, and a portfolio manager
for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Mr.
Thompson has served as the portfolio manager for investment companies managed by
WRIMCO since January 1976, and has been an employee of WRIMCO since March 1971.
Mr. Wineland has held his Fund responsibilities since July 1, 1997. He is
Vice President of WRIMCO, Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. From March
1995 to March 1998, Mr. Wineland was Vice President of, and a portfolio manager
for, Waddell & Reed Asset Management Company. Mr. Wineland has served as the
portfolio manager for investment companies managed by WRIMCO since January 1988
and has been an employee of WRIMCO since November 1984.
47
<PAGE>
Abel Garcia is primarily responsible for the management of the portfolio of
United Science and Technology Fund. Mr. Garcia has held his Fund
responsibilities since January 1984. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. From May 1988 to March 1998, Mr. Garcia was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Garcia has been an employee of WRIMCO since August 1983.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
WRIMCO places transactions for the portfolio of each Fund and in doing so
may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Management Fee
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained in the SAI.
The management fee of each Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on each Fund's net asset value as of the close
of business each day at the annual rate of .15 of 1% of the net assets of United
Accumulative Fund, .03 of 1% of the net assets of United Bond Fund, .15 of 1% of
the net assets of United Income Fund and .20 of 1% of the net assets of United
Science and Technology Fund. The group fee is determined on the basis of the
combined net asset values of all the funds in the United Group at the annual
rates shown in the following table and then allocated pro rata to the Fund based
on its relative net assets.
48
<PAGE>
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The combined net asset values of all of the funds in the United Group were
approximately $21.0 billion as of December 31, 1998.
Management fees for each Fund as a percent of each Fund's net assets for
the fiscal year ended December 31, 1998 were as follows: United Bond Fund 0. %,
United Income Fund 0. %, United Accumulative Fund 0. %, United Science and
Technology Fund 0 .%.
49
<PAGE>
United Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue 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 (800) 366-5465
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
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
50
<PAGE>
United Funds, Inc.
Class A Shares
Class B Shares
Class C Shares
PROSPECTUS
April 3, 1999
You can get more information about the Funds in--
o the Statement of Additional Information (SAI) dated April 3,
1999, which contains detailed information about each Fund,
particularly the investment policies and practices. You may not
be aware of important information about each 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 the Annual and Semiannual Reports to Shareholders, which detail
each 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
each Fund's performance during the year covered by the report.
To request a copy of the current SAI or copies of a Fund's most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below.
Information about the Fund (including the current SAI and most recent Annual and
Semiannual Reports) 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 1-800-SEC-0330.
The Funds' SEC file number is: 811-2552.
WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-366-5465
printed on recycled paper NUP1000(4-99)
<PAGE>
United Funds, Inc.
Class Y Shares
United Funds, Inc. (the "Corporation") is a management investment company that
has four separate funds (the "Funds"), each of which is designed for investors
with different goals.
United Accumulative Fund seeks capital growth of your investment with current
income a secondary goal.
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
United Income Fund seeks, as a primary goal, the maintenance of current income
subject to market conditions. As a secondary goal, the Fund seeks capital
growth.
United Science and Technology Fund seeks long-term capital growth through
investment in a portfolio emphasizing science and technology securities.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
complete. It is a criminal offense to state otherwise.
Prospectus
April 3, 1999
<PAGE>
Table of Contents
An Overview of the Funds............................................5
United Accumulative Fund............................................5
Performance.........................................................7
Fees & Expenses.....................................................8
United Bond Fund...................................................10
Performance........................................................12
Fees & Expenses....................................................13
United Income Fund.................................................16
Performance........................................................17
Fees & Expenses....................................................18
United Science and Technology Fund.................................20
Performance........................................................22
Fees & Expenses....................................................22
The Investment Principles of the Funds.............................33
Investment Goals, Principals Strategies and Other Investments...33
Financial Highlights...............................................53
Your Account.......................................................61
Buying Shares...................................................61
Minimum Investments.............................................63
Adding to Your Account..........................................63
Selling Shares..................................................64
Telephone Transactions..........................................66
Shareholder Services............................................67
Personal Service.............................................67
2
<PAGE>
Reports......................................................67
Exchanges....................................................67
Distributions and Taxes.........................................68
Distributions................................................68
Taxes........................................................68
The Management of the Funds........................................71
Portfolio Management............................................72
Management Fee..................................................74
3
<PAGE>
An Overview of the Funds
United Accumulative Fund
Goals
United Accumulative Fund seeks capital growth, with current income a secondary
goal.
Principal Strategies
United Accumulative Fund invests primarily in common stocks of U.S. and foreign
companies, or securities convertible into common stocks. The Fund may invest in
companies of any size.
Principal Risks of Investing in the Fund
Because United Accumulative Fund owns different types of investments, a variety
of factors can affect its investment performance, such as:
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;
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in (and exposure to) different sectors of the economy;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline; and
o the skill of Waddell & Reed Investment Management Company ("WRIMCO") in
evaluating and selecting securities for the Fund .
Market risk for small- to medium-sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. As well, stock of smaller companies may
experience volatile trading and price fluctuations. An investment in foreign
securities presents additional risks such as those relating to currency
fluctuations and political or economic conditions affecting the foreign country.
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
United Accumulative Fund is designed for investors seeking long-term investment
growth not by seeking to maximize the upside potential of the market but rather
by seeking to reduce potential market risk in a declining market. You should
consider whether the Fund fits your particular investment objectives.
4
<PAGE>
Performance
The chart and table below show the past performance of United Accumulative
Fund's Class Y shares:
o The chart presents the annual returns since these shares were first
offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1995* 11.92%
1996 12.27%
1997 29.67%
1998 22.79%
In the period shown in the chart, the highest quarterly return was
14.04% (the second quarter of 1997) and the lowest quarterly return was
-7.33% (the third quarter of 1997).
Average Annual Total Returns
as of December 31, 1998 (%)
1 year Life of Class*
------ --------------
Class Y Shares of Accumulative Fund 22.79% %
S&P 500 Index 28.70% %
Lipper Growth Fund Universe Average 22.86% %
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*Since July 11, 1995.
5
<PAGE>
Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Accumulative Fund.
Shareholder Fees
(fees deducted directly from your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0. %
Distribution and
Service (12b-1) Fees None
Other Expenses 0. %
Total Annual Fund
Operating
Expenses 0. %
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $
3 Years $
5 Years $
10 Years $
6
<PAGE>
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
7
<PAGE>
United Bond Fund
Goal
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
Principal Strategies
United Bond Fund seeks to achieve its goal by investing primarily in debt
securities, which may include convertible securities and debt securities with
warrants attached. In selecting the debt securities for the Fund's portfolio,
Waddell & Reed Investment Management Company ("WRIMCO"), the Fund's investment
manager, considers yield and relative safety and, in the case of convertible
securities, the possibility of capital growth.
Principal Risks of Investing in the Fund
Because United Bond Fund primarily owns different types of debt securities, a
variety of factors can affect its investment performance, such as:
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline;
o prepayment of higher-yielding bonds held by the Fund;
o the credit quality, earnings performance and other conditions of the
companies whose securities the Fund holds;
o changes in the maturities of bonds owned by the Fund;
o adverse bond and stock market conditions sometimes in response to general
economic and industry news that may cause the Fund's holdings to fall as
part of a broad market decline;
o WRIMCO's skill in evaluating and managing the interest rate and credit
risks of the Fund's portfolio.
The Fund can invest in securities of companies of any size. Market risk for
small- or medium-sized companies may be greater than for large companies. The
Fund may invest in "junk bonds" (rated below BBB), which are more susceptible to
the risk of non-payment or default, and their prices may be more volatile than
higher-rated bonds.
Also, the Fund can invest in foreign securities, which present additional risks
such as those relating to currency fluctuations and political or economic
conditions affecting the foreign country.
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
United Bond Fund is designed for investors who primarily seek current income
while also seeking to preserve investment
8
<PAGE>
principal. You should consider whether the Fund fits your particular investment
objectives.
9
<PAGE>
Performance
The chart and table below show the past performance of United Bond Fund's Class
Y shares:
o The chart presents the annual returns since these shares were first
offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1995* 7.20%
1996 3.35%
1997 9.91%
1998 7.54%
In the period shown in the chart, the highest quarterly return was
3.83% (the second quarter of 1997) and the lowest quarterly return was
-2.27% (the first quarter of 1996).
Average Annual Total Returns
as of December 31, 1998 (%)
1 year Life of Class*
------ --------------
Class Y Shares of Bond Fund 7.54% %
Lehman Brothers Gov't./Corp.
Bond Index 8.76% %
Salomon Brothers Broad Investment
Grade Index 8.71% %
Lipper Corporate Debt Funds
A-Rated Universe Average 7.47% %
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the goal
of the Fund.
*Since June 19, 1995.
10
<PAGE>
Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Bond Fund.
Shareholder Fees
(fees deducted directly from your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0. %
Distribution and
Service (12b-1) Fees None
Other Expenses 0. %
Total Annual Fund
Operating
Expenses 0. %
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $
3 Years $
5 Years $
10 Years $
11
<PAGE>
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
12
<PAGE>
United Income Fund
Goals
United Income Fund seeks, as a primary goal, the maintenance of current income,
subject to market conditions. As a secondary goal, the Fund seeks capital
growth.
Principal Strategies
United Income Fund seeks to achieve its goals by investing primarily in common
stocks, or securities convertible into common stocks, of U.S. and foreign
companies that have a record of paying regular dividends on common stock or have
the potential for capital appreciation or that WRIMCO expects to resist market
decline. The Fund may invest in securities of any size company.
Principal Risks of Investing in the Fund
Because United Income Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
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;
o earnings performance, credit quality and other conditions of the companies
whose securities the Fund holds;
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline; and
o WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- or medium-sized companies may be greater than that for
large companies.
Also, investments in foreign securities present additional risks such as those
relating to currency fluctuations and political or economic conditions affecting
the foreign country.
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
United Income Fund is designed for investors who seek dividend income with
potential for capital growth. You should consider whether the Fund fits your
investment objectives.
13
<PAGE>
Performance
The chart and table below show the past performance of United Income Fund's
Class Y shares:
o The chart presents the annual returns since these shares were first
offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1995* 8.45%
1996 20.53%
1997 27.49%
1998 24.27%
In the period shown in the chart, the highest quarterly return was
18.76% (the second quarter of 1997) and the lowest quarterly return was
-7.23% (the third quarter of 1998).
Average Annual Total Returns
as of December 31, 1998 (%)
1 year Life of Class*
------ --------------
Class Y Shares of Income Fund 24.27% %
S&P 500 Index 28.70% %
Lipper Equity Income Fund
Universe Average 10.89%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*Since June 19, 1995.
14
<PAGE>
Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Income Fund.
Shareholder Fees
(fees deducted directly from your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0. %
Distribution and
Service (12b-1) Fees None
Other Expenses 0. %
Total Annual Fund
Operating
Expenses 0. %
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $
3 Years $
5 Years $
10 Years $
15
<PAGE>
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
16
<PAGE>
United Science and Technology Fund
Goal
United Science and Technology Fund seeks long-term capital growth.
Principal Strategies
United Science and Technology Fund seeks to achieve its goal by concentrating
its investments primarily in science and technology securities of U.S. and
foreign companies. Science and technology securities are securities of companies
whose products, processes or services, in WRIMCO's opinion, are being or are
expected to be significantly benefited by the use or commercial application of
scientific or technological developments or discoveries. The Fund may invest in
companies of any size.
Principal Risks of Investing in the Fund
Because United Science and Technology Fund owns different types of investments,
a variety of factors can affect its investment performance, such as:
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in (and exposure to) different sectors of the science and
technology industries;
o rapid obsolescence of products or processes of companies in which the Fund
invests;
o governmental regulation in the science and technology industry;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
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 WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- to medium-sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. As well, stock of smaller companies may
experience volatile trading and price fluctuations.
An investment by the Fund in foreign securities presents additional risks such
as those relating to currency fluctuations and political or economic conditions
affecting the foreign country.
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.
17
<PAGE>
Who May Want to Invest
United Science and Technology Fund is designed for investors who seek long-term
capital growth by investing in an actively managed portfolio concentrating in
science and technology securities. This Fund is not suitable for all investors.
You should consider whether the Fund fits with your investment objectives.
18
<PAGE>
Performance
The chart and table below show the past performance of United Science and
Technology Fund's Class Y shares:
o The chart presents the annual returns since these shares were first
offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does
not necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
1996* 3.25%
1997 7.43%
1998 59.71%
In the period shown in the chart, the highest quarterly return was
34.49% (the fourth quarter of 1998) and the lowest quarterly return was
-15.14% (the first quarter of 1997).
Average Annual Total Returns
as of December 31, 1998 (%)
1 year Life of Class*
------ --------------
Class Y Shares of Science and
Technology Fund 59.71% %
S&P 400 Index 33.85% %
Lipper Science and Technology Fund
Universe Average 50.81%
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*Since February 27, 1996.
Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Science and Technology Fund.
19
<PAGE>
Shareholder Fees
(fees deducted directly from your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses deducted from Fund assets)
Management Fees 0. %
Distribution and
Service (12b-1) Fees None
Other Expenses 0. %
Total Annual Fund
Operating
Expenses 0. %
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $
3 Years $
5 Years $
10 Years $
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
20
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
United Accumulative Fund
The primary goal of United Accumulative Fund is capital growth. As a secondary
goal, the Fund seeks current income. The Fund seeks to achieve these goals by
investing primarily in a diversified portfolio of common stocks, or securities
convertible into common stocks, of U.S. and foreign companies, the risks of
which are, in WRIMCO's opinion, consistent with the Fund's goals. Generally, the
Fund invests in stocks with large market capitalization that, in WRIMCO's
opinion, have a slightly higher market volatility and slightly higher growth
rates than other stocks. There is no guarantee that the Fund will achieve its
goals.
WRIMCO attempts to select securities with appreciation possibilities by looking
at many factors, including:
o stability and predictability of earnings growth;
o acceleration of earnings and/or revenue;
o improvement in profitability; and
o potential turnaround opportunities.
As a temporary defensive measure at times when WRIMCO believes that common
stocks or securities convertible into common stocks do not offer a good
investment opportunity, the Fund may hold up to all of its assets in cash, debt
securities (typically, of investment grade which means rated at least BBB by S&P
and at least Baa by MIS) or preferred stock, or in common stocks that WRIMCO
chooses because they are less volatile rather than for their growth potential.
Taking a defensive position in any of these ways may reduce the potential for
appreciation in the Fund's portfolio.
United Bond Fund
The goal of United Bond Fund is a reasonable return with more emphasis on
preservation of capital. The Fund seeks to achieve this goal by investing
primarily in a diversified portfolio of debt securities of any quality,
including non-investment grade securities, convertible securities and debt
securities with warrants attached. There is no guarantee that the Fund will
achieve its goal.
The Fund limits its acquisition of securities so that at least 90% of its assets
will consist of debt securities. These debt securities primarily include
corporate bonds, mostly of investment grade and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
<PAGE>
In selecting debt securities for the Fund, WRIMCO may look at many factors.
These include the issuer's past, present and estimated future:
o financial strength;
o cash flow;
o management;
o borrowing requirements; and
o responsiveness to changes in interest rates and business conditions.
WRIMCO may also consider the maturity of the obligation and the size or nature
of the bond issue.
When WRIMCO believes that a defensive position is desirable, due to present or
anticipated market or economic conditions, WRIMCO may take a number of actions.
The Fund may:
o sell longer-term bonds and buy shorter-term bonds or money
market instruments with the sales proceeds;
o buy bonds with put options or
exercise put options on bonds held; and
o buy money market instruments.
By taking a defensive position, the Fund's yield may be reduced.
United Income Fund
United Income Fund's primary goal is to maintain current income subject to
market conditions. As a secondary goal, the Fund seeks capital growth. The Fund
seeks to achieve its goals by investing, during normal market conditions,
primarily in a diversified portfolio of income-producing securities, typically
the stocks of large, high-quality U.S. companies that are well known and have
been consistently profitable. There is no guarantee that the Fund will achieve
its goals.
WRIMCO attempts to select securities with income and growth possibilities by
looking at many factors including the company's:
o dividend payment history;
o profitability record;
o history of improving sales and profits;
o management;
o leadership position in its industry; and
o stock price value.
When WRIMCO views stocks with high yields as less attractive than other common
stocks, the Fund may hold lower-yielding common stocks because of their
prospects for appreciation. When WRIMCO believes that the return on debt
securities and preferred stocks is more attractive than the return on common
stocks, or that a temporary defensive position is desirable, the Fund may seek
to achieve its goals by investing up to all of its assets in debt securities
(typically, investment grade) and preferred stocks.
<PAGE>
Taking a defensive position may reduce the potential for appreciation in the
Fund's portfolio yield.
United Science and Technology Fund
The goal of United Science and Technology Fund is long-term capital growth. The
Fund seeks to achieve this goal by investing primarily in science and technology
securities. Science and technology securities are securities of companies whose
products, processes or services, in WRIMCO's opinion, are being or are expected
to be significantly benefited by the use or commercial application of scientific
or technological discoveries. There is no guarantee that the Fund will achieve
its goal.
The Fund invests in such areas as:
o aerospace;
o communications and electronic equipment;
o computer systems;
o computer software and services;
o electronics;
o electronic media;
o business machines;
o office equipment and supplies;
o biotechnology;
o medical and hospital supplies and services; and
o medical devices and drugs.
The four main kinds of securities that the Fund may own are:
o common stock;
o preferred stock;
o debt securities; and
o convertible securities.
WRIMCO typically emphasizes growth potential in selecting stocks. A stock has
growth potential if, in WRIMCO's opinion, the earnings of the company are
likely to grow faster than the economy.
Under normal economic and market conditions, the Fund will not invest more than
20% of its total assets in securities other than science or technology
securities. At times, as a temporary defensive measure, the Fund may invest up
to all of its assets in U.S. Government securities or other debt securities,
mostly of investment grade. Taking a defensive position in any manner may reduce
the potential for appreciation in the Fund's portfolio.
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goals. For example, each Fund is permitted to 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. You will find more information in the Statement
of Additional Information ("SAI") about each Fund's
<PAGE>
permitted investments and strategies, as well as the restrictions that apply to
them.
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. Each Fund is subject to market risk, financial
risk and, in some cases, prepayment risk.
o Market risk is the possibility of a change in the price of the security
because of market factors, including 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 each
Fund will likely change as well.
o Financial risk is based on the financial situation of the issuer of the
security. To the extent the Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the securities in which it
invests. For an equity investment, a Fund's financial risk may depend, for
example, on the earnings performance of the company issuing the stock.
o Prepayment risk is the possibility that, during periods of falling
interest rates, a debt security with a high stated interest rate will be
prepaid before its expected maturity date.
Because the Funds own different types of investments, their performance will be
affected by a variety of factors. In general, the value of each 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.
United Accumulative Fund and United Science and Technology Fund may each
actively trade securities in seeking to achieve their goals. Doing so may
increase transaction costs (which may reduce performance) and increase
distributions paid by the Funds which may increase your taxable income.
Certain types of each Funds' authorized investments and strategies (such as
foreign securities, "junk bonds" 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 a Fund to restrictions on receiving the investment proceeds from a
foreign country, foreign taxes, and potential difficulties in enforcing
contractual obligations, as well as fluctuations in foreign currency values and
other developments that may adversely affect a foreign country. Junk bonds
(bonds rated BB and below by S&P and Ba and below by MIS) pose a greater risk of
nonpayment of interest or principal than higher-rated bonds. Derivative
instruments may expose a Fund to greater volatility than an investment in a more
traditional stock, bond or other security.
<PAGE>
Year 2000 and Euro Issues
Like other mutual funds, financial institutions and business organizations and
individuals around the world, each Fund could be adversely affected if the
computer systems used by WRIMCO and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. WRIMCO is taking steps that it believes are reasonably designed
to address year 2000 computer-related problems with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by a Fund's other, major service providers. Although there can be no
assurances, WRIMCO believes that these steps will be sufficient to avoid any
adverse impact on any of the Funds. Similarly, the companies and other issuers
in which a Fund invests could be adversely affected by year 2000
computer-related problems, and there can be no assurance that the steps taken,
if any, by these issuers will be sufficient to avoid any adverse impact on
a Fund.
Also, the Funds may be adversely affected by the conversion of certain European
currencies into the Euro. This conversion, which is under way, is scheduled to
be completed in 2002. However, problems with the conversion process and delays
could increase volatility in world capital markets and affect European capital
markets in particular.
26
<PAGE>
Financial Highlights
UNITED ACCUMULATIVE FUND
The following information is to help you understand the financial
performance of the Fund's Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended December 31, period from
---------------------------------------- 7/11/95* to
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of period ............ $ 7.75 $ 7.78 $ 7.84
------- ------- -------
Income from investment
operations:
Net investment income .......... 0.11 0.12 0.05
Net realized and
unrealized gain
on investments ................. 2.14 0.82 0.87
------- ------- -------
Total from investment
operations ..................... 2.25 0.94 0.92
------- ------- -------
Less distributions:
From net investment
income ......................... (0.10) (0.12) (0.06)
From capital gains ............. (2.13) (0.85) (0.92)
------- ------- -------
Total distributions ............. (2.23) (0.97) (0.98)
------- ------- -------
Net asset value,
end of period ................... $ 7.77 $ 7.75 $ 7.78
======= ======= =======
Total return .................... 29.67% 12.27% 11.92%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) ...................... $ 4 $ 3 $ 1
Ratio of expenses to
average net assets ............. 0.75% 0.74% 0.76%**
Ratio of net investment
income to average
net assets ..................... 1.22% 1.45% 1.24%**
Portfolio turnover
rate ........................... 313.99% 240.37% 229.03%**
</TABLE>
*Commencement of operations
**Annualized.
26
<PAGE>
UNITED BOND FUND
The following information is to help you understand the financial
performance of the Fund's Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended December 31, period from
------------------------------------------- 7/11/95* to
1998 1997 1996 12/31/95
---- ---- ---- --------
<S> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of period ....................... $ 6.14 $ 6.34 $ 6.11
Income from investment
operations:
Net investment income ..................... 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments ......................... 0.17 (0.20) 0.22
Total from investment
operations ................................ 0.59 0.20 0.43
Less distributions:
From net investment
income ................................. (0.41) (0.40) (0.20)
From capital gains ........................ (0.00) (0.00) (0.00)
Total distributions .......................... (0.41) (0.40) (0.20)
Net asset value,
end of period ............................. $ 6.32 $ 6.14 $ 6.34
Total return ................................. 9.91% 3.35% 7.20%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) ................................. $ 5 $ 12 $ 3
Ratio of expenses to
average net assets ........................ 0.64% 0.62% 0.63%**
Ratio of net investment
income to average
net assets ................................ 6.48% 6.52% 6.41%**
Portfolio turnover
rate ...................................... 35.08% 55.74% 66.38%**
</TABLE>
*Commencement of operations
**Annualized.
27
<PAGE>
UNITED INCOME FUND
The following information is to help you understand the financial
performance of the Fund's Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended December 31, period from
------------------------------ 6/19/95* to
1998 1997 1996 12/31/95
---- ---- ----- -----------
<S> <C> <C> <C> <C>
Per-share Data
Net asset value,
beginning of period ............. $32.91 $28.96 $27.73
----- ----- ----- -----
Income from investment
operations:
Net investment income............ 0.33 0.36 0.21
Net realized and
unrealized gain
on investments ............... 8.64 5.54 2.14
----- ----- ----- -----
Total from investment
operations ...................... 8.97 5.90 2.35
----- ----- ----- -----
Less distributions:
From net investment
income........................ (0.34) (0.36) (0.20)
From capital gains .............. (3.59) (1.59) (0.92)
----- ----- ----- -----
Total distributions ................ (3.93) (1.95) (1.12)
----- ----- ----- -----
Net asset value,
end of period ................... $37.95 $32.91 $28.96
===== ===== ===== =====
Total return ....................... 27.49% 20.53% 8.45%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) ....................... $299 $151 $108
Ratio of expenses to
average net assets............... 0.72% 0.73% 0.74%**
Ratio of net investment
income to average
net assets ...................... 0.85% 1.17% 1.36%**
Portfolio turnover
rate ............................ 33.59% 22.24% 17.59%**
</TABLE>
*Commencement of operations.
**Annualized.
28
<PAGE>
UNITED SCIENCE AND TECHNOLOGY FUND
The following information is to help you understand the financial
performance of the Fund's Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the For the
fiscal fiscal period from
year ended year ended 2/27/96* to
12/31/98 12/31/97 12/31/96
-------- -------- --------
<S> <C> <C> <C>
Per-share Data
Net asset value,
beginning of period ............. $23.38 $24.05
----- ----- -----
Income from investment
operations:
Net investment
loss ......................... (0.00) (0.02)
Net realized and
unrealized gain
on investments ............... 1.41 0.82
----- ----- -----
Total from investment
operations ...................... 1.41 0.80
----- ----- -----
Less distributions:
From net investment
income ....................... (0.00) (0.00)
From capital gains .............. (4.58) (1.47)
----- ----- -----
Total distributions ................ (4.58) (1.47)
----- ----- -----
Net asset value,
end of period ................... $20.21 $23.38
===== ===== =====
Total return ....................... 7.43% 3.25%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) ....................... $4 $3
Ratio of expenses to
average net assets............... 0.85% 0.80%**
Ratio of net investment
loss to average
net assets ...................... -0.01% -0.12%**
Portfolio turnover
rate ............................ 87.68% 33.90%**
</TABLE>
*Commencement of operations.
**Annualized.
29
<PAGE>
Your Account
Class Y shares are designed for institutional investors or others
investing through certain intermediaries. Class Y shares are available for
purchase by:
o participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of
the Internal Revenue Code of 1986, as amended (the "Code"), when the plan
has 100 or more eligible employees and holds the shares in an omnibus
account on the Fund's records;
o banks, trust institutions, 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;
o government entities or authorities and corporations whose investment
within the first twelve months after initial investment is $10 million or
more; and
o certain retirement plans and trusts for employees and financial advisors
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Funds through Waddell & Reed, Inc. and its
financial advisors. To open your account you must complete and sign an
application. Your Waddell & Reed, Inc. financial advisor can help you with any
questions you might have.
The price to buy a share of each Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share)
is each Fund's Class Y net asset value ("NAV") per share.
To purchase by wire, you must first obtain an account number by calling
1-800-366-5465, 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 to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc.
Mail the check, along with your completed account application, to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217.
30
<PAGE>
You may also buy shares of certain of the Funds indirectly through
certain broker-dealers, banks and other third parties, some of which may charge
you a fee. These firms may have additional requirements to buy shares.
In the calculation of a Fund's Class Y NAV:
o The securities in each 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.
A Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by a 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 Funds 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 a Fund does not price its shares and when you are not able to purchase
or redeem the Fund's shares.
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 Funds do not issue certificates representing Class Y shares of the
Funds.
o If you purchase Fund shares 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
31
<PAGE>
receive the 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 Fund shares 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.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Funds reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation:
$10 million (within first twelve months)
For other investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell &
Reed, Inc. Mail the check along with a letter stating your account number, the
account registration and that you wish to purchase Class Y shares of a Fund to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through these firms.
32
<PAGE>
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's
Class Y NAV per share.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed 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 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, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed, Inc. will send a check to
the address on the account.
33
<PAGE>
Special Requirements for Selling Shares
Account Type Special Requirements
------------ --------------------
Retirement Account The written instructions must be signed by a properly
authorized person.
Trust The trustee must sign the written instructions
indicating capacity as trustee. If the trustee's
name is not in the account registration, provide
a currently certified copy of the trust
document.
Business At least one person authorized
or Organization by corporate resolution to act on the account
must sign the written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. 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, a 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 under extraordinary conditions
redemptions may be made in portfolio securities.
o If you purchased Fund 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 shares when that firm (or its designee) has received your order. Your
order will receive the offering price next calculated after the order has
been received in proper form by the authorized firm (or its designee). You
should consult that firm to determine the time by which it must receive
your order for you to sell Fund shares at that day's price.
A Fund may require a signature guarantee in certain situations such as:
34
<PAGE>
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 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.
Telephone Transactions
The Corporation and its agents will not be liable for following
instructions communicated by telephone that they reasonably believe to be
genuine. The Corporation will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Corporation fails to
do so, the Corporation 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, one toll-free call, 1-800-366-5465, connects you
to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to answer your questions or update your account records. At almost any
time of the day or night, you may access TeleWaddell from a touch-tone phone 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:
35
<PAGE>
o confirmation statements (after every purchase, 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 above for Customer
Service if you need copies of annual or semiannual reports or account
information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds
in the United Group or 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 a Fund may have tax consequences for you.
Before exchanging into a fund, read its prospectus.
The Funds reserve the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Distributions and Taxes
Distributions
Each 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 at the following times: United Accumulative
Fund and United Science and Technology Fund, semiannually in June and December;
United Income Fund, quarterly in March, June, September and December; and United
Bond Fund, monthly. 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. Each Fund offers three
options:
1. Share Payment Option. Your dividends, capital gains and other distributions
will be automatically paid in additional Class Y shares of the Fund. If you
do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
36
<PAGE>
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions.
For retirement accounts, all distributions are automatically paid in
Class Y shares.
Taxes
As with any investment, you should consider how your investment in a
Fund will be taxed. If your account is not a tax-deferred retirement account,
you should be aware of the following tax implications:
Taxes on distributions. Dividends from a Fund's investment company
taxable income are generally taxable to you as ordinary income whether received
in cash or paid in additional Fund shares. Distributions of a Fund's net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in 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 (if you are a noncorporate shareholder of the Fund) may
be taxable at different rates depending on how long the Fund held the assets
generating the gains, but generally are taxed at a maximum rate of 20%.
Each 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 a 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 a 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. Each Fund must withhold 31% of all dividends, capital
gains distributions and redemption proceeds payable to individuals and certain
other noncorporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gains distributions also is required for shareholders subject to backup
withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than what you paid for the redeemed shares. An exchange of Fund
shares for shares of any other fund in the United Group generally will have
similar tax consequences. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares
37
<PAGE>
(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
United Bond Fund and United Income Fund (and, to a lesser extent, the other
Funds) attributable to interest earned on its U.S. Government securities
generally is not subject to state and local income taxes, although distributions
by any 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 Funds in
your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting each 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.
38
<PAGE>
The Management of the Funds
Portfolio Management
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. WRIMCO and 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 1940 or the inception of the company, whichever
was later. WRIMCO is located at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Antonio Intagliata is primarily responsible for the management of the
portfolio of United Accumulative Fund. Mr. Intagliata has held his Fund
responsibilities since November 1979. He is Senior Vice President of WRIMCO and
Vice President of the Fund. Mr. Intagliata has served as the portfolio manager
for investment companies managed by WRIMCO since February 1979 and has been an
employee of WRIMCO since June 1973.
James C. Cusser is primarily responsible for the management of the
portfolio of United Bond Fund. Mr. Cusser has held his Fund responsibilities
since September 1992. He is Vice President of WRIMCO, Vice President of the Fund
and Vice President of other investment companies for which WRIMCO serves as
investment manager. Mr. Cusser has served as the portfolio manager for the Fund
and other investment companies managed by WRIMCO and has been an employee of
WRIMCO since August 1992.
Russell E. Thompson and James D. Wineland are primarily responsible for
the management of the portfolio of United Income Fund. Mr. Thompson has held his
Fund responsibilities since February 1979. He is Senior Vice President of
WRIMCO. He is Vice President of the Fund and Vice President of other investment
companies for which WRIMCO serves as investment manager. From January 1992 to
March 1998, Mr. Thompson was Senior Vice President of, and a portfolio manager
for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Mr.
Thompson has served as the portfolio manager for investment companies managed by
WRIMCO since January 1976, and has been an employee of WRIMCO since March 1971.
Mr. Wineland has held his Fund responsibilities since July 1, 1997. He
is Vice President of WRIMCO, Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. From
March 1995 to March 1998, Mr. Wineland was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company. Mr. Wineland has served as
the portfolio manager for investment companies managed by WRIMCO since January
1988 and has been an employee of WRIMCO since November 1984.
39
<PAGE>
Abel Garcia is primarily responsible for the management of the
portfolio of United Science and Technology Fund. Mr. Garcia has held his Fund
responsibilities since January 1984. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. From May 1988 to March 1998, Mr. Garcia was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Garcia has been an employee of WRIMCO since August 1983.
Other members of WRIMCO's investment management department provide
input on market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
WRIMCO places transactions for the portfolio of each Fund and in doing
so may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Management Fee
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment
advice and supervising its investments. Each Fund also pays other expenses,
which are explained in the SAI.
The management fee of each Fund is calculated by adding a group fee to
a specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on each Fund's net asset value as of the
close of business each day at the annual rate of .03 of 1% of the net assets of
United Bond Fund, .15 of 1% of the net assets of United Income Fund and United
Accumulative Fund and .20 of 1% of the net assets of United Science and
Technology Fund. The group fee is a determined on the basis of the combined net
asset values of all the funds in the United Group at the annual rates shown in
the following table and then allocated pro rata to the Fund based on its
relative net assets.
40
<PAGE>
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The combined net asset values of all of the funds in the United Group
were approximately $21.0 billion as of December 31, 1998.
For the fiscal year ended December 31, 1998, management fees for each
Fund as a percent of each Fund's net assets were as follows: United Bond Fund
0. %, United Income Fund 0. %, United Accumulative Fund 0. %, United
Science and Technology Fund 0. %.
41
<PAGE>
United Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue 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 (800) 366-5465
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
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
42
<PAGE>
United Funds, Inc.
Class Y Shares
PROSPECTUS
April 3, 1999
You can get more information about the Funds in--
o the Statement of Additional Information (SAI) dated April 3, 1999, which
contains detailed information about each Fund, particularly its investment
policies and practices. You may not be aware of important information
about a 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 the Annual and Semiannual Reports to Shareholders, which detail each
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 each Fund's performance during the year
covered by the report.
To request a copy of the current SAI or copies of the Funds' most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below.
Information about the Fund (including the current SAI and most recent Annual and
Semiannual Reports) 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 1-800-SEC-0330.
The Fund's SEC file number is: 811-2552.
WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-366-5465
printed on recycled paper NUP1000-Y(4-99)
<PAGE>
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
April 3, 1999
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
("Prospectus") for the Class A, Class B and Class C shares or the Class Y
shares, as applicable, of United Funds, Inc. (the "Corporation") dated April 3,
1999, which may be obtained from the Corporation or its underwriter, Waddell &
Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ................................... 2
Investment Strategies, Policies and Practices.............. 5
Investment Management and Other Services .................. 33
Purchase, Redemption and Pricing of Shares ................ 38
Directors and Officers .................................... 54
Payments to Shareholders .................................. 61
Taxes ..................................................... 63
Portfolio Transactions and Brokerage ...................... 67
Other Information ......................................... 70
Financial Statements ...................................... 72
<PAGE>
United Funds, Inc. is a mutual fund; an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Corporation is an open-end, diversified management company organized as a
Maryland corporation on February 21, 1974, as a successor to a Delaware
corporation which commenced operations in 1940.
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's underwriter, or the Corporation
may, from time to time, publish for one or more of the four Funds total return
information, yield 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, 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 a 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, a Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that class.
The average annual total return quotations for Class A shares with
sales load deducted as of December 31, 1998, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
2
<PAGE>
<TABLE>
<CAPTION>
One-year Five-year Ten-year
period from period from period from
1-1-98 to 1-1-94 to 1-1-89 to
12-31-98 12-31-98 12-31-98
----------- ----------- -----------
<S> <C> <C> <C>
United Accumulative Fund 15.57% 17.67% 14.82%
United Bond Fund 1.10% 5.40% 8.04%
United Income Fund 16.90% 17.93% 16.56%
United Science and
Technology Fund 50.15% 24.37% 19.75%
</TABLE>
The average annual total return quotations for Class A shares without
sales load deducted as of December 31, 19987, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
<TABLE>
<CAPTION>
One-year Five-year Ten-year
period from period from period from
1-1-98 to 1-1-94 to 1-1-89 to
12-31-98 12-31-98 12-31-98
----------- ----------- -----------
<S> <C> <C> <C>
United Accumulative Fund 22.62% 19.07% 15.50%
United Bond Fund 7.27% 6.65% 8.69%
United Income Fund 24.02% 19.33% 17.26%
United Science and
Technology Fund 59.31% 25.85% 20.47%
</TABLE>
Prior to October 1, 1993, United Science and Technology Fund was named
United Science and Energy Fund, and its investment policies related to
investments in science and energy securities rather than science and technology
securities.
Prior to June 17, 1995, each Fund offered only one class of shares to
the public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Funds have been available for certain
institutional investors.
The total return quotations for Class Y shares as of December 31, 1998,
which is the most recent balance sheet included in this SAI, for the periods
shown were as follows:
3
<PAGE>
<TABLE>
<CAPTION>
One year
period Period from
ended inception* to
December 31, 1998 December 31, 1998
----------------- -----------------
<S> <C> <C>
United Accumulative Fund 22.79% %
United Bond Fund 7.54% %
United Income Fund 24.27% %
United Science and
Technology Fund 59.71% %
</TABLE>
* United Income Fund and United Bond Fund commenced selling Class Y shares on
June 19, 1995, United Accumulative Fund commenced selling Class Y shares on
July 11, 1995 and United Science and Technology Fund commenced selling Class Y
shares on February 27, 1996.
A Fund may also quote unaveraged or cumulative total return for a class
which reflects the change in value of an investment in that class over a stated
period of time. Cumulative total returns will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Yield
A yield quoted for a class of a Fund is computed by dividing the net
investment income per share of that class earned during the period for which the
yield is shown by the maximum offering price per share of that class on the last
day of that period according to the following formula:
(6)
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of a Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class
outstanding during the period that were entitled to
receive dividends.
d = the maximum offering price per share of the class on the last
day of the period.
The yield for United Bond Fund Class A shares computed according to the
formula for the 30-day period ended on December 31, 1998, the date of the most
recent balance sheet included in this SAI, is 4.91%. The yield for United Bond
Fund Class Y shares computed according to the formula for the 30-day period
ended on December 31, 1998, the date of the most recent balance sheet included
in this SAI, is 5.65%.
Change in yields primarily reflect different interest rates received by
a Fund as its portfolio securities change. Yield is
4
<PAGE>
also affected by portfolio quality, portfolio maturity, type of securities held
and operating expenses of the applicable class.
Performance Rankings
Waddell & Reed, Inc. or the Corporation also may, from time to time,
publish in advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each class of a 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.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a 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 a 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 a Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help a Fund achieve its goal. See "Investment
Restrictions" for a listing of the fundamental and non-fundamental (e.g.,
operating) investment restrictions and policies of the Funds.
5
<PAGE>
United Science and Technology Fund
As described in the Prospectus, the portfolio of United Science and
Technology Fund emphasizes science and technology securities. Science and
technology securities are securities of companies whose products, processes or
services, in the opinion of WRIMCO, are being or are expected to be
significantly benefited by the utilization or commercial application of
scientific or technological discoveries or developments in such areas as
aerospace, communications and electronic equipment, computer systems, computer
software and services, electronics, electronic media, business machines, office
equipment and supplies, biotechnology, medical and hospital supplies and
services, medical devices and drugs.
United Bond Fund
This Fund may not purchase any securities other than debt securities if
immediately after such purchase more than 10% of the value of the Fund's total
assets would consist of such other securities. This 10% limit does not include
(i) any securities required to be sold as promptly as practicable after
conversion of convertible debt securities or exercise of warrants, as set forth
below, or (ii) premiums paid or received by the Fund as to those put and call
options that this Fund is permitted to use, the value of any put or call options
or futures contracts held by it or the amount of initial or variation margin
deposits as to those puts, calls or futures contracts that it is permitted to
use. The debt securities that the Fund may purchase may include convertible debt
securities and debt securities with warrants attached. The Fund may convert
convertible debt securities and exercise warrants provided that, if as a result
of conversion or exercise and/or as a result of warrants becoming separately
salable more than 10% of the value of the Fund's total assets consists of
non-debt securities, sufficient non-debt securities will be sold as promptly as
practicable to reduce the percentage of such non-debt securities held by the
Fund to 10% or less of its total assets, less the amounts set forth in (ii)
above. Any such sale shall be made with due regard for losses that might result
from an unduly hasty disposition. A debt security may not be purchased if, at
the time of purchase, it is in default in the payment of interest or if there is
less than $1,000,000 principal amount outstanding.
In selecting debt securities for the portfolio of this Fund,
consideration will be given to their yield; this yield would include the yield
to maturity in the case of debt securities purchased at a discount.
Consideration will also be given to the relative safety of debt securities
purchased and, in the case of convertible debt securities, the possibility of
capital growth.
6
<PAGE>
Among the other debt securities in which the Fund may invest are
deposits in banks (represented by certificates of deposit or other evidence of
deposit issued by such banks) of varying maturities. The Federal Deposit
Insurance Corporation insures the principal of certain such deposits ("Insured
Deposits"), currently to the extent of $100,000 per bank. Insured Deposits are
not marketable, and the Fund will invest in them only within the 10% limit
mentioned below under "Illiquid Investments" unless such obligations are payable
at principal amount plus accrued interest on demand or within seven days after
demand.
Securities - General
The main types of securities in which the Funds may invest include
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. A Fund may invest in preferred stock that is rated
by an established rating service 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 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 rise.
Similarly, long-term bonds are generally more sensitive to interest rate changes
than shorter-term bonds.
Lower quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. 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 a Fund. WRIMCO
continuously monitors the issuers of lower-rated debt securities in a 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. A Fund may
choose, at its expense or in conjunction with others, to pursue litigation or
otherwise exercise its rights as a security
7
<PAGE>
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.
Each of the Funds may invest in debt securities rated in any rating
category of the established rating services, including securities rated in the
lowest category (such as those rated D by Standard & Poor's ("S&P") and C by
Moody's ("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, a Fund will treat
unrated securities judged by WRIMCO to be of equivalent quality to a rated
security 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.
Each of the Funds 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.
Each of the Funds 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
8
<PAGE>
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 the value that 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.
Each of the Funds may also invest in a type of convertible preferred
stock that pays a cumulative, fixed dividend that is senior to, and expected to
be in excess of, the dividends paid on the common stock of the issuer. At the
mandatory conversion date, the preferred stock is converted into not more than
one share of the issuer's common stock at the "call price" that was established
at the time the preferred stock was issued. If the price per share of the
related common stock on the mandatory conversion date is less than the call
price, the holder of the preferred stock will nonetheless receive only one share
of common stock for each share of preferred stock (plus cash in the amount of
any accrued but unpaid dividends). At any time prior to the mandatory conversion
date, the issuer may redeem the preferred stock upon issuing to the holder a
number of shares of common stock equal to the call price of the preferred stock
in effect on the date of redemption divided by the market value of the common
stock, with such market value typically determined one or two trading days prior
to the date notice of redemption is given. The issuer must also pay the holder
of the preferred stock cash in an amount equal to any accrued but unpaid
dividends on the preferred stock. This convertible preferred stock is subject to
the same market risk as the common stock of the issuer, except to the extent
that such risk is mitigated by the higher dividend paid on the preferred stock.
The opportunity for equity appreciation afforded by an investment in such
convertible preferred stock, however, is limited, because in the event the
market value of the issuer's common stock increases to or above the call price
of the preferred stock, the issuer may (and would be expected to) call the
preferred stock for redemption at the call price. This convertible preferred
stock is also subject to credit risk with regard to the ability of the issuer to
pay the dividend established upon issuance of the preferred stock. Generally,
convertible preferred stock is less volatile than the related common stock of
the issuer.
9
<PAGE>
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 sSecurities") are high quality debt
instruments issued or guaranteed as to principal 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 ten 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 (formerly, 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 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. United Bond Fund will invest in securities of agencies and
instrumentalities only if WRIMCO is satisfied that the credit risk involved is
acceptable.
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
10
<PAGE>
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.
Each of the Funds 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 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 a 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 a Fund's cash assets or by liquidation of portfolio
securities, if necessary, at a time when a 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
11
<PAGE>
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 a 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 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.
Each 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 a Fund may invest in them if WRIMCO determines they
are consistent with the Fund's goal(s) 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
12
<PAGE>
"interest-only" security ("IO") receives interest payments from the same
underlying security.
For example, interest-only ("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 government guaranteed or considered to be of the highest quality.
Conversely, principal-only ("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 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-
13
<PAGE>
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 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
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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.
Indexed Securities
Each 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.
Gold-indexed securities, for example, typically provide for a maturity
value that depends on the price of gold, resulting in a security whose price
tends to rise and fall together with gold prices. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose maturity
values or interest rates are determined by reference to the values of one or
more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the
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specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations
and certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Foreign Securities and Currency
Each of the Funds may invest in the securities of foreign issuers,
including depository receipts. In general, depository receipts are securities
convertible into and evidencing ownership of securities of foreign corporate
issuers, although depository receipts may not necessarily be denominated in the
same currency as the securities into which they may be converted. American
depository receipts, in registered form, are dollar-denominated receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. International depository receipts and European depository
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 depository receipts are more recently developed receipts designed to
facilitate the trading of securities of foreign issuers by U.S. and non-U.S.
investors and
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 a Fund's ability to
invest assets abroad might enable it to take advantage of these differences and
strengths where they are favorable.
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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. 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.
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Currency conversion involves dealer spreads and other costs, although
commissions are not usually charged. See "Options, Futures and Other Strategies
- - Forward Currency Contracts" below.
Restricted Securities
Each of the Funds may purchase 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, a 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, a 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 a Fund from reselling the
securities at a time when such sale would be desirable. Restricted securities in
which a Fund seeks to invest need not be listed or admitted to trading on an
exchange and may be less liquid than listed securities. Certain restricted
securities, e.g. 144A securities, may be determined
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to be liquid in accordance with guidelines adopted by the Board of Directors.
See "Illiquid Investments."
Investment Company Securities
Each Fund may purchase securities of closed-end investment companies.
As a shareholder in an investment company, a 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.
Lending Securities
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing a Fund's income . If a 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. Each of the Funds makes loans of its
securities only to parties deemed by WRIMCO to be creditworthy.
Any securities loan that a Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash, 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 lentloaned
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 a 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 a Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of
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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, each Fund may lend securities only to creditworthy broker-dealers
and financial institutions deemed creditworthy by WRIMCO. Each Fund will make
loans only under rules of the NYSE, which presently require the borrower to give
the securities back to the Fund within five business days after the Fund gives
notice to do so. If a 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. A Fund may pay reasonable finder's,
administrative and custodian fees in connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
Repurchase Agreements
Each of the Funds may purchase securities subject to repurchase
agreements if as a result no more than 10% of its net assets would consist of
illiquid investments (which include repurchase agreements not terminable within
seven days). See "Illiquid Investments." A repurchase agreement is an instrument
under which a 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 a Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that a
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 and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss
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of interest. The return on such collateral may be more or less than that from
the repurchase agreement. The Funds' 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 Funds' custodian bank or by a third party
that qualifies as a custodian under Section 17(f) of the Investment Company Act
of 1940, as amended (the "1940 Act"), 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.
When-Issued and Delayed-Delivery Transactions
Each Fund may purchase any securities in which it may invest on a
when-issued or delayed-delivery basis or sell them on a delayed-delivery basis.
In either case, payment and delivery for the securities take place at a future
date. The securities so purchased or sold by a Fund are subject to market
fluctuation; their value may be less or more when delivered than the purchase
price paid or received. When purchasing securities on a when issued or
delayed-delivery basis, a Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. No interest accrues to a
Fund until delivery and payment is completed. When a Fund makes a commitment to
purchase securities on a when-issued or delayed-delivery basis, it will record
the transaction and thereafter reflect the value of the securities in
determining its net asset value per share. When a Fund sells a security on a
delayed-delivery basis, the Fund does not participate in further gains or losses
with respect to the security. When a Fund makes a commitment to sell securities
on a delayed basis, it will record the transaction and thereafter value the
securities at the sales price in determining the Fund's net asset value per
share. If the other party to a delayed-delivery transaction fails to deliver or
pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Ordinarily a Fund purchases securities on a when-issued or
delayed-delivery basis with the intention of actually taking delivery of the
securities. However, before the securities are delivered to the Fund and before
it has paid for them (the "settlement date"), the Fund could sell the securities
if WRIMCO
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decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Warrants and Rights
Warrants are options to purchase equity securities at specific prices
valid for a specific period of time. Their 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 a
sharp decline in value than the underlying security might be.
They are also generally less liquid than an investment in the underlying shares.
Illiquid Investments
Illiquid investments are investments that cannot be sold or 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;
(iii) over-the-counter ("OTC") options and their underlying collateral;
(iv) bank deposits unless they are payable at principal plus
accrued interest on demand or within seven days after demand;
(v) restricted securities not determined to be liquid pursuant to
guidelines established by the Corporation's Board of
Directors;
(vi) non-government stripped fixed-rate mortgage-backed securities; and
(vii) securities involved in swap, cap, collar and floor transactions.
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The assets used as cover for OTC options written by a 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 will 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 were in a position where more than 10% 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, collars, floors, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance income
or yield or to attempt to hedge a Fund's investments. The strategies described
below may be used in an attempt to manage a Fund's foreign currency exposure as
well as other risks of a Fund's investments that can affect fluctuation in its
net asset value.
Generally, a Fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, a 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 each Fund is authorized to invest in foreign
securities it may purchase and sell foreign currency derivatives.
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 a Fund's portfolio. Thus, in a short hedge a 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 a Fund intends to acquire.
Thus, in a long hedge, a 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
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anticipatory hedge transaction, a 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 a 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 a 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 a 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, a 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 Funds' goal(s) and permitted by the
Funds' investment limitations and applicable regulatory authorities. The Funds
might not use any of these strategies, and there can be no assurance that any
strategy used will succeed. The Funds' Prospectus or SAI will be supplemented to
the extent that new products or techniques involve materially different risks
than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. In general these
techniques may increase the volatility of a 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
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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 a Fund's current or anticipated investments exactly. A 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 a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A 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 a 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 a
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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, a 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 a 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 a 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 a Fund sell a portfolio security at a
disadvantageous time.
(5) A Fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of the
other party to the transaction ("counterparty") to enter into a transaction
closing out the position. Therefore, there is no assurance that any position can
be closed out at a time and price that is favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash 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. Each 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 a Fund's assets to cover or to accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
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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 a Fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price on the option,
minus the premium received, the Fund would expect to suffer a loss.
Writing call options can 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 a 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 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.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a 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, a Fund may terminate a position in a put or call
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option it had purchased by writing an identical put or call option; this is
known as a closing sale transaction. Closing transactions permit a Fund to
realize profits or limit losses on an option position prior to its exercise or
expiration.
A type of put which the Funds may purchase is an "optional delivery
standby commitment" which is entered into by parties selling debt securities to
a Fund. An optional delivery standby commitment gives a Fund purchasing the
security the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
Risks of Options on Securities. Options offer large amounts of
leverage, which will result in a Fund's net asset value being more sensitive to
changes in the value of the related instrument. Each of the Funds 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 a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a 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.
A 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 a Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, a Fund might be unable to close out
an OTC option position at any time prior to its expiration.
If a 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 a 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 a Fund
writes a
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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 a 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 a Fund buys a put on a stock 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 a 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 is 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 a Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A Fund can offset some of the risk of its writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, a Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a 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, a 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
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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 a 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 a 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 a Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
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 also can be used to manage the average
duration of a Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of a 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
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contract. If WRIMCO wishes to lengthen the average duration of a 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 a 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 a Fund purchases an option on a futures contract, the premium paid
plus transaction costs is all that is at risk. In contrast, when a 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
contracts can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Positions in futures contracts
and options on futures contracts 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
option 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.
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If a 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 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
market), due to 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.
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 a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index future 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
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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, a 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 a 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, a Fund would lose money on the futures contract and also experience a
decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before a 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.
As an operating policy, to the extent that a Fund enters into futures
contracts, options on futures contracts or 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 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 a Fund's assets that are at risk
in futures contracts, options on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. Each Fund
may use options and futures contracts on foreign currencies, 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
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that a 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.
Each 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, a 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, a 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 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,
a 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. Each Fund may enter into forward currency
contracts to purchase or sell foreign currencies
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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, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that a Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a 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.
Each Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if a Fund owned securities denominated in pounds sterling, it could enter into a
forward currency contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutsche Marks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Each Fund also may use forward currency contracts to attempt to enhance
income or yield. A 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 a 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 a Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of
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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 a 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 a 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, a 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, a 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.
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 a 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 a Fund's exposure to changes in currency exchange rates and
could result in losses to a 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 a Fund or that WRIMCO will hedge at an
appropriate time.
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Combined Positions. A 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, a 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. A Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by a Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
a 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 a 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. A 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, Collars and Floors. Each of the Funds may enter into
swaps, caps, collars and floors 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 yield. Swaps involve the exchange by the Fund with another
party of their respective commitments to pay or receive cash flows, 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, collars and floors, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors.
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Depending on their structure, swap agreements may increase or decrease the
overall volatility of a Fund's investments and its share price and yield
because, and to the extent, these agreements affect a 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 a Fund's investment exposure from
one type of investment to another. For example, if a 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 a Fund enters into swaps, caps
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Corporation's Board of Directors. 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, a Fund will
have contractual remedies pursuant to the agreements related to the transaction.
The net amount of the excess, if any, of a 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. Each 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 Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions. The position of the SEC is that assets involved in swap
transactions are illiquid and are, therefore, subject to the limitations on
investing in illiquid securities.
Investment Restrictions and Limitations
Certain of the Funds' investment restrictions and other limitations are
described in this SAI. The following are each Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's 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
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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. A Fund may not:
(i) Buy real estate nor any nonliquid interests in real estate
investment trusts;
(ii) Buy shares of other investment companies that redeem their
shares. A Fund can buy shares of investment companies that do
not redeem their shares if it does so in a regular transaction
in the open market and then does not have more than one-tenth
(i.e., 10%) of the total assets of the four Funds in these
shares;
(iii) Lend money or other assets, other than through certain limited
types of loans; the Funds may buy debt securities and other
obligations consistent with their respective goals and their
other investment policies and restrictions; they may also lend
their portfolio securities (see "Lending Securities" above)
and enter into repurchase agreements (see "Repurchase
Agreements" above);
(iv) Invest for the purpose of exercising control or management of
other companies;
(v) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vi) Sell securities short (unless a Fund 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 a Fund from
entering into short positions in foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars,
floors and other financial instruments, (2) a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and (3) a Fund may make margin payments in
connection with futures contracts, options, forward contracts,
swaps, caps, collars, floors 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 a Fund in the securities of such issuer exceeds 5%
of the value of a Fund's total assets, or (b) a Fund owns more
than 10% of the
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outstanding voting securities of such issuer; United Income
Fund, United Accumulative Fund and United Bond Fund may not
buy securities of companies in any one industry if more than
25% of that Fund's total assets would then be invested in
companies in that industry;
(ix) Purchase or sell physical commodities; however, this policy
shall not prevent a Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
(x) Borrow money; or
(xi) Issue senior securities.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) At least 65% of United Bond Fund's total assets will be
invested during normal market conditions in bonds.
(ii) United Accumulative Fund, United Income Fund and United
Science and Technology Fund do not intend to invest in
non-investment grade debt securities if, as a result of such
investment, more than 5% of its assets would consist of such
investments. United Bond Fund does not intend to invest in
non-investment grade debt securities if, as a result of such
investment, more than 20% of its assets would consist of such
investments.
(iii) Each Fund may not invest more than 20% of its net assets in
foreign securities.
(iv) Each Fund may not purchase a security if, as a result, more
than 10% of its net assets would consist of illiquid
investments.
(v) Each Fund does not currently intend to invest more than 5% of
its assets in the securities of other investment companies.
(vi) Each Fund, other than United Science and Technology Fund, does
not currently intend to purchase the securities of any issuer
(other than securities issued or guaranteed by domestic or
foreign governments or political subdivisions thereof) if, as
a result, more than 5% of its total assets would be invested
in the securities of business enterprises that, including
predecessors, have a record of less than three years of
continuous operation. This restriction does not apply to any
obligations issued or guaranteed by the U.S.
40
<PAGE>
government or a state or local government authority, or their
respective instrumentalities, or to collateralized mortgage
obligations, other mortgage-related securities, asset-backed
securities, indexed securities or OTC derivative instruments.
An investment policy or limitation that states a maximum percentage of
a Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, a 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 a 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. A Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for each of the Funds for the fiscal years
ended December 31, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
United Accumulative Fund .......... 313.99%
United Bond Fund .................. 35.08%
United Income Fund ................ 33.59%
United Science and
Technology Fund .............. 87.68%
</TABLE>
A high turnover rate will increase transaction costs and commission
costs that will be borne by the Funds and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Corporation has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Corporation's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related
41
<PAGE>
professional staff) to WRIMCO, a wholly owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Funds and provide investment advice to the Funds. 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 Corporation's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Corporation. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Corporation'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. Waddell & Reed Financial Services, Inc. is a 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.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to Target/United Funds, Inc. since that
fund's inception, until January 8, 1992, when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for Waddell & Reed Funds,
Inc. since its inception in September 1992 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995. Waddell & Reed, Inc. serves as
principal underwriter for the investment companies in the United Group of Mutual
Funds and Waddell & Reed Funds, Inc. and acts as principal underwriter and
distributor for variable life insurance and variable annuity policies issued by
United Investors Life Insurance Company for which Target/United Funds, Inc. is
the underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the
42
<PAGE>
"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 Corporation
and handling of shareholder inquiries. A new Shareholder Servicing Agreement, or
amendments to the existing one, may be approved by the Corporation's Board of
Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides each Fund with bookkeeping and
accounting services and assistance, including maintenance of the Corporation's
records, pricing of the Corporation's shares, and preparation of prospectuses
for existing shareholders, proxy statements and certain reports. A new
Accounting Services Agreement, or amendments to an existing one, may be approved
by the Corporation's Board of Directors without shareholder approval.
Payments by the Corporation for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO for each Fund during the last three
fiscal years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United Accumulative Fund .......... 8,111,304 6,879,322
United Bond Fund .................. $ 2,221,667 $ 2,344,627
United Income Fund ................ 32,837,940 25,277,033
United Science and Technology
Fund ......................... 5,997,091 5,667,206
----------- ---------- -----------
Total ........................ $49,168,002 $40,168,188
=========== =========== ==========
</TABLE>
For purposes of calculating the daily fee the Corporation does not
include money owed to it by Waddell & Reed, Inc. for shares which it has sold
but not yet paid the Corporation. The Corporation accrues and pays this fee
daily.
Under the Shareholder Servicing Agreement, with respect to Class A,
Class B and Class C shares, each 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,
43
<PAGE>
had a record date in that month. For Class Y shares, each 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 Corporation also pays certain
out-of-pocket expenses of the Agent, including long distance telephone
communications costs; microfilm and storage costs for certain documents; forms,
printing and mailing costs; and costs of legal and special services not provided
by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ ------------------
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
Fees paid to the Agent for the fiscal years ended December 31, 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United Accumulative Fund ........ 100,000 100,000
United Bond Fund ................ $60,000 $61,667
United Income Fund .............. 100,000 100,000
United Science and
Technology Fund ............ 93,750 88,750
</TABLE>
Since the Corporation 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 Corporation under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates pay the
Corporation's Directors and officers who are affiliated with WRIMCO and its
affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
44
<PAGE>
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Corporation'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 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 Corporation. The aggregate dollar
amounts of underwriting commissions for Class A shares for the fiscal years
ended December 31, 1998, 1997 and 1996 were $, $28,736,826 and $26,543,939,
respectively, and the amounts retained by Waddell & Reed, Inc. were $ ,
$12,109,175 and $11,396,996, respectively.
A major portion of the sales charge for Class A shares and the
contingent deferred sales charges for Class B and Class C shares is paid to
account representatives and managers of Waddell & Reed, Inc. Waddell & Reed,
Inc. may compensate its account representatives as to purchases for which there
is no sales or deferred charge.
The Corporation 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 Corporation under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Under a Distribution and Service Plan for Class A shares (the "Class A
Plan") adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act,
each Fund may pay Waddell & Reed, Inc., the principal underwriter for the
Corporation, a fee not to exceed .25% of each 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 and/or the service and/or maintenance of Class A shareholder accounts.
Waddell & Reed, Inc. offers each Fund's shares through its 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 cost 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
45
<PAGE>
reimbursement 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 account representatives, sales
managers and/or other appropriate personnel in providing personal services to
Class A shareholders of each Fund and/or maintaining Class A shareholder
accounts; increasing services provided to Class A shareholders of each Fund by
office personnel located at field sales offices; engaging in other activities
useful in providing personal service to Class A shareholders of each Fund and/or
maintenance of Class A shareholder accounts; and in compensating broker-dealers
who may regularly sell Class A shares of each Fund, and other third parties, for
providing shareholder services and/or maintaining shareholder accounts with
respect to Class A shares. For its fiscal year ended December 31, 1998, service
and distribution fees paid (or accrued) with respect to Class A shares were as
follows:
1998
----
United Accumulative Fund ..............
United Bond Fund ...................... $
United Income Fund ....................
United Science and Technology Fund ....
To the extent that Waddell & Reed, Inc. incurs expenses for which
reimbursement may be made under the Plan that relate to distribution 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 each Fund's expenses under the Plan on the basis of a combination of the
respective classes' relative net assets and number of shareholder accounts.
Under the Plans adopted by the Corporation for Class B shares and Class
C shares, respectively, each Fund may pay Waddell & Reed, Inc. a service fee not
to exceed .25% and a distribution fee not to exceed .75% of each Fund's 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 and/or the service and/or maintenance of shareholder
accounts of that class. The Class B Plan and the Class C Plan each permit
Waddell & Reed, Inc. to receive compensation, through the distribution fee 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 activities for which it is entitled to
reimbursement under the Class A Plan.
46
<PAGE>
The only Directors or interested persons, as defined in the 1940 Act,
of the Corporation 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 a Fund and its shareholders of the
affected class through Waddell & Reed, Inc.'s activities not only to distribute
the Fund's 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 Corporation anticipates that shareholders of a
particular class may benefit to the extent that Waddell & Reed's activities are
successful in increasing the assets of a Fund, through increased sales or
reduced redemptions, or a combination of these, and reducing the Fund and class
expenses of a shareholder of that class. 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
Corporation 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 a Fund and the
shareholders of the affected class.
Each Plan was approved by the Corporation's Board of Directors,
including the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operations of each Plan
or any agreement referred to in each Plan (hereafter, the "Plan Directors").
Each Plan was also approved by the affected shareholders of each Fund.
Among other things, each Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Corporation at least quarterly, and the
Directors will review, a report of amounts expended under each Plan and the
purposes for which such expenditures were made, (ii) each 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 a Fund under each Plan may not be
materially increased without the vote of the holders of a majority of the
outstanding shares of the affected class of that Fund, and (iv) while each 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.
47
<PAGE>
Custodial and Auditing Services
The custodian for the four Funds is UMB Bank, n.a., Kansas City,
Missouri. In general, the custodian is responsible for holding each Fund's cash
and securities. Deloitte & Touche LLP, Kansas City, Missouri, the Corporation's
independent auditors, audits each Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of a Fund is the value
of the assets of that class, less the class's liabilities, divided by the total
number of outstanding shares of that class.
Class A shares of the Funds are sold at their next determined net asset
value 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
December 31, 1998 was as follows:
United Accumulative Fund
<TABLE>
<S> <C>
Net asset value per Class A share (Class A net assets divided by Class
A shares outstanding) .................................................... $
Add: selling commission (5.75% of offering price) .............................
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) .............................. $
=====
</TABLE>
48
<PAGE>
United Bond Fund
<TABLE>
<S> <C>
Net asset value per Class A share (Class A net assets divided by Class
A shares outstanding) .................................................... $
Add: selling commission (5.75% of offering price) .............................
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) .............................. $
=====
</TABLE>
United Income Fund
<TABLE>
<S> <C>
Net asset value per Class A share (Class A net assets divided by Class
A shares outstanding) .................................................... $
Add: selling commission (5.75% of offering price) .............................
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) .............................. $
=====
</TABLE>
United Science and Technology Fund
<TABLE>
<S> <C>
Net asset value per Class A share (Class A net assets divided by Class
A shares outstanding) .................................................... $
Add: selling commission (5.75% of offering price) .............................
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) .............................. $
=====
</TABLE>
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class B, Class C or a Class Y share is its net asset value
next determined following acceptance of a purchase order. The number of shares
you receive
49
<PAGE>
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 document called 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
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value 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 other securities or commodities exchange on which an option or future
held by the Fund is traded. The NYSE annually announces the days on which it
will not be open for trading. The most recent announcement indicates that 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 net asset value will change every business day, since
the value of the assets and the number of shares outstanding change every
business day.
The securities in the portfolio of each 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 which is the mean
between the closing bid and asked prices. Other securities which 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 Board of Directors. Foreign currency exchange rates are
generally determined prior to the close of trading of the regular session of the
NYSE. Occasionally events affecting the value of foreign investments and such
exchange rates occur between the time at which they are determined and the close
of the regular session of trading on the NYSE, which events will not be
reflected in a computation of a Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange rates
occur during such time period, investments will be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
The foreign currency exchange transactions of a Fund conducted on a spot (that
is, cash) basis are valued at the spot rate for purchasing
50
<PAGE>
or selling currency prevailing on the foreign exchange market. This rate under
normal market conditions differs from the prevailing exchange rate in an amount
generally less than one-tenth of one percent due to the costs of converting from
one currency to another.
Options and futures contracts purchased and held by a 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 for commodities exchanges is 4:15 p.m. Eastern time.
Futures contracts will be valued by reference to established futures exchanges.
The value of a futures contract purchased by a Fund will be either the closing
price of that contract or the bid price. Conversely, the value of a futures
contract sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium
received is included in that 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 a Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
that the Fund received. If a Fund exercises 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 a Fund is exercised, the amount that Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If a Fund exercises a put it purchased, the amount that 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 a 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 Corporation's Board of
Directors. They are accounted for in the same manner as exchange-listed puts.
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 retirement plan accounts and to accounts for which an investor
51
<PAGE>
has arranged, at the time of initial investment, to make subsequent purchases
for the account by having regular monthly withdrawals of $25 or more made from a
bank account. A minimum initial investment of $25 is applicable to purchases
made through payroll deduction for or by employees of WRIMCO, Waddell & Reed,
Inc., their affiliates or certain retirement plan accounts. Except with respect
to certain exchanges and automatic withdrawals from a bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges for
Shares of Other Funds in the United Group."
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;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), or 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,
52
<PAGE>
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.
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;
53
<PAGE>
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.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date
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the new purchase is accepted by Waddell & Reed, Inc. for the purpose of
determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund
three years ago. His account has a net asset value of $80,000.
His wife, W, now wishes to invest $20,000 in Class A shares of
the Fund. W's purchase will be combined with H's existing
account and will be entitled to a reduced sales charge of
4.75%. H's original purchase was subject to a full sales
charge and the reduced charge does not apply retroactively to
that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under such plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by Waddell & Reed, Inc. Each purchase made from time to time under the Statement
of Intention is treated as if the purchaser were buying at one time the total
amount which he or she intends to invest. The sales charge applicable to all
purchases of Class A shares made under the terms of the Statement of Intention
will be the sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in his
own name a dollar amount sufficient to entitle him to purchase Class
A shares at the sales charge applicable to a purchase of $100,000. H
has an
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IRA account and the Class A shares held under the IRA in the Fund
have a net asset value as of the date the Statement of Intention is
accepted by Waddell & Reed, Inc. of $15,000; H's wife, W, has an
account in her own name invested in another fund in the United Group
which charges the same sales load as the Fund, with a net asset
value as of the date of acceptance of the Statement of Intention of
$10,000; H needs to invest $75,000 in Class A shares over the
13-month period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be
returned to the purchaser after it is accepted by Waddell & Reed, Inc. and will
set forth the dollar amount of Class A shares which must be purchased within the
13-month period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan will be taken into account in
determining the amount which must be invested under the Statement of Intention
only if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement of Intention. An
amount equal to 5% of the purchase required under the Statement of Intention
will be held "in escrow." If a purchaser does not, during the period covered by
the Statement of Intention, invest the amount required to qualify for the
reduced sales charge under the terms of the Statement of Intention, he or she
will be responsible for payment of the sales charge applicable to the amount
actually invested. The additional sales charge owed on purchases of Class A
shares made under a Statement of Intention which is not completed will be
collected by redeeming part of the shares purchased under the Statement of
Intention and held "in escrow" unless the purchaser makes payment of this amount
to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for
payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower than
that available under the Statement of Intention, the lower sales charge will
apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell
& Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of
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Intention will be deducted in computing the aggregate purchases under the
Statement of Intention.
Statements of Intention are not available for purchases made under an
SEP where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the 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 a 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. Holders of an uncompleted (i) United Income
Investment Program, (ii) United Periodic Investment Plan to Acquire United
Accumulative Fund Shares of United Funds, Inc., or (iii) United Periodic
Investment Plan to Acquire United Science Fund Shares of United Funds, Inc.
(each a "Plan") on May 30, 1996, with a face amount of less that $12,000, may
purchase Class A shares of the Fund corresponding to such Plan (i.e., United
Income Fund, United Accumulative Fund, or United Science and Technology Fund,
respectively) at net asset value, up to the amount representing the unpaid
balance of such Plan, if the purchase order is so designated.
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Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of a Fund may be purchased
at net asset value by the Directors and officers of the Fund, employees of
Waddell & Reed, Inc., employees of their affiliates, 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. Purchases of Class A
shares in an IRA sponsored by Waddell & Reed, Inc. established for any of these
eligible purchasers may also be at net asset value. Purchases of Class A shares
in any tax qualified retirement plan under which the eligible purchaser is the
sole participant may also be made at net asset value. Trusts under which the
grantor and the trustee or a co-trustee are each an eligible purchaser are also
eligible for net asset value purchases of Class A shares. "Employees" includes
retired employees. A "retired employee" is an individual separated from service
from Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Employees" also includes 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" includes 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
net asset value whether or not the custodian himself is an eligible purchaser.
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Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100 or
more eligible employees may be made at net asset value.
Any holder of an uncompleted Plan on May 30, 1996, may purchase Class A
shares of the Fund corresponding to such Plan at NAV, up to the amount
representing the unpaid balance of the Plan, if the purchase order is so
designated. In addition, any person who was a holder of a Plan on May 30, 1996
may purchase Class A shares of the Fund corresponding to such Plan at NAV up to
the amount representing partial Plan withdrawals outstanding on May 30, 1996,
provided the purchase order is so designated.
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 Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for the Class A shares, there
are a number of instances in which a Fund's Class A shares are sold or issued on
a basis other than the maximum public offering price, that is, the net asset
value plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The reasons for
these quantity discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts, (ii)
certain quantity discounts are required by rules of the National Association of
Securities Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and distributions), and (iii) they are designed to
avoid an unduly large dollar amount of sales charges on substantial purchases in
view of reduced selling expenses. Quantity discounts are made available to
certain related persons for reasons of family unity and to provide a benefit to
tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
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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 by the 1940 Act from the otherwise applicable restrictions as to what
charge must be imposed. In no case in which there is a reduced or eliminated
sales charge are the interests of existing Class A shareholders adversely
affected since, in each case, the Fund receives the net asset value per share of
all shares sold or issued.
Flexible Withdrawal Service for Class A, 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 ongoing basis Class A shares that you own of
a Fund or of any of the funds in the United Group. It would be a disadvantage to
an investor to make additional purchases of shares while a withdrawal program is
in effect because it would result in duplication of sales charges. Applicable
forms to start the Service are available through Waddell & Reed, Inc.
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
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.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make
available for the Service, you must enclose the certificate with the form
initiating the Service.
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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 your account are redeemed, you will not receive any further payments.
Thus, the payments are not an annuity or income or return on your investment.
You may, at any time, change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to you.
You 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 Corporation can also
terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges
Once a sales charge has been paid on shares of a fund in the United
Group, these shares and any shares added to them from dividends or distributions
paid in shares may be freely exchanged for Class A 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 a 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 any of these funds may be exchanged for
Class A shares of the Funds only if (i) you received those shares as a result of
one or more exchanges of shares on which a sales charge was
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originally paid, or (ii) the shares have been held from the date of the original
purchase for at least six months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of Class A shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of a Fund or any other
fund in the United Group. The Class A shares of United Cash Management, Inc.
which you designate for automatic exchange must be worth at least $100 or you
must own Class A shares of the fund in the United Group into which you want to
exchange. The minimum value of shares which you may designate for automatic
exchange monthly is $100, which may be allocated among the Class A shares of
different funds in the United Group so long as each fund receives a value of at
least $25. Minimum initial investment and minimum balance requirements apply to
such automatic exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class B Share Exchanges
You may exchange Class B shares of one Fund of the Corporation for
Class B shares of another Fund of the Corporation, or for Class B shares of
other Funds in the United Group without charge.
The redemption of a 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 A shares of United Cash
Management, Inc. automatically redeemed each month and invested in 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. These exchange and other
rights can in most instances be eliminated or modified at any time, upon notice
in certain circumstances, and any related request may not be accepted.
Class C Share Exchanges
You may exchange Class C shares of one Fund of the Corporation for
Class C shares of another Fund of the Corporation, or for Class C shares of
other Funds in the United Group without charge.
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The redemption of a 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 A shares of United Cash
Management, Inc. automatically redeemed each month and invested in 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 least $25. Minimum initial investment
and minimum balance requirements apply to such service. These exchange and other
rights can in most instances be eliminated or modified at any time, upon notice
in certain circumstances, and any related request may not be accepted.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any
other fund in the United Group 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 net asset value 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.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers model or prototype documents for the
following retirement plans. All of these plans involve investment in shares of a
Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income
may set up a plan that is commonly called an IRA. Under a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, the annual maximum is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the
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taxable year, even if one spouse had no earned income. Generally, the
contributions are deductible unless the investor (or, if married, either spouse)
is an active participant in a qualified retirement plan or if, notwithstanding
that the investor or one or both spouses so participate, their adjusted gross
income does not exceed certain levels. However, a married investor who is not an
active participant, files jointly with his or her spouse and whose combined
adjusted gross income does not exceed $150,000, is not affected by the spouse's
active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution from an
employer's plan or (b) a rollover of an eligible distribution paid to the
investor from an employer's plan or another IRA. To the extent a rollover
contribution is made to a traditional IRA, the distribution will not be subject
to Federal income tax until distributed from the IRA. A direct rollover
generally applies to any distribution from an employer's plan (including a
custodial account under Section 403(b)(7) of the Code, but not an IRA) other
than certain periodic payments, required minimum distributions and other
specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the assets
in that IRA transferred directly to an IRA offered by Waddell & Reed, Inc.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an investor
whose adjusted gross income does not exceed $100,000 (and who is not married
filing a separate return), certain distributions from traditional IRAs may be
rolled over to a Roth IRA and any of the investor's traditional IRAs may be
converted into a Roth IRA; these rollover distributions and conversions are,
however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years and
the account holder has reached age 59 1/2 (or certain other conditions apply).
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Education IRAs. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute up to
$500 to an Education IRA (or to each of multiple Education IRAs), provided that
no more than $500 may be contributed for any year to Education IRAs for the same
beneficiary. Contributions are not deductible and may not be made after the
beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or a member of his or her family).
Simplified Employee Pension (SEP) plans. Employers can make
contributions to SEP-IRAs established for employees. An employer may contribute
up to 15% of compensation or $24,000, whichever is less, per year for each
employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar (up to 3%
of an employee's compensation) or may contribute to all eligible employees 2% of
their compensation, whether or not they defer salary to their retirement plans.
SIMPLE plans involve fewer administrative requirements than 401(k) or other
qualified plans generally.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit-sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government
or of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code. Some
organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer
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each year up to 25% of compensation, subject to certain annual maximums, which
may be increased each year based on cost-of-living adjustments.
More detailed information about these arrangements and applicable forms
are available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days unless delayed because of
emergency conditions determined by the SEC, when the NYSE is closed other than
for weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemptions of shares of the Corporation may
be made in portfolio securities when the Corporation's Board of Directors
determines that conditions exist making cash payments undesirable. Securities
used for payment of redemptions are valued at the value used in figuring net
asset value. There would be brokerage costs to the redeeming shareholder in
selling such securities. The Corporation, however, has elected to be governed by
Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege for Class A shares
under which, if you redeem your Class A shares and then decide it was not a good
idea, you may reinvest. If Class A shares of a Fund are then being offered, you
can put all or part of your redemption payment back into Class A shares of that
Fund without any sales charge at the net asset value next determined after you
have returned the amount. Your written request to do this must be received
within 30 days after your redemption request was received. You can do this only
once as to Class A shares of that Fund. You do not use up this privilege by
redeeming Class A shares to invest the proceeds at net asset value in a Keogh
plan or an IRA.
The Prospectus also discusses the reinvestment privilege for Class B
and Class C shares under which you may reinvest in any one or more of the Funds
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 a Fund are then being offered,
you can put all or part of your redemption
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payment back into the Class B or Class C shares of that Fund at the net asset
value next determined after you have returned the amount. Your written request
to do this must be received within 30 days after your redemption. You can do
this only once as to Class B shares of that Fund and only once as to Class C
shares of that 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 net
asset value in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under
any account or any plan if the aggregate net asset value of such shares (taken
at cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation 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 is not affiliated with Waddell & Reed, Inc.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Vogel is a member of the Corporation's Board of Directors. The
other persons are officers but not members of the Board of Directors. For
purposes of this section, the term "Fund Complex" includes each of the
registered investment companies in the United Group of Mutual Funds,
Target/United Funds, Inc. and Waddell & Reed Funds, Inc. Each of the
Corporation'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.
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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, Principal Financial 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 the Fund and each of the other 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.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President, 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, Garney Companies,
Inc., a specialty utility contractor. Date of birth: January 9, 1939.
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DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores
Dori Eccles Foundation. Director of First Security Corp., a bank holding
company, and Director of Fluor Corp., a company with interests in coal. Date of
birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Partner, 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 and Adjunct Professor of Law at
the University of Oklahoma College of Law; formerly, Vice President for
Executive Affairs of the University of Oklahoma; formerly, an 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; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
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.; President, Director and
Treasurer of Waddell & Reed Services Company; formerly, Vice President of the
Fund and each of the other funds in the Fund Complex; formerly, Director and
Treasurer of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: November 12, 1936.
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HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, Treasurer 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; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. 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 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
the Fund and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in the
Fund Complex then in existence on April 30, 1993); formerly, President, Director
and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly,
Chairman of the Board of Directors of Waddell & Reed Services Company. Date of
birth: April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director of Network Rehabilitation Services; 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. Date of
birth: April 9, 1953.
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ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
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.
Helge K. Lee
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Secretary and General Counsel of Waddell &
Reed Financial, Inc.; Vice President, Secretary, General Counsel and Director of
Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary, General Counsel and Director of Waddell & Reed Services Company;
formerly, Executive Vice President, Secretary and Chief Compliance Officer of
LGT Asset Management, Inc. and affiliates; formerly, Senior Vice President,
General Counsel and Secretary of Strong Capital Management, Inc. and affiliates.
Date of birth:
March 30, 1946.
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.
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James C. Cusser
Vice President of the Corporation and two other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Kidder Peabody &
Company. Date of birth: May 30, 1949.
Abel Garcia
Vice President of the Corporation and two other funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Vice President of Waddell &
Reed Asset Management Company; formerly, Vice President of Waddell & Reed, Inc.
Date of birth: April 28, 1949.
John M. Holliday
Vice President of the Corporation and nine other funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Senior Vice President of
Waddell & Reed Asset Management Company; formerly, Senior Vice President of
Waddell & Reed, Inc. Date of birth: June 11, 1935.
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Antonio Intagliata
Vice President of the Corporation; Senior Vice President of WRIMCO;
formerly, Senior Vice President of Waddell & Reed, Inc. Date of birth: February
7, 1938.
Russell E. Thompson
Vice President of the Corporation and two other funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Vice President of Waddell
and Reed Asset Management Company; formerly, Senior Vice President of Waddell &
Reed, Inc. Date of birth: March 3, 1940.
James D. Wineland
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; formerly, Vice President of Waddell & Reed, Inc. Date of
birth: September 25, 1951.
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 its underwriter, Waddell & Reed, Inc., or of WRIMCO are
indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 70 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Corporation.
Messrs. Henry L. Bellmon, Jay B. Dillingham, Doyle Patterson, Ronald K. Richey
and Paul S. Wise retired as Directors of the Corporation and of each of the
funds in the Fund Complex and elected a position as Director Emeritus.
The funds in the United Group, Target/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $48,000 per year, plus $2,500
for each meeting of the Board of Directors attended plus reimbursement of
expenses of attending
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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 who receive them
are divided among the funds in the United Group , Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Corporation's fiscal year ended December 31, 1998, the
Corporation's Directors received the following fees for service as a director:
Compensation Table
Total
<TABLE>
<CAPTION>
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
- -------- ------------ ------------
<S> <C> <C>
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon
John A. Dillingham
David P. Gardner
Linda K. Graves
Joseph Harroz, Jr.
John F. Hayes
Glendon E. Johnson
William T. Morgan
Ronald C. Reimer
Frank J. Ross, Jr.
Eleanor B. Schwartz
Frederick Vogel III
</TABLE>
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Mr. Gardner was elected as a Director on August 19, 1998. Messrs.
Harroz, Hechler, Herrmann and Reimer were elected as Directors on November 18,
1998. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of February 28, 1999, all of the Corporation's Directors and
officers as a group owned less than 1% of the outstanding
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<PAGE>
shares of the Corporation. The following table sets forth information with
respect to the Corporation, as of February 28, 1999, regarding the beneficial
ownership of the series, and classes thereof, of the Corporation's shares.
<TABLE>
<CAPTION>
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
- ------------------- ---------- ------------ -------
<S> <C> <C> <C>
USX Corporation Income Fund
Savings Fund Class Y %
Plan for Salaried Employees
ATTN: Michael A Stehura Mgr
600 Grant St Room 2618
Pittsburgh PA 15219
UMBSC & Co Income Fund
FBO Interstate Brands Class Y
Unit Elec
PO Box 419260
Kansas City MO 64141
T Rowe Price Trust Income Fund
Company Class Y
FBO Honeywell
ATTN: Retirement Plan Services
10090 Red Run Blvd
Owings Mills MD 21117
Mac & Co Income Fund
Mutual Funds Operations Class Y
PO Box 3198
Pittsburgh PA 15230
Waddell & Reed Science and Technology Fund
Financial, Inc. Class Y
Savings & Investment Plan
6300 Lamar Avenue Accumulative Fund
Overland Park KS 66201 Class Y
Bond Fund
Class Y
Torchmark Corporation Science and Technology Fund
Savings & Investment Class Y
Plan
2001 Third Avenue South Accumulative Fund
Birmingham AL 35202 Class Y
</TABLE>
75
<PAGE>
<TABLE>
<S> <C> <C> <C>
Fiduciary Trust Co NH TR Accumulative Fund
Corporate Money Pension Class Y
Plan
Okanogan County Hospital Bond Fund
District 3 Class Y
FBO Unallocated Assets
Qualified Plan 1329481
P. O. Box 793
Omak WA 98841
Marine Midland Bank Bond Fund
NA FBO Class Y
CIBC Incentive Savings Plan
ATTN: Mutual Fund Processing
PO Box 1329
Buffalo NY 14240
</TABLE>
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments a Fund makes to you as a
shareholder of a class of shares of a 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 a Fund holds, less
expenses (which will vary by class). The second source is net realized capital
gains, which are derived from proceeds received from a Fund's sale of securities
at a price higher than the Fund's 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. Payments, if any, from net long-term capital
gains and the remaining foreign currency gains are called distributions.
Each Fund pays distributions from net capital gains (the excess of net
long-term capital gains over net short-term capital loss). A Fund may or may not
have such gains, depending on whether securities are sold and at what price. If
a Fund has net 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 from a prior year or years to offset the gains. It is the policy
of each Fund to make annual capital gains distributions to the extent that net
capital gains are realized in excess of available capital loss carryovers.
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<PAGE>
Income and expenses are earned and incurred separately by each Fund,
and gains and losses on portfolio transactions of each Fund are attributable
only to that Fund. For example, capital losses realized by one Fund would not
affect capital gains realized by another Fund.
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 a 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 a 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 that
Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the Directors. The
record date is the date used to determine which shareholders are entitled to
receive a dividend or distribution; investors who own shares on that date are so
entitled.
Even if you get dividends and distributions on Class A shares in cash,
you can thereafter reinvest them (or distributions only) in Class A shares of
that Fund at net asset value (i.e., no sales charge) next determined after
receipt by Waddell & Reed, Inc. of the amount clearly identified as a
reinvestment. The reinvestment must be within 45 days after the payment.
TAXES
General
The Fund (each Fund being treated as a separate entity for these
purposes) has qualified 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 net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) that is distributed to its shareholders. To continue to qualify as
a RIC, the Fund must distribute to its shareholders for each taxable year at
least 90% of the sum of its investment company taxable income
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<PAGE>
("Distribution Requirement") and must meet several additional requirements. With
respect to each Fund, 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 Requirement"); 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.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to its shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to the shareholders for the year in which that December 31 falls.
If shares of a Fund 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.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the policy of each Fund to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Code permits
each Fund to defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year.
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<PAGE>
Income from Foreign Securities
Dividends and interest received, and gains realized, by a 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
return 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.
Each of the Funds may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (i.e., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund is a U.S. shareholder -- 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 that income is distributed
to its shareholders.
If a 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 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.
A 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 would be allowed to 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
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<PAGE>
the extent of any net mark-to-market gains with respect to that stock included
by the Fund for prior taxable years. 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.
Regulations proposed in 1992 provided a similar election with respect to the
stock of certain PFICs.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders.
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 disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures contracts and forward currency contracts derived
by a Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
Any income a Fund earns from writing options is treated as short-term
capital gains. If a Fund enters into a closing purchase transaction, it will
have short-term capital gain or loss based on the difference between the premium
it receives for the option it wrote and the premium it pays for the option it
buys. If an option written by a Fund lapses without being exercised, the premium
it receives also will be a short-term capital gain. If such an option is
exercised and the Fund thus sells the securities subject to the option, the
premium the Fund receives will be added to the exercise price to determine the
gain or loss on the sale.
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Certain options, futures contracts and forward currency contracts in
which the Funds may invest may be "section 1256 contracts." Section 1256
contracts held by a 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. That 60% portion will qualify for the 20% (10% for taxpayers in the
15% marginal tax bracket) maximum tax rate on net capital gains enacted by the
Taxpayer Relief Act of 1997 . Section 1256 contracts also may be
marked-to-market for purposes of the Excise Tax and 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 Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. The regulations under section
1092 also provide certain "wash sale" rules that apply to transactions where a
position is sold at a loss and a new offsetting position is acquired within a
prescribed period and "short sale" rules applicable to straddles. If a 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 Funds are not entirely clear.
If a Fund has an appreciated financial position -- generally, an
interest (including an interest through an option,
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<PAGE>
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 same or substantially similar property, 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 similar property. In addition, if the appreciated financial
position is itself a short sale such a contract, acquisition of the underlying
property or substantially similar property will be deemed a constructive sale.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with
original issue discount ("OID"). As the holder of those securities, a 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, a Fund must include in its gross income securities
it receives as "interest" on payment-in-kind securities. Because each 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 to avoid imposition of the Excise Tax, a Fund
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 a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gains.
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
each Fund. Transactions in securities other than those for which an exchange is
the primary market are generally done with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained. The individual
who manages a Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the manager will frequently place
concurrent orders for all or most accounts for which the manager has
responsibility or WRIMCO may otherwise combine orders for a Fund with those of
other funds in the United
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Group, Target/United Funds, Inc. and Waddell & Reed Funds, Inc. or other
accounts for which it has investment discretion. 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. Sharing in large transactions could affect the price a Fund pays or
receives or the amount it buys or sells. However, sometimes a better negotiated
commission is available through combined orders.
To effect the portfolio transactions of a 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
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 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 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.
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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 or other
non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
request of a broker) includes information on particular companies and industries
as well as market, economic or institutional activity areas. It serves to
broaden the scope and supplement the research activities of 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 Corporation may also use its brokerage to pay for pricing or
quotation services to value securities. The table below sets forth the brokerage
commissions paid by each of the Funds during the fiscal years ended December 31,
1997 and 1996. These figures do not include principal transactions or spreads
or concessions on principal transactions, i.e., those in which a Fund sells
securities to a broker-dealer firm or buys from a broker-dealer firm securities
owned by it.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
United Accumulative Fund .............. $ $ 8,215,119 $6,157,885
United Bond Fund ....................... 0 0
United Income Fund ..................... 4,447,377 2,444,984
United Science and
Technology Fund ................... 968,118 438,029
----------- ---------- ----------
Total .................................. $ $13,630,614 $9,040,898
=========== ========== ==========
</TABLE>
The next table shows for each of the Fund's last fiscal year the
transactions, other than principal transactions, which were directed to
broker-dealers who provided research as well as execution and the brokerage
commissions paid. These transactions were allocated to these broker-dealers by
the internal allocation procedures described above.
84
<PAGE>
<TABLE>
<CAPTION>
Amount of Brokerage
Transactions Commissions
-------------- -----------
<S> <C> <C>
United Accumulative Fund ......................... 6,659,151,988 7,382,565
United Bond Fund ................................. $ --- $ ---
United Income Fund ............................... 3,861,041,722 4,217,519
United Science and Technology Fund ............... 432,862,203 514,668
-------------- ----------
Total ....................................... $10,953,055,913 $12,114,752
============== ==========
</TABLE>
As of December 31, 1998, United Income Fund owned securities of Credit
Suisse Group in the amount of $30,997,468. Credit Suisse Group is a regular
broker of the Fund. At December 31, 1997, United Accumulative Fund owned
securities of J.P. Morgan and Co. Incorporated, Paine Webber Group Inc., Bear
Stearns Companies Inc. (The) and Credit Suisse Group in the amounts of $, $, $
and $, respectively. J.P. Morgan and Co. Incorporated, Paine Webber Group Inc.,
Bear Stearns Companies Inc. (The) and Credit Suisse Group are each a regular
broker of the Fund. At December 31, 1998, United Science and Technology Fund
owned securities of Credit Suisse Group and Merrill Lynch & Co. Inc. in the
amounts of $ and $, respectively. Credit Suisse Group and Merrill Lynch & Co.
Inc., are each a regular broker of the Fund. At December 31, 1998, United Bond
Fund owned securities of Salomon Inc. and J.P. Morgan & Co. Incorporated in the
amounts of $ and $, respectively. Salomon Inc. and J.P. Morgan & Co.
Incorporated are each a regular broker of the Fund.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
85
<PAGE>
OTHER INFORMATION
The Shares of the Four Funds
The shares of each of the four Funds represents an interest in that
Fund's securities and other assets and in its profits or losses. Each fractional
share of a class has the same rights, in proportion, as a full share of that
class.
Each Fund offers four classes of its shares: Class A, Class B, Class C
and Class Y. Each class of a Fund represents an interest in the same assets of
the Fund and differ as follows: each class of shares has exclusive voting rights
on matters pertaining to matters appropriately limited to that class; Class A
shares are subject to an initial sales charge and to an ongoing distribution
and/or service fee; Class B and Class C are subject to a contingent deferred
sales charge and to ongoing distribution and service fees; 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 Funds do not anticipate that there will be any conflicts between
the interests of holders of the different classes of shares of the same 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 a Fund is entitled to equal voting, dividend, liquidation and
redemption rights, except that due to the differing expenses borne by the four
classes, dividends and liquidation proceeds of Class B shares and Class C shares
are expected to be lower than for Class A shares of the same Fund, which in turn
are expected to be lower than for Class Y shares of that Fund. Shares are fully
paid and nonassessable when purchased.
The Corporation 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 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 which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting
86
<PAGE>
of shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of a Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of each of
the Funds 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.
Each share of each Fund (regardless of class) is entitled to one vote.
On certain matters such as the election of Directors, all shares of all of the
four Funds vote together as a single class. On other matters affecting a
particular Fund, the shares of that Fund vote together as a separate class, such
as with respect to a change in an investment restriction of a particular Fund,
except that as to matters for which a separate vote of a class is required by
the 1940 Act or which affects the interests of one or more particular classes,
the affected shareholders vote as a separate class. In voting on a Management
Agreement, approval by the shareholders of a Fund is effective as to that Fund
whether or not enough votes are received from the shareholders of the other
Funds to approve the Management Agreement for the other Funds.
87
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
22. Financial Statements
---------------------------------
(a) Financial Statements -- United Funds, Inc.
Included in Part B:
-------------------
As of December 31, 1998
Statement of Assets and Liabilities
For the year ended December 31, 1998
Statements of Operations
For each of the two years in the period ended December 31, 1998
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1998
Report of Independent Accountants
<PAGE>
23. Exhibits:
(a) Articles of Incorporation, as amended, filed April 18, 1995 as
EX-99.B1-charter to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Articles Supplementary as proposed, filed April 18, 1995 as
EX-99.B1-ufartsup to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
(b) Bylaws, as amended, filed March 26, 1997 as EX-99.B2-ufbylaw to
Post-Effective Amendment No. 119 to the Registration Statement on
Form N-1A*
(c) Not applicable
(d) Investment Management Agreement filed September 30, 1994 as
EX-99.B5-UFIMA to Post-Effective Amendment No. 116 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreements filed March 28,
1996 as EX-99.B5-ufassign to the Post-Effective Amendment No. 118
to the Registration Statement on Form N-1A*
(e) Underwriting Agreement, dated February 8, 1995, filed April 18,
1995 as EX-99.B6-ufua to the Post-Effective Amendment No. 117 to
the Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, attached hereto as EX-99.B8-ufca
(h) Shareholder Servicing Agreement, attached hereto as EX-99.B9-ufssa
Fund Class A application, as amended, filed May 30, 1997 as
EX-99.B9-ufappca to Post-Effective Amendment No. 120 to the
Registration Statement on Form N-1A*
Fund Class Y application filed April 18, 1995 as EX-99.B9-ufappcy
to the Post-Effective Amendment No. 117 to the Registration
Statement on Form N-1A*
Fund NAV application filed April 18, 1995 as EX-99.B9-ufappnav to
the Post-Effective Amendment No. 117 to the Registration Statement
on Form N-1A*
Accounting Services Agreement filed April 18, 1995 as
EX-99.B9-ufasa to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Service Agreement filed August 11, 1993 as Exhibit (b)(15) to
Post-Effective Amendment No. 114 to the Registration Statement on
Form N-1A*
Amendment to Service Agreement filed April 18, 1995 as
EX-99.B9-ufsaa to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Class Y Letter of Understanding filed March 28, 1996 as
EX-99.B9-uflou to the Post-Effective Amendment No. 118 to the
Registration Statement on Form N-1A*
<PAGE>
(i) Not applicable
(j) Consent of Deloitte & Touche LLP, Independent Accountants, will be
attached as EX-99.B11-ufconsnt in the 485(b) filing to be completed
on March 29, 1999.
(k) Not applicable
(l) Not applicable
(m) Distribution and Service Plan, as amended, attached hereto as
EX-99.B15-ufd&spca
(n) Applicable Financial Data Schedules will be attached as
EX-27.B17-uffds1, EX-27.B17-uffds2, EX-27.B17-uffds3,
EX-27.B17-uffds4 in the 485(b) filing to be completed on March 29,
1999.
(o) Multiple Class Plan filed March 28, 1996 as EX-99.B18-ufmcp to
Post-Effective Amendment No. 118 to the Registration Statement on
Form N-1A*
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through 6(f) of the
Articles of Incorporation, as amended, filed April 18, 1995 as
EX-99.B1-charter to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*; and to Article IV of the
Underwriting Agreement filed April 18, 1995 as EX-99.B6-ufua to
Post-Effective Amendment No. 117 to the Registration Statement on Form
N-1A*, both of which provide indemnification. Also refer to Section
2-418 of the Maryland General Corporation Law regarding indemnification
of directors, officers, employees and agents.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is not engaged in any business other than the provision of
investment management services to those registered investment companies
described in Part A and Part B of this Post-Effective Amendment and to
other investment advisory clients.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation
or employment during the past two years only his duties as an executive
officer and/or employee of Waddell & Reed Investment Management Company
or its predecessors, except as to persons who are directors and/or
officers of the Registrant and have served in the capacities shown in
the Statement of Additional Information of the
<PAGE>
Registrant. The address of the officers is 6300 Lamar Avenue, P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
As to each director and officer of Waddell & Reed Investment Management
Company, 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:
United International Growth Fund, 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 Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy 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 Post-Effective Amendment and as listed in response to Item (b)(9)
and Item (b)(15) hereof.
30. Undertaking
-----------
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.,
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, 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: November 18, 1998 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board November 18, 1998
- ------------------- -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal November 18, 1998
- -------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and November 18, 1998
- -------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard Vice President, Treasurer November 18, 1998
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
<PAGE>
/s/James M. Concannon Director November 18, 1998
- -------------------- ----------------
James M. Concannon
/s/John A. Dillingham Director November 18, 1998
- -------------------- ----------------
John A. Dillingham
/s/David P. Gardner Director November 18, 1998
- ------------------- ----------------
David P. Gardner
/s/Linda K. Graves Director November 18, 1998
- -------------------- ----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director November 18, 1998
- -------------------- ----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director November 18, 1998
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director November 18, 1998
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director November 18, 1998
- -------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer Director November 18, 1998
- -------------------- ----------------
Ronald C. Reimer
/s/Frank J. Ross Director November 18, 1998
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director November 18, 1998
- -------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director November 18, 1998
- -------------------- ----------------
Frederick Vogel III
Attest:
/s/Kristen A. Richards
- -------------------------
Kristen A. Richards
Assistant Secretary
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(a) of the Securities Act of 1933, and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 2nd day of February, 1999.
UNITED FUNDS, 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.
Signatures Title
---------- -----
/s/Keith A. Tucker* Chairman of the Board February 2, 1999
- ---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal February 2, 1999
- ---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and February 2, 1999
- ---------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer February 2, 1999
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director February 2, 1999
- ------------------ ----------------
James M. Concannon
/s/John A. Dillingham* Director February 2, 1999
- ------------------ ----------------
John A. Dillingham
/s/David P. Gardner* Director February 2, 1999
- ------------------ ----------------
David P. Gardner
<PAGE>
/s/Linda K. Graves* Director February 2, 1999
- ------------------ ----------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director February 2, 1999
- ------------------ ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director February 2, 1999
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director February 2, 1999
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director February 2, 1999
- ------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director February 2, 1999
- ------------------ ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director February 2, 1999
- ------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director February 2, 1999
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director February 2, 1999
- ------------------- ----------------
Frederick Vogel III
*By
Kristen A. Richards
Attorney-in-Fact
ATTEST:
David R. Burford
Assistant Secretary
EX-99.B8-ufca
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Amended and Restated as of May 13, 1998
Between
UMB BANK, n.a.
and
UNITED FUNDS, INC. UNITED BOND FUND
<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
<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 "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 26th day of November, 1991 between United
Funds, Inc. United Bond Fund (the "Fund") and UMB bank, n.a., formerly, United
Missouri Bank, n.a. (the "Custodian") and as amended and restated as of May 13,
1998.
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on
behalf of the Fund in accordance with the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act") and the rules and regulations
thereunder, under the terms and conditions set forth in this Agreement, and the
Custodian has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause to
be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and
duties set forth in this Article II. Pursuant to and in accordance with Article
IV hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of
and keep safely the Assets in accordance with the terms and conditions hereof
on behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund
either: (i) by physical possession of the share certificates or other
instruments representing such securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the
Fund in the name of the Fund or the Fund's nominee, or in the nominee name of
the Custodian unless specifically directed by Proper Instructions (as
<PAGE>
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
deposit any such securities in accordance with the
<PAGE>
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
<PAGE>
payment of funds on securities; (ii) any securities that have matured, been
called or redeemed; and (iii) to the extent the Custodian has notice which is
contained in services to which it normally subscribes for such purposes, or
actual knowledge if not contained in such services, any other default involving
securities; and all announcements of defaults, bankruptcies, reorganizations,
mergers, consolidations, recapitalizations or rights or privileges to subscribe,
convert, exchange, put, redeem or tender securities held subject to this
Agreement. The Custodian shall, following receipt or knowledge, convey such
information to the Fund in a timely manner based upon the circumstances of each
particular case. Whenever any such rights or privileges exist, the Fund will, in
a timely manner based upon the circumstances of each particular case, provide
the Custodian with Proper Instructions. Absent the Custodian's timely receipt of
Proper Instructions, the Custodian shall not be liable for not taking any action
or not exercising such rights prior to their expiration unless such failure is
due to Custodian's failure to give timely notice to the Fund in accordance with
this Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the
broker-dealer shall be responsible for determining the sufficiency of assets
held in any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits
<PAGE>
intended to secure the Fund's performance of its obligations under any futures
contracts purchased or sold or any options on futures contracts written by the
Fund, in accordance with the provisions of the Commodity Futures Trading
Commission and/or any commodity exchange or contract market (such as the Chicago
Board of Trade), or any similar organization(s), regarding such margin deposits;
and (c) release assets from and/or transfer assets into such margin accounts
only in accordance with any such Procedural Agreements. The Fund and such
futures commission merchant shall be responsible for determining the sufficiency
of assets held in the segregated account in compliance with applicable margin
maintenance requirements and the performance of any futures contract or option
on a futures contract in accordance with its terms; provided, however, that the
Custodian shall be liable for performance of its duties under this Agreement and
in accordance with Proper Instructions, and shall be liable for performance of
its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions. Such
Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and (b)
the Custodian shall have no duty with respect to the selection of the Banking
Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
<PAGE>
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no duty
with respect to the selection of the currency brokers or Banking Institutions
with which the Fund deals or, so long as the Custodian acts in accordance with
Proper Instructions, for the failure of such brokers or Banking Institutions to
comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained
herein, upon receipt of Proper Instructions the Custodian may, in connection
with a foreign exchange contract, make free outgoing payments of cash in the
form of U.S. Dollars or foreign currency prior to receipt of confirmation of
such foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
<PAGE>
Section 2.15. Collections. The Custodian shall: (a) collect amounts due
and payable to the Fund with respect to portfolio securities and other Assets;
(b) promptly credit to the account of the Fund all income and other payments
relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian shall
promptly notify the Fund in writing by facsimile transmission or in such other
manner as the Fund and Custodian may agree in writing if any amount payable with
respect to portfolio securities or other Assets is not received by the Custodian
when due. The Custodian shall not be responsible for the collection of amounts
due and payable with respect to portfolio securities or other Assets that are in
default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the
<PAGE>
Custodian nor any Subcustodian or nominee shall vote upon any such securities,
or execute any proxy to vote thereon, or give any consent or take any other
action with respect thereto. The Custodian will not release the identity of the
Fund to an issuer which requests such information pursuant to the Shareholder
Communications Act of 1985, for the specific purpose of direct communications
between such issuer and the Fund unless the Fund directs the Custodian otherwise
in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend to
all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such
<PAGE>
securities are represented in an account ("Account") of the Custodian in the
Securities System which Account shall not contain any assets of the Custodian
other than assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of
the Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate
the use of any Securities System (except the federal book-entry system) on
behalf of the Fund as promptly as practicable and shall take all actions
reasonably practicable to safeguard the securities of the Fund maintained with
such Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any
<PAGE>
subsequent release or releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies; or (c) for such other
purposes as may be set forth, from time to time, in Special Instructions. The
Custodian shall not be responsible for the determination of the type or amount
of Assets to be held in any segregated account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders. Notwithstanding
the provisions of this Section 2.25, in the event the Fund purchases cash,
securities and other Assets requiring the use of a Domestic Subcustodian or
Foreign Sub-Subcustodian, the Custodian shall be entitled to rely upon and use
the books, records and accountings of the Domestic Subcustodian as its means of
accounting to the Fund for all cash, securities and other Assets deposited with
such entities; provided however, that such books, records and accountings on
which the Bank may rely must be maintained in the United States by such Domestic
Subcustodian and, provided further, that any agreement between the Custodian and
such Domestic Subcustodian must state that the Domestic Subcustodian agrees to
make any records available upon request and preserve, for the periods described
in Rule 31a-2 of the 1940 Act, the records required to be maintained by Rule
31a-1 of the 1940 Act. In no event shall the Custodian be entitled to rely upon
and use books, records and accountings which are maintained outside of the
United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form
<PAGE>
N-1A and the Fund's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. Notwithstanding any Proper or Special
Instructions, the Custodian shall not 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 such Fund.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special
Instructions" shall mean Proper Instructions countersigned or confirmed in
writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the same instrument
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, by facsimile transmission or in such other manner as
the Fund and the Custodian agree in writing.
<PAGE>
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed and which has
<PAGE>
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. Provided that the Custodian of a
Domestic Subcustodian is an Approved Foreign Custody Manager, the Custodian or
any such Domestic Subcustodian, as applicable, 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 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.
(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 tje Foreign Custody Manager has not appointed an
<PAGE>
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 a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian 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 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.
<PAGE>
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on behalf
of the Custodian; (ii) the countries in which and the Securities Depositories
and Clearing Agents through which each such Foreign Sub-Subcustodian is then
holding cash, securities and other Assets of the Fund; and (iii) such other
information as may be requested by the Fund to ensure compliance with rules and
regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all
<PAGE>
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.
<PAGE>
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be liable
to the Fund for any loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets.
<PAGE>
A "Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar action
by any governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election
<PAGE>
to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the
limitations set forth in this Agreement and in addition to the reimbursement
obligations provided in Section 5.02(a), the Custodian agrees to indemnify and
hold harmless the Fund and its nominees from all loss, damage and expense
(including reasonable attorneys' fees) suffered or incurred by the Fund or its
nominee caused by or arising from the failure of the Custodian, its nominee,
employees or agents to comply with the terms or conditions of this Agreement or
arising out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such litigation
or proceedings for which indemnity by the Custodian may be sought and subject to
applicable law and the ruling of any court of competent jurisdiction, the
Custodian shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Custodian may be subject to an indemnification
obligation; provided, however, the Fund shall be entitled to participate in (but
not control) at its own cost and expense, the defense of any such litigation or
proceeding if the Custodian has not acknowledged in writing its obligation to
indemnify the Fund with respect to such litigation or proceeding. If the
Custodian is not permitted to participate or control such litigation or
proceeding under applicable law or by a ruling of a court of competent
jurisdiction, or if the Custodian chooses not to so participate, the Fund shall
not consent to the entry of any judgement or enter into any settlement in any
such litigation or proceeding without providing the Custodian with adequate
notice of any such settlement or judgement, and without the Custodian's prior
written consent which consent shall not be unreasonably withheld or delayed. The
Fund shall submit written evidence to the Custodian with respect to any cost or
expense for which it is
<PAGE>
seeking indemnification in such form and detail as the Custodian may reasonably
request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything to
the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an obligation
of the Custodian to enforce the Fund's rights. The Custodian agrees to reimburse
the Fund for out-of-pocket expenses incurred by it in connection with the
fulfillment of its obligations under this Section 5.07; provided, however, that
such reimbursement shall not apply to expenses occasioned by or resulting from
the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of
this Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first
to occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable
<PAGE>
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.
<PAGE>
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Approved Foreign Custody Manager Article IV
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 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
<PAGE>
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to
open-end management investment companies under the provisions of the 1940 Act;
and (ii) the execution, delivery and performance by the Custodian of this
Agreement are (w) within its power (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Custodian's corporate charter, or other organizational document, or
bylaws, or any amendment thereof. The Custodian acknowledges receipt of a copy
of the Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought.
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.
<PAGE>
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 Funds, Inc. United Bond Fund
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
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
<PAGE>
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 FUNDS, INC. UMB BANK, n.a.
UNITED BOND FUND
By: /s/Sharon K. Pappas By: /s/Ralph Santoro
Name: Sharon K. Pappas Name: Ralph Santoro
Title: Vice President Title: Senior Vice President
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED FUNDS, INC. UNITED BOND FUND
AND
UMB BANK, N.A.
Dated as of May 1, 1997
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets held
in the United States including but not limited to American Depositary Receipts.
Foreign assets shall include all assets held outside the United States including
but not limited to securities which clear through Euroclear or CEDEL. The
Custodian will provide as soon as practicable after receiving the information
provided by the Fund with respect to the net asset level numbers, a bill for the
Fund, including such reasonable detail in support of each bill as may be
reasonably requested by the Fund. As used in this Appendix "B", "United Funds"
shall mean all funds in the United Group of Funds, TMK/United Funds, Inc. 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):
(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
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and
cash management balances of each Fund at the Custodian to earn the
Custodian's daily repurchase agreement rate less reserve requirements
and FDIC premiums. Negative earnings credits will be charged on all
uncollected custody and cash management balances of each Fund at the
Custodian's prime rate less 150 basis points on each day a negative
balance occurs. Positive and/or negative earnings credits will be
monitored daily for each Fund and the net positive or negative amount
for each Fund will be included in the monthly statements. Excess
positive credits for each Fund will be carried forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
<PAGE>
Market: Annual Asset Fees Transaction Fees
------ ----------------- ----------------
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
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
Phillippines .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
Note: Fee Schedule eliminates sub-custodian asset and transaction-based
out-of-pocket expenses. Other sub-custodian out-of-pocket
expenses (i.e. Scrip fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers
Harriman & Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
<PAGE>
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits:
(1) An annual fee to be computed as of month end and payable each
month of the Fund's fiscal year (after receipt of the bill
issued to the Fund based upon its portion of short-term dollar
denominated assets), at the annual rate of:
.0004 on all short-term dollar denominated assets of the
United Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members $153.00
First Chicago Clearing Centre-Income Collection $ 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each
month of the Fund's fiscal year (after receipt of the bill
issued to the Fund based upon its portion of Euroclear
issues), at the annual rate of:
2.5 basis points on all United Funds Euroclear assets held in
account at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
<PAGE>
SUBCUSTODIAN LIST
PURSUANT TO CUSTODIAN AGREEMENT
BETWEEN
UNITED FUNDS, INC. UNITED BOND FUND
AND
UMB BANK, n.a.
Dated as of August 31, 1998
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:
Fund Date
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
Asset Strategy Fund April 20, 1995
High Income Fund July 31, 1997
Science and Technology Fund July 31, 1997
*Formerly, TMK/United Funds, Inc.
The following is a list of Domestic Subcustodians, Foreign Subcustodian and
Special Subcustodians under the Custodian Agreement as amended:
<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
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:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
EX-99.B9-ufssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and
between UNITED FUNDS, INC., and Waddell & Reed Services Company (the "Agent"),
as amended and restated as of April 1, 1996,
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;
(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;
<PAGE>
(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;
(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
<PAGE>
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
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.
<PAGE>
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) 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
<PAGE>
present a claim for indemnification against the Company. The Company shall have
the option to defend the Agent against any claim which may be the subject of
this indemnification and, in the event that the Company so elects, it will so
notify the Agent and thereupon the Company shall take over complete defense of
the claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business
on the date hereof and shall continue, unless terminated as hereinafter
provided, for a period of one year and from year to year thereafter, provided
that such continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or
may be amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination
that (i) the Agreement, amendment, new agreement or continuance in question is
in the best interests of the Company and its shareholders; (ii) the services to
be performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time
without penalty upon giving the Company 120 days' written notice (which notice
may be waived by the Company) and may be terminated by the Company at any time
without penalty upon giving the Agent sixty (60) days' written notice (which
notice may be waived by the Agent), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Board of
Directors of the Company in office at the time or by the vote of the holders of
a majority (as defined in or under the Act) of the outstanding shares of the
Company.
(2) On termination, the Agent will deliver to the Company or
its designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
<PAGE>
(3) In the event of any termination which involves the
appointment of a new shareholder servicing agent, including the Company's acting
as such on its own behalf, the Company shall have the non-exclusive right to the
use of the data processing programs used by the Agent in connection with the
performance of its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation
therefore, at the request of the Company and at the Company's expense the Agent
shall provide to the extent that its capabilities then permit such
documentation, personnel and equipment as may be reasonably necessary in order
for a new agent or the Company to fully assume and commence to perform the
agency functions described in this Agreement with a minimum disruption to the
Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only
and shall not be deemed to constitute a part hereof. Whenever the context
requires, words denoting singular shall be read to include the plural. This
Agreement and the rights and obligations of the parties hereunder, shall be
construed and interpreted in accordance with the laws of the State of Kansas,
except to the extent that the laws of the State of Maryland apply with respect
to share transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly
organized and existing and in good standing under the laws of the State of
Missouri, that it is duly qualified to carry on its business in the State of
Kansas and wherever its duties require, that it has the power and authority
under laws and by its Articles of Incorporation and Bylaws to enter into this
Shareholder Servicing Agreement and to perform the services contemplated by this
Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the
entire and complete agreement between the parties hereto relating to the subject
matter hereof, supersedes and merges all prior discussions between the parties
hereto, and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this
Agreement to be duly executed on the day and year first above written.
UNITED FUNDS, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
<PAGE>
WADDELL & REED SERVICES COMPANY
By:________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event a
signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 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.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015198B 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 500,000
Total Limit 20,400,000
Directors and Officers/ 87015198D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $ 5,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551
Aetna Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B15-ufd&spca
DISTRIBUTION AND SERVICE PLAN
FOR CLASS A SHARES
(Adopted on October 1, 1993,
Restated on February 8, 1995 and
amended on July 24, 1997)
This Plan is adopted by United Funds, 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.
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 at least
a majority of the outstanding Class A voting securities of the Fund (as defined
in the Act) and 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.
<PAGE>
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
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the 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.
