File No. 811-2922
File No. 2-64526
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. 33
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940
Amendment No. 28
UNITED CASH MANAGEMENT, 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
Sharon K. Pappas, 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)
__X__ on October 31, 1998 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(i)
_____ on (date) pursuant to paragraph (a)(i)
_____ 75 days after filing pursuant to paragraph (a)(ii)
_____ on (date) pursuant to paragraph (a)(ii) 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 June 30, 1998 was filed on or about September 28,
1998.
<PAGE>
UNITED CASH MANAGEMENT, INC.
============================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d) ..................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Fund; About
the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund
(c) ..................... About the Investment Principles of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... About the Management and Expenses of the Fund
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... Expenses; About the Management and Expenses of the
Fund
(g) ..................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... About Your Account
(f) ..................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account; About the
Management and Expenses of the Fund
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goal and Investment Policies
(b) ..................... Goal and Investment Policies
(c) ..................... Goal and Investment Policies
(d) ..................... Goal and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... Performance Information
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated November 6, 1998. The SAI is available free upon request to the Fund or
to Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone
number stated below. The SAI is incorporated by reference into this Prospectus,
and you will not be aware of all facts unless you read both this Prospectus and
the SAI.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United Cash Management, Inc.
This Fund seeks maximum current income to the extent consistent with stability
of principal by investing in a portfolio of money market instruments meeting
specified quality standards.
This Prospectus describes two classes of shares of the Fund -- Class A Shares
and Class B Shares.
Prospectus
November 6, 1998
UNITED CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................................3
EXPENSES........................................................4
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE....................................................11
Explanation of Terms .........................................11
ABOUT WADDELL & REED...........................................12
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....................13
Investment Goal and Principles ...............................13
Securities and Investment Practices ..........................13
ABOUT YOUR ACCOUNT.............................................17
Ways to Set Up Your Account ..................................17
Buying Shares ................................................19
Minimum Investments ..........................................19
Adding to Your Account .......................................19
Selling Shares ...............................................19
Telephone Transactions .......................................26
Shareholder Services .........................................27
Personal Service ...........................................27
Reports ....................................................27
Exchanges ..................................................27
Automatic Transactions .....................................27
Distributions and Taxes ......................................28
Distributions ..............................................28
Taxes ......................................................29
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................31
WRIMCO and Its Affiliates ....................................32
Breakdown of Expenses ........................................33
Management Fee .............................................33
Other Expenses .........................................34
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares and the Class B shares
of United Cash Management, Inc., an open-end, diversified management investment
company.
Goals and Strategies: United Cash Management, Inc. (the "Fund") seeks to
maximize current income to the extent consistent with stability of principal.
The Fund seeks to achieve this goal by investing in a portfolio of money market
instruments. See "About the Investment Principles of the Fund" for further
information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives or through registered broker-dealers. You may
buy Class B shares of the Fund only by exchange of Class B shares of Waddell &
Reed Funds, Inc. The price to buy a share of the Fund is the net asset value of
a share of the class you are purchasing. There is no sales charge incurred upon
purchase of shares of the Fund, but Class B shares are subject to a contingent
deferred sales charge if redeemed within a certain period of time. See "About
Your Account" for information on how to purchase shares of the Fund.
Redemptions: You may redeem your Class A shares at net asset value. You may
redeem your Class B shares at net asset value less a deferred sales charge, if
any. The deferred sales charge will vary with the length of time you have held
your Class B shares and the Waddell & Reed Funds, Inc. shares from which they
were exchanged. When you sell your shares, they may be worth more or less than
what you paid for them. See "About Your Account" for a description of
redemption procedures.
Who May Want to Invest: The Fund offers an investment goal that is compatible
with different investment decisions by investors seeking current income and
stability of principal. You should consider whether the Fund fits with your
particular investment objectives.
<PAGE>
Expenses
Class Class
A B
----- -----
Shareholder Transaction Expenses
are charges you pay when you buy
or sell shares of a fund.
Maximum sales
load on
purchases None None
Maximum sales load
on reinvested dividends None None
Maximum contingent
deferred sales
load None 3%1
Redemption fees None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets).
Management
fees 0.40% 0.40%
12b-1 fees None 0.99%2
Other expenses 0.50% 0.27%
Total Fund
operating
expenses 0.90% 1.66%
Example: You would pay the following expenses on
a $1,000 investment, assuming (1) 5% annual
return3 and (2) redemption at the end of each time
period:
Class Class
A B
----- -----
1 year $ 9 $ 47
3 years $ 29 $ 62
5 years $ 50 $ 90
10 years $111 $176
Example: You would pay the following expenses on
a $1,000 investment in the Class B shares of the
1The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
2It is possible that long-term shareholders of the Class B shares of the Fund
may bear 12b-1 distribution fees that are more than the maximum front-end sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc. See "Breakdown of Expenses."
3Use of an assumed annual return of 5% is for illustration purposes only and not
a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Fund, assuming (1) 5% annual return3 and (2) no
redemption at the end of each time period:
Class
B
-----
1 year $ 17
3 years $ 52
5 years $ 90
10 years $1764
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of a class of shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
4Assumes the conversion of Class B shares into Class A shares after 8 years and,
therefore, reflects Class A expenses in years nine and ten. See "About the
Management and Expenses of the Fund."
<PAGE>
Financial Highlights
The following information has been audited in conjunction with the audits
of the Financial Statements of the Fund. Financial Statements for the fiscal
year ended June 30, 1998 and the Independent Auditors' Report of Deloitte &
Touche LLP thereon are included in the SAI and should be read in conjunction
with the Financial Highlights.
For a Class A share outstanding throughout each period:*
<TABLE>
For the fiscal year ended June 30,
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment
income ........... 0.0484 0.0472 0.0487 0.0465 0.0252 0.0251 0.0434 0.0665 0.0786 0.0805
Less dividends
declared ......... (0.0484) (0.0472) (0.0487) (0.0465) (0.0252) (0.0251) (0.0434) (0.0665) (0.0786) (0.0805)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ....... 4.93% 4.80% 5.01% 4.74% 2.55% 2.57% 4.41% 6.89% 8.18% 8.33%
Net assets, end of
period (000
omitted) ......... $532,840 $514,272 $402,009 $368,800 $316,920 $350,624 $448,127 $579,944 $563,893 $445,156
Ratio of expenses
to average net
assets ........... 0.89% 0.87% 0.91% 0.97% 1.04% 1.06% 0.99% 0.95% 0.95% 1.00%
Ratio of net investment
income to average net
assets ........... 4.84% 4.70% 4.89% 4.68% 2.51% 2.56% 4.36% 6.65% 7.86% 8.14%
*On September 5, 1995, Fund shares outstanding were designated Class A shares.
</TABLE>
<PAGE>
Financial Highlights
The following information has been audited in conjunction with the audits
of the Financial Statements of the Fund. Financial Statements for the fiscal
year ended June 30, 1998 and the Independent Auditors' Report of Deloitte &
Touche LLP thereon are included in the SAI and should be read in conjunction
with the Financial Highlights.
For a Class B share outstanding throughout each period:
For the
For the fiscal year period
ended June 30, from 9/5/95*
----------------------- through
1998 1997 6/30/96
-------- -------- --------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00
------ ------ ------
Net investment
income ........... 0.0403 0.0407 0.0312
Less dividends
declared ......... (0.0403) (0.0407) (0.0312)
------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00
======= ======= =======
Total return........ 4.10% 4.13% 3.15%
Net assets, end of
period (000
omitted) ......... $3,614 $3,521 $630
Ratio of expenses to
average net
assets ........... 1.71% 1.48% 1.88%**
Ratio of net
investment income
to average net
assets ........... 4.03% 4.14% 3.76%**
*Commencement of operations.
**Annualized.
<PAGE>
Performance
Money market fund performance is commonly measured as yield. The Fund may
also advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Current Yield refers to the income generated by an investment in the Fund
over a stated seven-day period, expressed as an annual percentage rate.
Effective Yield is the income generated by an investment in the Fund over a
stated seven-day period that, when annualized, is assumed to be reinvested.
Effective yield is slightly higher than current yield because of the compounding
effect of the assumed reinvestment.
Current yield and effective yield figures are based on historical earnings
and are not intended to indicate future performance. An investment in Fund
shares is not insured and these yields are not fixed or guaranteed. Yield
information cannot necessarily be used to compare Fund shares with investment
alternatives that provide fixed yields, such as money market instruments or bank
accounts that may also be insured.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Fund may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a Customer
Service Representative by calling the telephone number listed on the inside back
cover of this Prospectus.
<PAGE>
About the Investment Principles of the Fund
Investment Goal and Principles
The goal of the Fund is to seek maximum current income to the extent
consistent with stability of principal. The Fund seeks to achieve this goal by
investing in a portfolio of money market instruments. There is no assurance
that the Fund will achieve its goal.
Subject to the diversification requirements of Rule 2a-7 ("Rule 2a-7")
under the Investment Company Act of 1940, as amended (the "1940 Act"), the Fund
may invest only in the following U.S. dollar-denominated money market
obligations and instruments: U.S. Government obligations (including obligations
of U.S. Government agencies and instrumentalities); bank obligations and
instruments secured by bank obligations, such as letters of credit; commercial
paper; corporate debt obligations, including variable amount master demand
notes; Canadian Government obligations; and certain other obligations (including
municipal obligations) guaranteed as to principal and interest by a bank in
whose obligations the Fund may invest or a corporation in whose commercial paper
the Fund may invest.
The Fund may invest only in instruments that are rated in one of the two
highest rating categories by the requisite nationally recognized statistical
rating organization(s) or are comparable unrated securities. Standard & Poor's,
a division of The McGraw-Hill Companies, Inc. ("S&P"), and Moody's Investors
Service, Inc. ("MIS") are among the nationally recognized statistical rating
organizations. See Appendix A to the SAI for a description of some of these
ratings.
In accordance with Rule 2a-7, the Fund may invest in securities with a
remaining maturity of not more than 397 calendar days.
Securities and Investment Practices
The following pages contain more detailed information about the types of
instruments in which the Fund may invest and strategies WRIMCO may employ 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 to the full extent permitted by the Fund's investment policies and
restrictions unless it believes that doing so will help the Fund achieve its
goal.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy may not be changed without the approval of
the shareholders of the Fund. Operating policies may be changed by the Board of
Directors without the approval of the shareholders. The goal of the Fund and
the type of money market securities in which the Fund may invest are fundamental
policies. Unless otherwise indicated, the types of other assets in which the
Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by the discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are supported
only by the credit of the instrumentality. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment.
Policies and Restrictions: The Fund intends to invest in U.S. Government
Securities when there is a limited availability of other obligations and
instruments.
Bank Obligations are instruments issued by financial institutions
evidencing financial obligations. Bank obligations include, among other
instruments, time deposits, certificates of deposit, and bankers acceptances.
Instruments secured by bank obligations, such as letters of credit, are also
eligible for investment by the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may invest
only in obligations of a bank subject to regulation by the U.S. Government
(including obligations issued by foreign branches of such banks) or obligations
of a foreign bank having total assets equal to at least U.S. $500,000,000, and
instruments secured by any such obligation.
Commercial Paper is a short-term, unsecured promissory note used to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest and must repay the amount borrowed at maturity, a date within nine
months of the date of issue.
Commercial paper has varying levels of sensitivity to interest rates and
varying degrees of quality. Longer-term commercial paper is generally more
sensitive to interest rate changes than shorter term commercial paper. The
quality of commercial paper depends upon the probability of timely repayment.
S&P ratings are graded into several categories, ranging from A-1 for the highest
quality to D for the lowest. MIS employs the designations of Prime 1, Prime 2
and Prime 3, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers.
Policies and Restrictions: As a fundamental policy, the Fund may invest
only in commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by MIS
or, if not rated, issued by a corporation whose debt obligations are rated at
least A by S&P or MIS. In addition, the Fund may purchase unrated commercial
paper that is of comparable quality to paper with the required ratings.
Corporate Debt Obligations. Bonds and other instruments are used by
issuers to borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest and must repay the amount borrowed at maturity.
Corporate debt obligations have varying levels of sensitivity to interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
Policies and Restrictions: As a fundamental policy, the Fund may invest
only in corporate debt obligations rated at least A by S&P or MIS.
The 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. government or a state or local government authority, or
their respective agencies or instrumentalities, or to collateralized mortgage
obligations, other mortgage-related securities, asset-backed securities, indexed
securities or over-the-counter derivative financial instruments.
Municipal Obligations are issued by a wide range of state and local
governments, agencies and authorities for various purposes. The two main kinds
of municipal bonds are "general obligation" bonds and "revenue" bonds. In
"general obligation" bonds, the issuer has pledged its full faith, credit and
taxing power for the payment of principal and interest. "Revenue" bonds are
payable only from specific sources; these may include revenues from a particular
facility or class of facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of
public authorities to obtain funds to finance privately operated facilities.
Their credit quality is generally dependent on the credit standing of the
company involved.
Policies and Restrictions: Consistent with its fundamental policies, the
Fund may invest in only those municipal obligations that either (i) are
guaranteed as to principal and interest by a bank in whose obligations the Fund
may invest or by a corporation in whose commercial paper the Fund may invest, or
(ii) depend for their repayment solely upon a corporate issuer whose debt
obligations are rated at least A by S&P or MIS.
Foreign Securities can involve significant risks in addition to the risks
inherent in U.S. investments. These risks include currency fluctuations,
exchange regulations, risks relating to political or economic conditions in the
foreign country, and the potentially less stringent investor protection,
accounting, auditing, financial and disclosure standards of foreign markets.
These factors could make foreign investments more volatile.
Policies and Restrictions: As a fundamental policy, the Fund may invest
in: Canadian Government obligations, which are obligations issued or guaranteed
by the Government of Canada, a Province of Canada or any agency, instrumentality
or political subdivision of the Canadian Government or any Province; obligations
issued by foreign banks with total assets equal to at least U.S. $500,000,000;
obligations issued by foreign branches of U.S. banks; and other obligations
guaranteed as to principal and interest by a bank in whose obligations the Fund
may invest or by a corporation in whose commercial paper the Fund may invest.
Such obligations must be U.S. dollar denominated.
Subject to the diversification requirements of Rule 2a-7, the Fund may not
invest more than 10% of its total assets in Canadian Government obligations.
The Fund does not intend to invest more than 25% of its total assets in a
combination of foreign bank obligations (including guarantees provided by
foreign banks or foreign branches of domestic banks), all of which must be
denominated in U.S. dollars.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly the Federal
National Mortgage Association), the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus 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
these 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.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets securing the debt are different. These
underlying assets may be nearly any type of financial asset or receivable, such
as motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from credit cards.
Policies and Restrictions: The Fund may invest in mortgage-backed, asset-
backed and stripped securities as long as WRIMCO determines that it is
consistent with the Fund's goal and investment policies and subject to the
requirements of Rule 2a-7.
Indexed Securities. Subject to the requirements of Rule 2a-7, the Fund may
purchase indexed securities, which are securities the value of which varies in
relation to the value of financial indicators such as other securities,
securities indices or interest rates, as long as the indexed securities are U.S.
dollar denominated. 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 indexed securities in which the Fund may invest include securities
whose prices are indexed to 90-day Treasury Bill rates, the London Inter-Bank
Offering Rate (LIBOR), prime interest rates, Federal composite commercial paper
rates and Federal funds rates. Certain indexed securities that are not traded
on an established market may be deemed illiquid.
Policies and Restrictions: The Fund will not invest in any security whose
interest rate or principal amount to be repaid, or timing of payments, varies or
floats with the value of a foreign currency, the rate of interest payable on
foreign currency borrowings, or with any interest rate or index expressed in a
currency other than U.S. dollars.
Repurchase Agreements. In a repurchase agreement, the Fund purchases a
security at one price and simultaneously agrees to sell it back at a higher
price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.
Policies and Restrictions: As a fundamental policy, the Fund will not
enter into a repurchase agreement if, as a result, more than 10% of its net
assets would consist of illiquid investments, which include repurchase
agreements not terminable within seven days.
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain types of restricted securities may be deemed to be liquid in accordance
with guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid investments.
The Fund does not intend to invest more than 50% of its total assets in liquid
Section 4(2) commercial paper.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not, 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, the value of the holdings of
the Fund in the securities of such issuer exceeds 5% of the value of the Fund's
total assets.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry. U.S. Government obligations and bank obligations
and instruments are not included in this limit.
The Fund may not invest more than 5% of its assets in securities rated in
the second highest rating category by the requisite nationally recognized
statistical rating organization(s) or comparable unrated securities, with
investments in such securities of any one issuer being limited to the greater of
1% of the Fund's assets or $1,000,000.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If the Fund makes
additional investments while borrowings are outstanding, this may be considered
a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
only from banks to meet redemptions, as a temporary measure or for extraordinary
or emergency purposes, up to 10% of its total assets.
Lending. Securities loans may be made on a short-term or a long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend
securities representing more than one-third of its total asset value at any one
time and such loans must be on a collateralized basis in accordance with
applicable regulatory requirements.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax deductible.
. Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum 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.
. Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
. Roth IRAs enable an individual whose adjusted gross income (or combined
adjusted gross income, if married) does not exceed certain levels to make
non-deductible contributions up to $2,000 per year. Withdrawals of earnings
from a Roth IRA generally are not taxable if the account has been held at
least five years and the account holder has reached age 59 1/2 (or other
conditions are met).
. Education IRAs may be established for the benefit of a minor, and
contributions up to $500 per child per year may be made by any person whose
adjusted gross income does not exceed certain levels. Generally, withdrawals
used to pay the qualified higher education expenses of the beneficiary (or a
family member) are not taxable.
. Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
. 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.
. 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.
. 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
. 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.
. 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.
- -------------------------------------------------
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
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy Class A shares of the Fund through Waddell & Reed, Inc. and its
account representatives or through registered broker-dealers. Broker-dealers
may charge a fee for this service. You may buy Class B shares of the Fund by
exchange of your Class B shares of Waddell & Reed Funds, Inc. To open your
account you must complete and sign an application. Your Waddell & Reed account
representative can help you with any questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a share of the Fund (price to buy one share) is the
net asset value ("NAV") of the class of shares you are buying. The Fund's
shares are sold without a sales charge.
To purchase Class A shares 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, United K.C., for United Cash Management, Inc., FBO
Customer Name and Account Number.
To purchase Class A shares by check, make your check, money order, Federal
Reserve draft or other negotiable bank draft payable to Waddell & Reed, Inc.
Mail the check, money order or draft, along with your completed application, to
Waddell & Reed, Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
The NAV of each class of shares of the Fund is the value of a single share
of that class. The NAV of a class is computed by adding, with respect to that
class, the value of the Fund's investments, cash and other assets, subtracting
its liabilities, and then dividing the result by the number of shares of that
class outstanding. The NAV of each class will normally remain fixed at $1.00
per share. See the SAI for a discussion of extraordinary circumstances that
could result in a change in this fixed share value.
The NAV per share is based on a valuation of the Fund's investments at
amortized cost. The amortized cost method of valuation is accomplished by
valuing a security at its cost and thereafter assuming a constant amortization
rate to maturity of any discount or premium.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the NAVs of its shares as of the
close of business of the NYSE, normally 4 p.m. Eastern time.
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:
. Orders are accepted only at the home office of Waddell & Reed, Inc.
. All of your purchases must be made in U.S. dollars.
. Dividends do not accrue until the Fund has federal funds available to it;
federal funds are monies of a member bank of the Federal Reserve System held
in deposit at a Federal Reserve Bank.
. 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.
. The Fund does not issue certificates representing Class B shares of the Fund
and does not normally issue certificates representing Class A shares.
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 Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open a Class A
Account $1,000
To Open a Class B
Account $100
For certain exchanges
into Class A accounts$100
For certain Class A retirement accounts and Class A accounts opened with
Automatic Investment Service $50
For certain Class A retirement accounts and Class A accounts opened through
payroll deductions for or by employees of WRIMCO, Waddell & Reed, Inc. and their
affiliates $25
To Add to an Account
For Class B accounts and certain exchanges into Class A accounts $100
For Automatic Investment Service (Class A Accounts Only) $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your Class A 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, United K.C., for United Cash Management,
Inc., FBO Customer Name and Account Number.
To add to your Class A account by mail: Make your check, money order,
Federal Reserve draft or other negotiable bank draft payable to Waddell & Reed,
Inc. Mail the check, money order or other draft, along with a letter stating
your account number, the account registration and that you wish to purchase
Class A shares of the Fund to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one share) is the NAV of the class of
shares you are selling. Class B shares are 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 3%
second full
calendar year 2%
third full
calendar year 1%
after third 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. The year of investment with respect to Class B shares
acquired by exchange of Class B shares of funds in Waddell & Reed Funds, Inc. is
deemed to be the calendar year that such Class B shares were acquired.
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.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
. the name on the account registration;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be redeemed; and
. any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
To sell Class A shares by check: If you have elected this method in your
application or by subsequent authorization, the Fund will provide you with forms
of checks drawn on UMB Bank, n.a. You may make these checks payable to the
order of any payee in any amount of $250 or more.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint The written
Tenant instructions must be
signed by all persons
required to sign for
transactions, exactly
as their names appear
on the account.
Sole Proprietorship The written
instructions must be
signed by the
individual owner of
the business.
UGMA, UTMA The custodian must
sign the written
instructions
indicating capacity as
custodian.
Retirement Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
Conservator, Guardian The written
or Other Fiduciary instructions must be
signed 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 redemption price calculated after receipt of a written request for
redemption in good order by Waddell & Reed, Inc. at its home office. Note the
following:
. If more than one person owns the shares, each owner must sign the written
request.
. If you hold a certificate, it must be properly endorsed and sent to the Fund.
. If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
. 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.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
. Redemption by telephone, fax or check writing is not available for shares
represented by certificates. Redemption by check writing is not available
for certain retirement plan accounts.
. There is no additional charge for maintaining the check writing privilege or
for processing checks.
. If you have elected the check writing privilege, the Fund's Custodian Bank
will request that the Fund redeem a sufficient number of full and fractional
shares in your account to cover the amount of the check when a check is
presented to the Bank for payment. You will continue to receive dividends on
those shares equaling the amount being redeemed until such time as the check
is presented to the Bank for payment. No "stop-payment" order can be placed
against the checks. Checks may be dishonored if shares were recently
purchased as discussed above or if the net asset value per share has declined
so that there are insufficient shares to be redeemed to cover the amount of
the check.
. As with any redemption of shares, redemption by check writing will, for
Federal income tax purposes, result in a capital gain or loss on shares
redeemed.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
. the request for redemption is made by a corporation, partnership or
fiduciary;
. the request for redemption is made by someone other than the owner of record;
or
. the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
Contingent Deferred Sales Charge. A contingent deferred sales charge may
be assessed against your Class B redemption amount and paid to Waddell & Reed,
Inc. (the "Distributor"), subject to the limitation described under "Other
Expenses" 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 the Fund's Class B shares. The deferred sales
charge will not be imposed on shares representing payment of dividends or
distributions.
For purposes of determining the applicability and rate of any deferred
sales charge, it will be assumed that a redemption is made first of shares
representing amounts not subject to the deferred sales charge (i.e., amounts
representing payment of dividends and distributions or capital appreciation),
then of shares purchased prior to the deferred sales charge period (i.e., held
for more than four years) and then of shares held by the shareholder for the
longest period of time.
Unless instructed otherwise, the Fund, when requested to redeem a specific
dollar amount, will redeem additional 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 $20, the Fund will redeem shares having an
aggregate net asset value of $1,020, absent different instructions.
The deferred sales charge will not apply in the following circumstances:
. in connection with redemptions of shares requested within one year of the
shareholder's death or disability, provided the Fund is notified of the death
or disability at the time of the request and furnished proof of such event
satisfactory to the Distributor.
. in connection with redemptions of 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.
. in connection with redemptions of shares purchased by current or retired
directors of the Fund, or current or retired officers or employees of the
Fund, WRIMCO, the Distributor or their affiliated companies, registered
representatives of Waddell & Reed, Inc., and by the members of immediate
families of such persons.
. in connection with redemptions of shares made pursuant to a shareholder's
participation in any systematic withdrawal plan adopted for the Fund. (The
Plan and this exclusion from the deferred sales charge do not apply to a one-
time withdrawal.)
. in connection with redemptions the proceeds of which are reinvested in the
Class B shares of the Fund within thirty days after such redemption.
. in connection with the exercise of certain exchange privileges.
. on redemptions effected pursuant to the Fund's right to liquidate a
shareholder's shares of the Fund if the aggregate net asset value of those
shares is less than $250.
. in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with the Fund or by a
former shareholder of such investment company of shares of the Fund acquired
pursuant to such reorganization.
These exceptions may be modified or eliminated by the Fund at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Fund's right to liquidate a shareholder's shares, which
requires certain notices.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
by you or held in your account, except in the case of retirement plan accounts,
having an aggregate NAV of less than $250. The Fund will give you notice of its
intention to redeem your shares and a 60-day opportunity to purchase a
sufficient number of additional shares to bring the aggregate NAV of your
account to $250. The Fund has the right to charge a fee of $1.75 per month on
all accounts with a NAV of less than $250, except for retirement plan accounts
and accounts with an increase or decrease in NAV within 60 days of such
determination.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, 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 Services staff is
available to respond to your inquiries or update your account records. At
almost any time of the day or night, you may access TeleWaddell from a touch-
tone phone to:
. Obtain information about your accounts;
. Obtain price information about other funds in the United Group; or
. Request duplicate statements and reorder checks.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (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 historical account
information.
Exchanges
You may sell your Class A shares and buy Class A shares of other funds in
the United Group. You may sell your Class B shares and buy Class B shares of
funds in Waddell & Reed Funds, Inc. without payment of a deferred sales charge.
The time period with respect to the deferred sales charge will continue to run.
You may exchange only into funds that are legally registered for sale in
your state of residence. Note that exchanges out of the Fund may have tax
consequences for you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular investment plans allow you to transfer money into your Class A Fund
account automatically. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Class A Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from the Fund to other funds in the United Group whether in the
same or a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Ordinarily, dividends are declared
daily and paid on the 27th day of each month or on the last business day prior
to the 27th if the 27th falls on a weekend or holiday. Dividends declared for a
particular day are paid to shareholders of record on the prior business day
except for dividends declared for Friday, Saturday and Sunday, which are paid to
shareholders of record on the preceding Thursday. Dividends for each class are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio assets
less expenses of that class. The Fund distributes its net short-term capital
gains annually but may make more frequent distributions of such gains if
necessary to maintain its NAV per share at $1.00. The Fund may make additional
distributions if necessary to avoid Federal income or excise taxes on certain
undistributed income and capital gains. The Fund does not expect to realize net
long-term capital gains and, thus, does not anticipate payment of any long-term
capital gains distributions. When shares are completely redeemed, any declared
but unpaid dividends on those shares will be paid at the time of redemption.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will
be automatically paid in additional shares of the Fund of the same class as
that with respect to which they were paid. If you do not indicate a choice
on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in shares of the Fund of the same class as that with
respect to which they were paid, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in shares
of the Fund of the same class as that with respect to which they were paid.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment income
and net short-term capital gains) and net capital gains (the excess of net long-
term capital gains over net short-term capital losses), if any, that it
distributes to its shareholders.
There are certain tax requirements that the Fund must satisfy in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income generally are taxable to you as ordinary income whether received
in cash or paid in additional Fund shares. Distributions of the Fund's net
capital gains, if any, 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.
The Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that
year.
Withholding. The Fund is required to 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 such shareholders who
otherwise are subject to backup withholding.
State and local income taxes. The portion of the dividends paid by the
Fund attributable to interest earned on its U.S. Government Securities generally
is not subject to state and local income taxes, although distributions by the
Fund to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Fund in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a more detailed discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Cash Management, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end, diversified management investment company organized as
a corporation under Maryland law on February 13, 1979.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to September 5, 1995, the Fund
offered only one class of shares to the public. Shares outstanding on that date
were designated as Class A shares. The Class B shares provide shareholders of
each of the funds in Waddell & Reed Funds, Inc. with an opportunity to acquire
shares of a money market fund through exchange of their Class B shares of funds
in Waddell & Reed Funds, Inc. without incurring the contingent deferred sales
charge. Class B shares that have been held by a shareholder for eight years
will convert automatically to Class A shares of the Fund. This conversion will
be made, without charge or fee, on the basis of the relative net asset values of
the two classes.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors have served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, 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 and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
Mira Stevovich is primarily responsible for the day-to-day management of
the portfolio of the Fund. Ms. Stevovich has held her Fund responsibilities
since May 1998. She is Vice President of WRIMCO, Vice President and Assistant
Treasurer of the Fund and Vice President and Assistant Treasurer of other
investment companies for which WRIMCO serves as investment manager. Ms.
Stevovich has served as the Assistant Portfolio Manager for investment companies
managed by Waddell & Reed, Inc. and its successor, WRIMCO, since January 1989
and has been an employee of Waddell & Reed, Inc. and its successor, WRIMCO,
since March 1987. Other members of WRIMCO's investment management department
provide input on market outlook, economic conditions, investment research and
other considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. and acts as the principal underwriter and distributor of the
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.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends. Waddell
& Reed Services Company also acts as agent ("Accounting Services Agent") in
providing bookkeeping and accounting services and assistance to the Fund and
pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
Waddell & Reed Financial, Inc., a holding company.
WRIMCO places transactions for the portfolio of the 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.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is a pro rata participation based on the
relative net asset size of the Fund in the group fee computed each day on the
combined net asset values of all the funds in the United Group at the annual
rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The management fee is accrued and paid to WRIMCO daily.
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $19.9 billion as of June 30, 1998. Management fees for the fiscal
year ended June 30, 1998 were 0.40% of the Fund's average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. The Fund pays the
Shareholder Servicing Agent a monthly fee for each account that was in existence
at any time during the month and, with respect to Class A shares, a fee for each
shareholder check it processes.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
Distribution. The Fund, pursuant to Rule 12b-1 of the 1940 Act, and as
authorized under a Distribution and Service Plan (the "Plan"), may finance the
distribution and/or the service and maintenance of the Class B shareholder
accounts.
The Plan provides that the Fund, with respect to the Class B shares, may
compensate the Distributor in an amount calculated and payable daily up to 1%
annually of the Fund's Class B average daily net assets. There are two parts to
this fee: up to 0.75% may be paid to the Distributor for distribution services
and distribution expenses including commissions paid by the Distributor to its
sales representatives and managers (the "distribution fee") with respect to the
distribution of the Class B shares, and up to 0.25% may be paid to the
Distributor to finance the provision of certain services by the Distributor and
Waddell & Reed Services Company to Class B shareholders and the provision of
services to maintain Class B shareholder accounts (the "Service Fee").
In addition to these fees, the Distributor may be compensated for
distribution of the Class B shares by the deferred sales charge imposed at the
time of redemption. See "About Your Account."
The distribution fee and the deferred sales charge are designed to allow
investors to purchase Class B shares without a front-end sales charge and at the
same time to allow the Distributor to pay commissions to its field sales force
and pay other expenses of distribution, including the cost of prospectuses for
prospective investors, sales literature, advertising, sales office expenses and
overhead. In this respect, the distribution fee and deferred sales charge are
comparable to a front-end sales charge. See "Breakdown of Expenses" for the
amount of these charges and the service fee that may be paid over certain
periods.
No payment of the distribution fee will be made, and no deferred sales
charge will be paid, to the Distributor by the Fund with respect to Class B
shares if, and to the extent that, the aggregate of the distribution fees paid
by the Fund and the deferred sales charges received by the Distributor with
respect to such shares would exceed the maximum amount of such charges that the
Distributor is permitted to receive under NASD rules as then in effect. During
any one period of time, the amount paid by the Distributor in commissions to its
sales force and attendant promotional and overhead costs with respect to Class B
shares may exceed the amount it receives from the Class B distribution fees and
deferred sales charges. Although such fees and charges are paid to compensate
the Distributor for its promotional activities with respect to Class B shares,
the expenses of such activities are not a liability of the Fund, and the Fund,
at any time, may on written notice terminate the Plan and the Underwriting
Agreement with the Distributor without penalty and without further payment of
the distribution fee. In such event, the deferred sales charge may remain in
effect as to investments made prior to termination.
<PAGE>
United Cash Management, 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
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Cash Management, Inc.
PROSPECTUS
November 6, 1998
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
Waddell & Reed Funds, Inc.
Asset Strategy Fund
Growth Fund
High Income Fund
International Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
Science and Technology Fund
Total Return Fund
NUP1010(11-98)
printed on recycled paper
<PAGE>
UNITED CASH MANAGEMENT, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
November 6, 1998
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus ("Prospectus")
of United Cash Management, Inc. (the "Fund") dated November 6, 1998, which may
be obtained from the Fund or its underwriter, Waddell & Reed, Inc., at the
address or telephone number shown above.
TABLE OF CONTENTS
Performance Information............................. 2
Goal and Investment Policies........................ 3
Investment Management and Other Services............ 16
Purchase, Redemption and Pricing of Shares.......... 20
Directors and Officers.............................. 29
Payments to Shareholders............................ 35
Taxes .............................................. 36
Portfolio Transactions and Brokerage................ 37
Other Information................................... 38
Appendix A.......................................... 40
Financial Statements ............................... 44
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may, from time to
time, publish the Fund's yield, effective yield and performance rankings in
advertisements and sales materials. Yield information is also available by
calling the Shareholder Servicing Agent at the telephone number shown on the
inside back cover of the Prospectus.
There are two methods by which yield is calculated for a specified time
period for a class of shares of the Fund. The first method, which results in an
amount referred to as the "current yield," assumes an account containing exactly
one share of the applicable class at the beginning of the period. The net asset
value of this share will be $1.00 except under extraordinary circumstances. The
net change in the value of the account during the period is then determined by
subtracting this beginning value from the value of the account at the end of the
period which will include all dividends accrued for a share of such class;
however, capital changes are excluded from the calculation, i.e., realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation. However, so that the change will not reflect the capital changes
to be excluded, the dividends used in the yield computation may not be the same
as the dividends actually declared, as certain realized gains and losses and,
under unusual circumstances, unrealized gains and losses (see "Purchase,
Redemption and Pricing of Shares"), will be taken into account in the
calculation of dividends actually declared. Instead, the dividends used in the
yield calculation will be those which would have been declared if the capital
changes had not affected the dividends.
This net change in the account value is then divided by the value of the
account at the beginning of the period (i.e., normally $1.00 as discussed above)
and the resulting figure (referred to as the "base period return") is then
annualized by multiplying it by 365 and dividing it by the number of days in the
period with the resulting current yield figure carried to at least the nearest
hundredth of one percent.
The second method results in a figure referred to as the "effective yield."
This represents an annualization of the current yield with dividends reinvested
daily. Effective yield is calculated by compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result and rounding the result to the nearest hundredth of one
percent according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)] - 1
The yield for the Fund's Class A shares and Class B shares as calculated
above for the seven days ended June 30, 1998, the date of the most recent
balance sheet included in the Prospectus, was 4.96% and 3.59% respectively and
the effective yield calculated for the same period was 5.09% and 3.66%
respectively.
Changes in yields (calculated on either basis) primarily reflect different
interest rates received by the Fund as its portfolio securities change. These
different rates reflect changes in current interest rates on money market
instruments. Both yields are affected by portfolio quality, portfolio maturity,
type of instruments held and operating expense ratio.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. Each class of the Fund may also compare its performance to that of
other selected mutual funds or selected recognized market indicators such as the
Standard & Poor's 500 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.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of Fund shares when redeemed may be more or less than
their original cost.
GOAL AND INVESTMENT POLICIES
The goal and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
The Fund may invest only in the money market obligations and instruments
listed below. In addition, as a money market fund and in order for the Fund to
use the "amortized cost method" of valuing its portfolio securities, the Fund
must comply with Rule 2a-7 ("Rule 2a-7") under the Investment Company Act of
1940, as amended (the "1940 Act"). Under Rule 2a-7, investments are limited to
those that are U.S. dollar denominated and that are rated in one of the two
highest rating categories by the requisite nationally recognized statistical
rating organizations(s) ("NRSRO(s)") or are comparable unrated securities. See
Appendix A to this SAI for a description of some of these ratings. In addition,
Rule 2a-7 limits investments in securities of any one issuer (except U.S.
Government securities) to no more than 5% of the Fund's assets. Investments in
securities rated in the second highest rating category by the requisite NRSRO(s)
or comparable unrated securities are limited to no more than 5% of the Fund's
assets, with investment in such securities of any one issuer being limited to
the greater of 1% of the Fund's assets or $1,000,000. In accordance with Rule
2a-7, the Fund may invest in securities with a remaining maturity of not more
than 397 calendar days. See discussion under "Determination of Offering Price."
(1) U.S. Government Obligations: Obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities. These include securities
issued by the U.S. Government, which in turn include Treasury Bills (which
mature within one year of the date they are issued) and Treasury Notes and Bonds
(which are issued with longer maturities). All 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. The Fund will invest in securities of agencies and
instrumentalities only if Waddell & Reed Investment Management Company
("WRIMCO"), the Fund's investment adviser, is satisfied that the credit risk
involved is minimal.
(2) Bank Obligations and Instruments Secured Thereby: Subject to the
limitations described above, time deposits, certificates of deposit, bankers'
acceptances and other bank obligations if they are obligations of a bank subject
to regulation by the U.S. Government (including obligations issued by foreign
branches of these banks) or obligations issued by a foreign bank having total
assets equal to at least U.S. $500,000,000, and instruments secured by any such
obligation; in this SAI, a "bank" includes commercial banks and savings and loan
associations. Time deposits are monies kept on deposit with U.S. banks or other
U.S. financial institutions for a stated period of time at a fixed rate of
interest. At present, bank time deposits are not considered by the Board of
Directors or WRIMCO to be readily marketable. There may be penalties for the
early withdrawal of such time deposits, in which case, the yield of these
investments will be reduced.
(3) Commercial Paper Obligations Including Variable Amount Master Demand
Notes: Commercial paper rated A-1 or A-2 by Standard & Poor's, a division of
The McGraw-Hill Companies, Inc. ("S&P"), or Prime-1 or Prime-2 by Moody's
Investors Service, Inc. ("MIS") or, if not rated, of comparable quality and
issued by a corporation in whose debt obligations the Fund may invest (see 4
below). S&P and MIS are among the NRSRO's under Rule 2a-7. See Appendix A for
a description of some of these ratings. A variable amount master demand note
represents a borrowing arrangement under a letter agreement between a commercial
paper issuer and an institutional lender.
(4) Corporate Debt Obligations: Corporate debt obligations if they are
rated at least A by S&P or MIS. See Appendix A for a description of some of
these debt ratings.
(5) Canadian Government Obligations: Obligations of, or guaranteed by,
the Government of Canada, a Province of Canada or any agency, instrumentality or
political subdivision of that Government or any Province; however, the Fund may
not invest in Canadian Government obligations if more than 10% of the value of
its total assets would then be so invested, subject to the diversification
requirements of Rule 2a-7. The Fund may not invest in Canadian Government
obligations if they are denominated in Canadian dollars. See "Determination of
Offering Price."
(6) Certain Other Obligations: Obligations other than those listed in 1
through 5 (such as municipal obligations) above only if any such other
obligation is guaranteed as to principal and interest by either a bank in whose
obligations the Fund may invest (see 2 above) or a corporation in whose
commercial paper the Fund may invest (see 3 above) and otherwise permissible
under Rule 2a-7.
The value of the obligations and instruments in which the Fund invests will
fluctuate depending in large part on changes in prevailing interest rates. If
these rates go up after the Fund buys an obligation or instrument, its value may
go down; if these rates go down, its value may go up. Changes in value and
yield based on changes in prevailing interest rates may have different effects
on short-term debt obligations than on long-term obligations. Long-term
obligations (which often have higher yields) may fluctuate in value more than
short-term ones. Changes in interest rates will be more quickly reflected in
the yield of a portfolio of short-term obligations than in the yield of a
portfolio of long-term obligations.
Specific Securities and Investment Practices
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." The U.S. Government mortgage-backed securities in which
the Fund may invest include mortgage-backed securities issued or guaranteed as
to the payment of principal and interest (but not as to market value) by Ginnie
Mae, Fannie Mae or Freddie Mac. Other mortgage-backed securities are issued by
private issuers, generally originators of and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. Payments of principal and interest (but
not the market value) of such private mortgage-backed securities may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. Government or one of its
agencies or instrumentalities, or they may be issued without any government
guarantee of the underlying mortgage assets but with some form of non-government
credit enhancement. These credit enhancements do not protect investors from
changes in market value.
The Fund may invest in mortgage-backed securities as long as WRIMCO
determines that it is consistent with the Fund's goal and investment policies
and subject to the requirements of Rule 2a-7. The Fund may purchase mortgage-
backed securities issued by both government and non-government entities such as
banks, mortgage lenders, or other financial institutions.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently and that principal may be
prepaid at any time because the underlying mortgage loans generally may be
prepaid at any time. As a result, if the Fund purchases these securities at a
premium, a prepayment rate that is faster than expected will reduce yield to
maturity while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if the Fund
purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of loss of principal because the premium may not have been fully
amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of
Ginnie Mae (but not those of Freddie Mac or Fannie Mae) is guaranteed by the
full faith and credit of the United States. This is not a guarantee against
market decline of the value of these securities or shares of the Fund. It is
possible that the availability and marketability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.
Stripped Mortgage-Backed Securities. The Fund may invest in stripped
securities as long as WRIMCO determines that it is consistent with the Fund's
goal and investment policies and subject to the requirements of Rule 2a-7.
Stripped mortgage-backed securities are created when a U.S. Government agency or
a financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The holder of
the "principal-only" security ("PO") receives the principal payments made by the
underlying mortgage-backed security, while the holder of the "interest-only"
security ("IO") receives interest payments from the same underlying security.
The Fund has not in the past invested and has no present intention to
invest in these types of securities.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets securing the debt 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-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 certificate holders 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. 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.
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.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase securities in which it may invest on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis. The securities
so purchased or sold by the Fund are subject to market fluctuation; their value
may be less or more when delivered than the purchase price paid or received.
For example, delivery to the Fund and payment by the Fund in the case of a
purchase by it, or delivery by the Fund and payment to it in the case of a sale
by the Fund, may take place a month or more after the date of the transaction.
The purchase or sale price is fixed on the transaction date. The Fund will
enter into when-issued or delayed-delivery transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the transaction. No interest accrues to the Fund until delivery and payment is
completed. When the Fund makes a commitment to purchase securities on a when-
issued or delayed-delivery basis, it will record the transaction and thereafter
reflect the value of the securities in determining its net asset value per
share. The securities so sold by the Fund on a delayed-delivery basis are also
subject to market fluctuation; their value when the Fund delivers them may be
more than the purchase price the Fund receives. When the Fund makes a
commitment to sell securities on a delayed-delivery basis, it will record the
transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Lending Securities
One of the ways in which the Fund may try to realize income is by lending
not more than one-third of its total asset value. This percentage limitation
can only be changed by shareholder vote. If the Fund does this, the borrower
pays the Fund an amount equal to the dividends or interest on the securities
that the Fund would have received if it had not loaned the securities. The Fund
also receives additional compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). Under
the present Guidelines, the collateral must consist of cash and/or U.S.
Government Obligations, at least equal in value to the market value of the
securities loaned on each day the loan is outstanding. If the market value of
the loaned securities exceeds the value of the collateral, the borrower must add
more collateral so that it at least equals the market value of the securities
loaned. If the market value of the securities decreases, the borrower is
entitled to return of the excess collateral. This policy of 100%
collateralization is a fundamental policy that can be changed only by
shareholder vote.
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 both types of collateral. The second method is to receive
interest on the investment of the cash collateral or to receive interest on the
U.S. Government Obligations used as collateral. Part of the interest received
in either case may be shared with the borrower.
Under the Fund's current securities lending procedures, the Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. The Fund will make loans only under rules of the New York Stock
Exchange (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. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, 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 the Fund's 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 how the Fund may invest cash collateral.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. A
repurchase agreement is an instrument under which the Fund purchases a security
and the seller (normally a commercial bank or broker-dealer) agrees, at the time
of purchase, that it will repurchase the security at a specified time and price.
The amount by which the resale price is greater than the purchase price reflects
an agreed-upon market interest rate effective for the period of the agreement.
The return on the securities subject to the repurchase agreement may be more or
less than the return on the repurchase agreement.
The majority of the repurchase agreements in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays or
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans. In other
words, the value of the underlying securities, which will be held by the Fund's
custodian bank or by a third party that qualifies as a custodian under Section
17(f) of the 1940 Act, is and, during the entire term of the agreement, will
remain at least equal to the value of the loan, including the accrued interest
earned thereon. Repurchase agreements are entered into only with those entities
approved by WRIMCO on the basis of criteria established by the Board of
Directors.
Restricted Securities
The Fund may purchase commercial paper that is issued in reliance on the
so-called "private placement" exemption from registration that is afforded by
Section 4(2) ("Section 4(2) paper") of the Securities Act of 1933, as amended
(the "1933 Act"). Section 4(2) paper is subject to legal or contractual
restrictions on resale under the federal securities laws. It is generally sold
to institutional investors, such as the Fund, who agree that they are purchasing
the paper for investment and not with a view to public distribution. Any resale
by the purchaser must be in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. Any such paper purchased must meet the credit, maturity
and other criteria that apply to other securities in which the Fund invests.
Although WRIMCO is of the opinion that this type of paper is nearly as liquid as
other commercial paper in which the Fund invests, there is no assurance that a
market will exist for Section 4(2) paper that the Fund may own. WRIMCO will
determine the liquidity of Section 4(2) paper in accordance with guidelines
established by the Board of Directors.
The Fund may also invest in other securities that are subject to legal or
contractual restrictions on resale because they have not been registered under
the 1933 Act or are otherwise subject to contractual restrictions on resale.
These securities are generally referred to as restricted securities. Restricted
securities generally can be sold in privately negotiated transactions, pursuant
to an exemption from registration under the 1933 Act, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent the Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which the Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments."
These restricted securities will be valued in the same manner that other
commercial paper held by the Fund is valued. See "Portfolio Valuation." The
Fund does not anticipate adjusting for any diminution in value of these
securities on account of their restrictive feature because of the existence of
an active market which creates liquidity and because of the availability of
actual market quotations for these restricted securities. In the event that
there should cease to be an active market for these securities or actual market
quotations become unavailable, they will be valued at fair value as determined
in good faith by the Board of Directors.
Illiquid Investments
The Fund has an operating policy, which may be changed without shareholder
approval, which provides that the Fund may not invest more than 10% of its net
assets in illiquid investments. Investments currently considered to be illiquid
include: (i) repurchase agreements not terminable within seven days; (ii) fixed
time deposits subject to withdrawal penalties other than overnight deposits;
(iii) securities for which market quotations are not readily available; and (iv)
restricted securities not determined to be liquid pursuant to guidelines
established by the Fund's Board of Directors. However, this 10% limit does not
include any obligations payable at principal amount plus accrued interest on
demand or within seven days after demand.
Indexed Securities
Subject to the requirements of Rule 2a-7, the Fund may purchase securities
the values of which varies in relation to the value of financial indicators such
as other securities, securities indices or interest rates. 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. Indexed securities may be positively or negatively indexed; that is,
their maturity value may increase when the specified index value increases, or
their maturity value may decline when the index increases. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
Government agencies.
Foreign Obligations and Instruments
Subject to the diversification requirements applicable to the Fund under
Rule 2a-7, the Fund may invest up to 10% of its total assets in Canadian
Government obligations and may also invest in foreign bank obligations,
obligations of foreign branches of domestic banks, and other obligations
guaranteed by a bank in whose obligations the Fund may invest. Each of these
obligations must be U.S. dollar denominated. Although there is no fundamental
policy limiting the Fund's investment in foreign bank obligations and
obligations of foreign branches of domestic banks, it does not intend to invest
more than 25% of its total assets in a combination of these obligations.
Investments in obligations of domestic branches of foreign banks will not be
considered to be foreign securities if WRIMCO has determined that the nature and
extent of federal and state regulation and supervision of the branch in question
is substantially equivalent to federal and state chartered or domestic banks
doing business in the same jurisdiction.
Purchasing these securities presents special considerations: reduction of
income by foreign taxes; changes in currency rates and controls (e.g., currency
blockage); lack of public information; lack of uniform accounting, auditing and
financial reporting standards; less volume on foreign exchanges; less liquidity;
greater volatility; less regulation of issuers, exchanges and brokers; greater
difficulties in commencing lawsuits; possibilities in some countries of
expropriation, confiscatory taxation, social instability or adverse diplomatic
developments; and differences (which may be favorable or unfavorable) between
the U.S. economy and foreign economies. Uncertificated foreign securities will
be purchased only if permissible under the custodianship provisions of the 1940
Act.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and together with certain
restrictions described in the Prospectus cannot be changed without shareholder
approval. Under these restrictions, the Fund may not:
(i) Buy commodities or commodity contracts, voting securities, any mineral
related programs or leases, or oil or gas leases, any shares of other
investment companies or any warrants, puts, calls or combinations
thereof;
(ii) Buy real estate nor any nonliquid interest in real estate investment
trusts; however, the Fund may buy obligations or instruments that it
may otherwise buy even though the issuer invests in real estate or
interests in real estate;
(iii) 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, the value of the holdings of the Fund in the securities of
such issuer exceeds 5% of the value of the Fund's total assets; or buy
the securities of companies in any one industry if more than 25% of
the Fund's total assets would then be in companies in that industry,
except that U.S. Government Obligations and bank obligations and
instruments are not included in this limit (but see "Foreign
Obligations and Instruments");
(iv) Make loans other than certain limited types of loans described herein;
the Fund can buy debt securities and other obligations consistent with
its goal and its other investment policies and restrictions; it can
also lend its portfolio securities (see "Lending Securities" above)
or, except as provided above, enter into repurchase agreements (see
"Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(vii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions;
(viii) Engage in the underwriting of securities; or
(ix) Borrow to increase income, except to meet redemptions so it will not
have to sell portfolio securities for this purpose. The Fund may
borrow money from banks as a temporary measure or for extraordinary or
emergency purposes but only up to 10% of its total assets. It can
mortgage or pledge its assets in connection with such borrowing but
only up to the lesser of the amounts borrowed or 5% of the value of
the Fund's assets.
Portfolio Turnover
In general, the Fund purchases investments with the expectation of holding
them to maturity. However, the Fund may engage in short-term trading to attempt
to take advantage of short-term market variations. The Fund may also sell
securities prior to maturity to meet redemptions or as a result of a revised
management evaluation of the issuer. The Fund has high portfolio turnover due
to the short maturities of its investments, but this should not affect its net
asset value or income, as brokerage commissions are not usually paid on the
investments which the Fund makes. In the usual calculation of portfolio
turnover, securities of the type in which the Fund invests are excluded.
Consequently, the high turnover which it will have is not comparable to the
turnover rates of most investment companies.
Portfolio Valuation
Under Rule 2a-7, the Fund is permitted to use the "amortized cost method"
for valuing its portfolio securities provided it meets certain conditions. See
"Purchase, Redemption and Pricing of Shares." As a general matter, the primary
conditions imposed under Rule 2a-7 relating to the Fund's portfolio investments
are that the Fund must (i) not maintain a dollar-weighted average portfolio
maturity in excess of 90 days, (ii) limit its investments, including repurchase
agreements, to those instruments which are U.S. dollar denominated and which
WRIMCO, pursuant to guidelines established by the Fund's Board of Directors,
determines present minimal credit risks and which are rated in one of the two
highest rating categories by the NRSRO(s), as defined in Rule 2a-7 or, in the
case of any instrument that is not rated, of comparable quality as determined by
the Fund's Board of Directors, (iii) limit its investments in the securities of
any one issuer (except U.S. Government Securities) to no more than 5% of its
assets, (iv) limit its investments in securities rated in the second highest
rating category by the requisite NRSRO(s) or comparable unrated securities to no
more than 5% of its assets, (v) limit its investments in the securities of any
one issuer which are rated in the second highest rating category by the
requisite NRSRO(s) or comparable unrated securities to the greater of 1% of its
assets or $1,000,000, and (vi) limit its investments to securities with a
remaining maturity of not more than 397 days. Rule 2a-7 sets forth the method
by which the maturity of a security is determined.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
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.
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 Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the Fund
pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO during the fiscal years ended June 30,
1998, 1997 and 1996 were $2,047,383, $1,910,434 and $1,686,054,
respectively.
For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.75 for each shareholder account which was in existence at any
time during the prior month, and $.75 for each shareholder check it processes.
The Fund also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and costs of legal and special
services not provided by Waddell & Reed, Inc., WRIMCO, or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended June 30, 1998, 1997 and
1996 were $62,500, $60,000 and $60,000, respectively.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
These and other sales expenses of Waddell & Reed, Inc. are not covered by
any sales charge on Class A shares of the Fund. The contingent deferred sales
charge, if any, imposed on Class B shares is designed to compensate Waddell &
Reed, Inc. for distribution of Class B shares. On shares of funds in the United
Group that are sold with sales charges, a major portion of the sales charge is
paid to Waddell & Reed, Inc.'s account representatives and managers. Waddell &
Reed, Inc. may compensate its account representatives as to purchases for which
there is no sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Distribution Arrangement
Waddell & Reed, Inc. (the "Distributor") acts as principal underwriter and
distributor of the Fund's shares pursuant to an underwriting agreement
("Agreement"). The Agreement requires the Distributor to use its best efforts
to sell the shares of the Fund but is not exclusive, and permits and recognizes
that the Distributor also distributes shares of other investment companies and
other securities. Shares are sold on a continuous basis. Under this Agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund; however, the Agreement recognizes that
the Fund may adopt a Distribution and Service Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act. Under the Plan adopted by the Fund with respect to
Class B shares, the Fund pays the Distributor daily a distribution fee not to
exceed, on an annual basis, 0.75% of the Fund's Class B net assets and a service
fee not to exceed, on an annual basis, 0.25% of the Fund's Class B net assets.
The Distributor offers the Class B shares of the Fund to shareholders of
Class B shares of Waddell & Reed Funds, Inc. through its registered
representatives and sales managers (sales force). In distributing shares
through its sales force, the Distributor may pay commissions and/or incentives
to the sales force at or about the time of sale and will incur other expenses
including 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 B Plan and the Agreement
contemplate that the Distributor may be compensated for these distribution
efforts with respect to Class B shares through the distribution fee. The sales
force may be paid continuing compensation based on the value of the Class B
shares held by shareholders to whom the member of the sales force is assigned to
provide personal services, and the Distributor or its subsidiary, Waddell & Reed
Services Company, may also provide services to Class B shareholders through
telephonic means and written communications. For the fiscal year ended June 30,
1998, the Fund paid (or accrued) $22,080 and $6,181 to the Distributor as
distribution fees and service fees, respectively, under the Class B Plan. The
distribution fees were paid to compensate the Distributor for its expenses
relating to sales force compensation, providing prospectuses and sales
literature to prospective investors, advertising, sales processing, field office
expenses and home office sales management in connection with the distribution of
Class B shares of the Fund. The service fees were paid to compensate the
Distributor for providing personal services to the Fund's Class B shareholders
and for the maintenance of Class B accounts.
The Plan and Agreement were approved by the Fund's Board of Directors,
including the Directors who are not interested persons of the Fund or of the
Distributor and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter the
"Plan Directors"). The Plan was also approved by the Distributor as the sole
shareholder of the Class B shares of the Fund at the time.
Among other things, the Plan provides that (i) the Distributor will submit
to the Directors at least quarterly, and the Directors will review, reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, (ii) the Plan will continue in effect only so long as it
is approved at least annually, and any material amendments thereto are approved
by the Directors including the Plan Directors acting in person at a meeting
called for that purpose, (iii) payments by the Fund under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the outstanding Class B shares, and (iv) while the Plan remains in effect,
the selection and nomination of the Directors who are Plan Directors shall be
committed to the discretion of the Plan Directors.
For the Fund's fiscal year ended June 30, 1998, the Distributor earned
deferred sales charges in the amount of $20,559 with respect to the Fund's Class
B shares.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In general,
the Custodian is responsible for holding the Fund's cash and securities.
Deloitte & Touche LLP, Kansas City, Missouri, the Fund's independent
accountants, audits the Fund's financial statements.
Year 2000 Issue
Like other mutual funds, financial and business organizations and
individuals around the world, the 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. This is commonly known as the "Year 2000 Problem." WRIMCO is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other, major
service providers. Although there can be no assurances, WRIMCO believes these
steps will be sufficient to avoid any adverse impact on the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The value of each share of a class of the Fund is the net asset value of
the applicable class. The Fund is designed so that the value of each share of
each class of the Fund (the net asset value per share) will remain fixed at
$1.00 per share except under extraordinary circumstances, although this may not
always be possible. This net asset value per share is what you pay for shares
and what you receive when you redeem them prior to the application of the
contingent deferred sales charge, if any, to Class B shares.
The net asset value per share is ordinarily computed once each day that the
NYSE is open for trading as of the close of the regular session of the NYSE
(ordinarily, 4:00 p.m. Eastern time). 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 Years 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 Fund operates under Rule 2a-7 which permits it to value its portfolio
on the basis of amortized cost. The amortized cost method of valuation is
accomplished by valuing a security at its cost and thereafter assuming a
constant amortization rate to maturity of any discount or premium, and does not
reflect the impact of fluctuating interest rates on the market value of the
security. This method does not take into account unrealized gains or losses.
While the amortized cost method provides some degree of certainty in
valuation, there may be periods during which value, as determined by amortized
cost, is higher or lower than the price the Fund would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on the
Fund's shares may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio instruments and changing
its dividends based on these changing prices. Thus, if the use of amortized
cost by the Fund resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Fund's shares would be able to obtain a
somewhat higher yield than would result from investment in such a fund, and
existing investors in the Fund's shares would receive less investment income.
The converse would apply in a period of rising interest rates.
Under Rule 2a-7, the Fund's Board of Directors must establish procedures
designed to stabilize, to the extent reasonably possible, the Fund's price per
share as computed for the purpose of sales and redemptions at $1.00. Such
procedures must include review of the Fund's portfolio holdings by the Board at
such intervals as it may deem appropriate and at such intervals as are
reasonable in light of current market conditions to determine whether the Fund's
net asset value calculated by using available market quotations (see below)
deviates from the per share value based on amortized cost.
For the purpose of determining whether there is any deviation between the
value of the Fund's portfolio based on amortized cost and that determined on the
basis of available market quotations, if there are readily available market
quotations, investments are valued at the mean between the bid and asked prices.
If such market quotations are not available, the investments will be valued at
their fair value as determined in good faith under procedures established by and
under the general supervision and responsibility of the Fund's Board of
Directors, including being valued at prices based on market quotations for
investments of similar type, yield and duration.
Under Rule 2a-7, if the extent of any deviation between the net asset value
per share based upon available market quotations (see above) and the net asset
value per share based on amortized cost exceeds one-half of 1%, the Board must
promptly consider what action, if any, will be initiated. When the Board
believes that the extent of any deviation may result in material dilution or
other unfair results to investors or existing shareholders, it is required to
take such action as it deems appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Such actions could
include the sale of portfolio securities prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends
or payment of distributions from capital or capital gains, redemptions of shares
in kind, or establishing a net asset value per share using available market
quotations.
The procedures which the Fund's Board of Directors has adopted include
changes in the dividends payable by the Fund under specified conditions, as
further described under "Taxes" and "Payments to Shareholders." The purpose of
this portion of the procedures is to provide for the automatic taking of one of
the actions which the Board of Directors might take should it otherwise be
required to consider taking appropriate action.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $1,000 with the
exceptions described in this paragraph. A $50 minimum initial investment
pertains to certain retirement plan accounts and to accounts for which an
investor has arranged, at the time of initial investment, to make subsequent
purchases for the account by having regular monthly withdrawals of $25 or more
made from a bank account. A $25 minimum initial investment pertains to
purchases made through payroll deduction for or by employees of Waddell & Reed,
Inc., WRIMCO, their affiliates or certain retirement plan accounts. With the
exception of automatic withdrawals from a shareholder's bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges."
For Class B shares, initial and subsequent investments must be at least
$100. See "Exchanges."
How to Open an Account
If you are purchasing Class A shares, you can make an initial investment of
$1,000 or more in any of the following ways:
1) By Mail. Complete an application form and mail it to Waddell & Reed,
Inc. at the address indicated on the form. Accompany the form with a check,
money order, Federal Reserve draft or other negotiable bank draft payable to
Waddell & Reed, Inc.
2) By Wire. (a) Telephone Waddell & Reed, Inc. (toll-free phone number on
the inside back cover of the Prospectus) and provide the account registration,
address and social security or tax identification number, the amount being
wired, the name of the wiring bank and the name and telephone number of the
person to be contacted in connection with the order. You will then be provided
with an order number; (b) instruct your bank to wire by the Federal Reserve Wire
Order System the specified amount, along with the order number and registration
to the UMB Bank, n.a.; 101000695, United K.C.; for United Cash Management, Inc.;
(c) complete an application form and mail it to Waddell & Reed, Inc.
3) Through Broker-dealers. You may, if you wish, purchase your shares
through registered broker-dealers, which may charge their customers a fee for
this service. There is no such fee for investments made by mail or wire, as
described above, or for additional investments made by mail or wire. No such
service fee will be charged for shares purchased through Waddell & Reed, Inc.
If you are purchasing Class B shares, you can make an initial investment of
$100 or more only by exchange of your Class B shares of Waddell & Reed Funds,
Inc.
How to Make Additional Investments
You may make additional investments in Class A shares in any amount through
broker-dealers as described above or in either of the following ways:
1) By Mail. Mail a check, money order, Federal Reserve draft or other
negotiable bank draft payable to Waddell & Reed, Inc. at P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217, accompanied by either (i) the detachable form which
accompanies the confirmation of a prior purchase by you, or (ii) a letter
stating your account number and registration and stating that you wish the
enclosed check, etc. to be used for the purchase of shares of United Cash
Management, Inc.
2) By Wire. Instruct your bank to wire the specified amount along with
the account number and registration to the UMB Bank, n.a.; 101000695, United
K.C.; for United Cash Management, Inc.
You may make additional investments of $100 or more in Class B shares only
by exchange of your Class B shares of Waddell & Reed Funds, Inc.
Purchase of the Fund's shares are effective after (i) one of the methods
for purchasing the Fund's shares indicated above has been properly completed and
(ii) UMB Bank, n.a. (the "Bank") has Federal funds available to it. Federal
funds are monies of a member bank with the Federal Reserve System held in
deposit at a Federal Reserve Bank. They represent immediately available cash.
If payment is made by check or otherwise than in Federal funds, it will be
necessary to convert investors' payments into Federal funds, and orders for the
purchase of the Fund's shares, if accepted by Waddell & Reed, Inc., will become
effective on the day Federal funds are received for value by the Bank; this is
normally anticipated to be two business days following receipt of payment by
Waddell & Reed, Inc. The Fund's shares are issued at their net asset value next
determined after the effectiveness of the purchase (i.e., at $1.00 per share
except under extraordinary circumstances as described above).
If you wish to insure that shares will be issued on the same day on which
your payment is made, you should (i) place your order by wire so that it will be
received by the Bank prior to 3:00 p.m. Kansas City time, and (ii) before wiring
the order, phone Waddell & Reed, Inc. at the number on the inside back cover of
the Prospectus to make sure that the wire order as described above is properly
identified. See "Payments to Shareholders -- General" for information regarding
dividend payment.
Special arrangements may be made by Waddell & Reed, Inc. with broker-
dealers to permit shares ordered by such broker-dealers to be issued on the day
of such order. Under these arrangements, the orders, including registration
information, must be received by Waddell & Reed, Inc. at its Overland Park,
Kansas office prior to 3:00 p.m. Overland Park, Kansas time; and the broker-
dealer must guarantee that the Bank will have Federal funds for the purchase
price of the shares ordered by at least 11:00 a.m. on the following business
day.
Waddell & Reed, Inc. has the right not to accept any purchase order for the
Fund's shares. Certificates are not normally issued but may be requested for
Class A shares. No certificates are issued for Class B shares. Shareholdings
are recorded on the Fund's books whether or not a certificate is issued.
Redemptions
The Prospectus gives information as to expedited and regular redemption
procedures. Redemption payments are made within seven days unless delayed
because of certain emergency conditions determined by the Securities and
Exchange Commission, when the NYSE is closed other than for weekends or
holidays, or when trading on the NYSE is restricted. Payment is made in cash,
although under extraordinary conditions redemptions may be made in portfolio
securities. Payment for redemption of shares of the Fund may be made in
portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Flexible Withdrawal Service
If you qualify, you may arrange to receive through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming shares on an ongoing basis. Applicable forms to start the
Service are available through Waddell & Reed, Inc.
If you own Class A shares, to qualify for the Service you must have
invested at least $10,000 in Class A shares which you still own of any of the
funds in the United Group; or, you must own Class A shares having a value of at
least $10,000. The value for this purpose is the value at the offering price.
If you own Class B shares, to qualify for the Service you must have
invested at least $10,000 in Class B shares which you still own of any of the
funds in Waddell & Reed Funds, Inc.; or, you must own Class B shares having a
value of at least $10,000.
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.
The dividends and distributions on shares you have made available for the
Service are paid in additional shares of the Fund of the same class as that with
respect to which they were paid. All payments under the Service are made by
redeeming shares in your account, 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 an income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed; you can change to any one of the other choices originally
available to you. You may, at any time, redeem part or all of the shares in
your account; if you redeem all of the shares, the Service is terminated. The
Fund can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges
Class A Share Exchanges
You may exchange Class A shares of the Fund which you have acquired by
exchange for Class A shares of one or more other funds in the United Group
(whose shares are sold with a sales charge) and any shares received in payment
of dividends on those Class A shares of the Fund for Class A shares of any of
the other funds in the United Group, without payment of any additional sales
charge.
In addition, you may specify a dollar amount of Class A shares of the Fund
to be exchanged each month into Class A shares of any other fund in the United
Group. The shares which you designate for exchange into any fund 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 that you may
designate for monthly exchange is $100, which may be allocated among funds in
the United Group, provided each fund receives a value of at least $25. A
minimum daily balance of $750 is required in order to maintain such automatic
exchange privileges.
Class B Share Exchanges
You may exchange Class B shares for Class B shares of Waddell & Reed Funds,
Inc. without charge. You may also have a specific dollar amount of Class B
shares of any of the funds of Waddell & Reed Funds, Inc. redeemed and invested
in Class B shares of the Fund. The Class B shares that you designate for
exchange must be worth at least $100. The exchange will be made at the net
asset values next determined after receipt and acceptance of your written
request. When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange.
The redemption of Class B shares of the Fund 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 Class B shares acquired in
the exchange, those acquired shares are treated as having been purchased when
the original redeemed shares were purchased.
General Exchange Information
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the 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 other funds in
the United Group or Waddell & Reed Funds, Inc. 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
the Fund (or shares of certain other funds in the United Group or Waddell & Reed
Funds, Inc.).
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 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 a
married person 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 (or
in the case of earnings attributable to rollover contributions or conversions of
a traditional IRA, the rollover or conversion occurred more than five years
prior to the withdrawal) and the account holder has reached age 59 1/2 (or
certain other conditions apply).
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 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.
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 intends to compel redemptions of accounts, except for retirement plan
accounts, in which the total net asset value is less than $250. Shareholders
have 60 days from the date on which the net asset value falls below $250 to
bring the net asset value above $250 in order to avoid mandatory redemption. A
shareholder may also avoid mandatory redemption by initiating a transaction
which either increases or decreases the net asset value of the account. A
dividend payment does not constitute a shareholder initiated transaction for the
purpose of avoiding mandatory redemption.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wise is a member of the Fund's Board of Directors. The other
persons are officers but not Board members. 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 Fund's Directors is also a Director of each of the
other funds in the Fund Complex and each of its officers is also an officer of
one or more of the funds in the Fund Complex.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Chief Financial Officer and Principal Financial Officer 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., Waddell & Reed Services
Company, Waddell & Reed Development, Inc., a business development company, and
Waddell & Reed Distributors, Inc.; formerly, President of the Fund and each of
the other funds in the Fund Complex; formerly, Vice Chairman of the Board of
Directors of Torchmark Corporation; formerly, Vice Chairman of the Board of
Directors, Chief Executive Officer and President of United Investors Management
Company; formerly, Chairman of the Board of Directors of Waddell & Reed Asset
Management Company, formerly an affiliate of United Investors Management
Company; formerly, Director of Vesta Insurance Group, Inc.; formerly, Director
of Southwestern Life Corporation; formerly, partner in Trivest, a private
investment concern; formerly, Director of Atlantis Group, Inc., a diversified
company. 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, 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.
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. Daughter of Ronald K. Richey, Director of the Fund
and each of the other funds in the Fund Complex. Date of birth: July 29, 1953.
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.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired. Date of birth: April 27, 1928.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Director of the Fund and each of the other funds in the Fund Complex;
Director of Waddell & Reed Financial, Inc.; Chairman of the Executive Committee
and Director of Torchmark Corporation; Chairman of the Board of Directors of
Vesta Insurance Group, Inc.; Director of Full House Resorts, Inc., a developer
of resorts and gaming casinos; formerly, Chairman of the Board of Directors of
United Investors Life Insurance Company; formerly, Chairman of the Board of
Directors of the Fund and each of the other funds in the Fund Complex; formerly,
Chairman of the Board of Directors and Chief Executive Officer of Torchmark
Corporation; formerly, Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc.; formerly, Chairman of the Board of Directors of United
Investors Management Company. Father of Linda Graves, Director of the Fund and
each of the other funds in the Fund Complex. Date of birth: June 16, 1926.
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.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
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.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan, a fertilizer company. Date
of birth: July 16, 1920.
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; President, Treasurer and Director
of Waddell & Reed Distributors, Inc.; President of Waddell & Reed Development,
Inc., a business development 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. Date of birth: November 12, 1936.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
President, Chief Investment Officer, 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; Director of Waddell & Reed Development, Inc., a business development
company. Formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company. Date of birth:
December 8, 1942.
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.
John M. Holliday
Vice President of the Fund 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.
Mira Stevovich
Vice President of the Fund and one other fund in the Fund Complex; Vice
President of WRIMCO. Date of birth: July 30, 1953.
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, are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but he has no
authority or responsibility with respect to management of the Fund. Messrs.
Doyle Patterson, Jay B. Dillingham and Henry L. Bellmon retired as Directors of
the Fund 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 such meeting (prior to January 1, 1998, the funds in the United
Group, Target/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $44,000 per year plus $1,000 for each meeting of the Board of
Directors attended) and $500 for each committee meeting attended which is not in
conjunction with a Board of Directors' meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the funds in the United Group, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended June 30, 1998, the Fund's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund Complex*
- -------- ------------ ------------
Keith A Tucker $ 0 $ 0
James M. Concannon 1,314 53,500
John A. Dillingham 1,314 53,500
David P. Gardner 0 0
Linda Graves 1,314 53,500
John F. Hayes 1,314 53,500
Glendon E. Johnson 1,288 52,500
William T. Morgan 1,314 53,500
Ronald K. Richey 0 0
Frank J. Ross, Jr. 1,314 53,500
Eleanor B. Schwartz 1,314 53,500
Frederick Vogel III 1,314 53,500
Paul S. Wise 1,314 53,500
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Mr. David P. Gardner was elected as a Director on August 19, 1998. The
officers are paid by Waddell & Reed, Inc. or its affiliates.
Shareholdings
As of September 30, 1998, all of the Fund's Directors and officers as a
group owned less than 1% of the outstanding shares of the Fund. The following
table sets forth information with respect to the Fund, as of September 30, 1998,
regarding the beneficial ownership of the classes of the Fund's shares.
Name and Address Shares owned
of Record or Beneficially
Beneficial Owner Class or of Record Percent
- ------------------- ----- ------------ -------
CS First Boston Corp. Class A 34,669,416 5.66%
Attn Robert Plaza
5 World Trade Center
7th Floor
New York NY 10048
Don Cartner Trustee Class B 302,070 5.46
CPSP Westport Research Assoc
FBO Unallocated Assets
Qualified 401(k) Plan
6102 Arlington
Raytown MO 64133
Bruce N. Jackson & Class B 290,757 5.26
Donna L. Jackson Co-ttees
U/A dated November 15, 1997
P. O. Box 8173
Fresno CA 93747
Fiduciary Trust Co NH Cust Class B 284,423 5.15
IRA of Robert Ross
FBO Robert Ross Rollover
1 Gold St. Apt 7C
Hartford CT 06103
PAYMENTS TO SHAREHOLDERS
General
There are two sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is net investment income, which is derived
from the interest and earned discount on the securities the Fund holds, less
expenses (which will vary by class) and amortization of any premium. The second
source is net realized capital gains, which are derived from the proceeds
received from the Fund's sale of securities at a price higher than the Fund's
tax basis (usually cost) in such securities, less losses from sales of
securities at a price lower than the Fund's basis therein; these gains are
expected to be short-term capital gains.
Under the procedures that the Fund's Board of Directors has adopted
relating to amortized cost valuation, the calculation of the daily dividend of a
class will change from that indicated above under certain circumstances. If on
any day there is a deviation of .3 of 1% or more between the net asset value of
a share of a class of the Fund computed on the amortized cost basis and that
computed on an available market price basis, the amount of the deviation will be
added to or subtracted from the dividend for that class for that day if
necessary to reduce the per-share value to within .3 of 1% of $1.00.
If on any day there is insufficient net income to absorb any such
reduction, the Fund's Board of Directors would be required under Rule 2a-7 to
consider taking other action if the deviation after eliminating the dividend for
that day exceeds one-half of 1%. See "Determination of Offering Price." One of
the actions that the Board of Directors might take could be the elimination or
reduction of dividends for more than one day.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were declared. You can change your instructions at any time. If
you give no instructions, your dividends and distributions (if any) will be paid
in shares of the Fund of the same class as that with respect to which they were
paid. All payments in shares are at net asset value. The net asset value used
for this purpose is that computed as of the payment date for the dividend,
although this could be changed by the Board of Directors.
Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in shares of the Fund of the same class as
that with respect to which they were paid at net asset value next determined
after receipt by Waddell & Reed, Inc., of the amount clearly identified as a
reinvestment. The reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) ("Distribution
Requirement") and must meet several additional requirements. These requirements
include the following: (1) the Fund must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures contracts or
forward contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, 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 Government
Securities or the securities of other RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to pay sufficient dividends and distributions each year
to avoid imposition of the Excise Tax.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange the purchase and sale of securities for the portfolio of the Fund.
Purchases are made directly from issuers or from underwriters, dealers or banks.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriter. Purchases from dealers will include the spread
between the bid and the asked price. 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
Fund has not effected transactions through brokers and does not anticipate doing
so. The individual who manages the Fund may manage other advisory accounts with
similar investment objectives. It can be anticipated that the manager will
frequently place concurrent orders for all or most accounts for which the
manager has responsibility or WRIMCO may otherwise combine orders for the Fund
with those of other funds in the United Group, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. or other accounts for which it has investment
discretion. 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 the Fund pays or receives or the amount it
buys or sells. However, sometimes a better negotiated commission is
available.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage brokers-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO is expected to allocate orders
to brokers or dealers consistent with the interests and policies of the Fund.
Subject to review by the Board of Directors, such policies include the selection
of brokers or dealers which provide research services and other services
including pricing or quotation services directly or through others ("services").
If the execution and price offered by more than one dealer are comparable, the
order may be allocated to a dealer which has provided such 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.
Subject to the foregoing considerations, WRIMCO may also consider sales of
the Fund as a factor in the selection of broker-dealers to execute portfolio
transactions. No allocation of brokerage or principal business is made to
provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and investment research
received for the commissions of those other accounts may be useful both to the
Fund and one or more of such other accounts. To the extent that electronic or
other products provided by such brokers to assist WRIMCO in making investment
management decisions are used for administration or other non-research purposes,
a reasonable allocation of the cost of the product attributable to its non-
research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker or dealer) 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.
As of June 30, 1998, the Fund owned Merrill Lynch and Co., Inc. and J. P.
Morgan & Co. Incorporated debt securities in the aggregate amounts of
$15,999,833 and $5,995,400, respectively. Merrill Lynch & Co., Inc. and J. P.
Morgan & Co. Incorporated are regular brokers of the Fund.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class B. Each class
represents an interest in the same assets of the Fund and differs as follows:
each class of shares has exclusive voting rights on matters appropriately
limited to that class; Class B shares are subject to a contingent deferred sales
charge and to an ongoing distribution and service fee; Class B shares that have
been held by a shareholder for eight years will convert automatically to Class A
shares of the Fund, and such conversion will be made, without charge or fee, on
the basis of the relative net asset values of the two classes; each class may
bear differing amounts of certain class-specific expenses; and each class has a
separate exchange privilege. The Fund does not anticipate that there will be
any conflicts between the interests of holders of the different classes of
shares of the Fund by virtue of those classes. On an ongoing basis, the Board
of Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of the Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two classes, dividends and liquidation proceeds of Class B
shares are expected to be lower than for Class A shares of the Fund. Each
fractional share of a class has the same rights, in proportion, as a full share
of that class.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. A
Standard & Poor's ("S&P") corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
The top three rating categories of S&P are described below:
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. ("MIS") rating symbols and their meanings
follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's, a division of The McGraw-Hill Companies, Inc. A S&P
note rating reflects the liquidity factors and market access risks unique to
notes. Notes maturing in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS ratings for state and municipal short-
term obligations will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of major
importance in bond risk are of lesser importance over the short run. Rating
symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's, a division of The McGraw Hill Companies, Inc. commercial
paper rating is a current assessment of the likelihood of timely payment of debt
considered short-term in the relevant market. Ratings are graded into several
categories, ranging from A-1 for the highest quality obligations to D for the
lowest. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to
indicate the relative degree of safety. Issues assigned an A rating (the
highest rating) are regarded as having the greatest capacity for timely payment.
An A-1 designation indicates that the degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. An A-2 rating
indicates that capacity for timely payment is satisfactory; however, the
relative degree of safety is not as high as for issues designated A-1.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. MIS employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained.
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit
Domestic - 6.71%
Bankers Trust New York Corp.:
5.95%, 9-9-98 ......................... $11,000 $10,992,925
5.61%, 3-19-99 ........................ 10,000 9,997,193
Morgan Guaranty Trust Company of New York,
5.8%, 7-28-98 ......................... 15,000 14,996,087
Total ................................. 35,986,205
Yankee - 10.25%
Banque Nationale de Paris - Chicago,
5.73%, 2-11-99 ........................ 10,000 10,000,000
Societe Generale - New York:
5.55%, 2-9-99 ......................... 15,000 14,985,418
5.5712%, 5-26-99 ...................... 5,000 4,996,626
Svenska Handelsbanken - New York,
5.74%, 6-1-99 ......................... 10,000 9,991,432
Westpac Banking Corp. - New York,
5.55%, 1-20-99 ........................ 15,000 14,986,006
Total ................................. 54,959,482
Total Certificates of Deposit - 16.96% 90,945,687
Commercial Paper - 1.12%
J.P. Morgan & Co., Incorporated,
5.52%, 7-6-98 ............................ 6,000 5,995,400
Notes - 3.35%
NationsBank Corp.,
5.57%, 6-25-99 ........................ 10,000 9,995,283
Wachovia Bank, N.A.,
5.895%, 10-2-98 ....................... 8,000 7,992,505
Total ................................. 17,987,788
TOTAL BANK OBLIGATIONS - 21.43% $ 114,928,875
(Cost: $114,928,875)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS
Commercial Paper
Chemicals and Allied Products - 0.24%
Air Products and Chemicals Inc.,
5.55%, 9-4-98 ......................... $ 1,300 $ 1,286,973
Electric, Gas and Sanitary Services - 10.50%
Allegheny Power System Inc.:
5.52%, 7-20-98 ........................ 13,000 12,962,127
5.54%, 7-20-98 ........................ 6,291 6,272,606
Georgia Power Co.,
5.55%, 7-6-98 ......................... 19,000 18,985,354
Idaho Power Co.:
5.62%, 7-9-98 ......................... 1,300 1,298,376
5.58%, 7-16-98 ........................ 2,724 2,717,667
Questar Corp.:
5.56%, 7-10-98 ........................ 6,000 5,991,660
5.6%, 7-21-98 ......................... 1,675 1,669,789
5.61%, 7-30-98 ........................ 2,000 1,990,962
5.63%, 8-7-98 ......................... 4,500 4,473,961
Total ................................. 56,362,502
Engineering and Management Services - 2.78%
Halliburton Co.:
5.62%, 7-28-98 ........................ 5,000 4,978,925
5.62%, 8-7-98 ......................... 10,000 9,942,239
Total ................................. 14,921,164
Food and Kindred Products - 0.06%
General Mills, Inc.,
5.5152%, Master Note .................. 311 311,000
Furniture and Fixtures - 2.91%
Johnson Controls Inc.,
6.35%, 7-1-98 ......................... 15,600 15,600,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
General Merchandise Stores - 4.65%
Dillard Investment Co. Inc.:
6.75%, 7-1-98 ......................... $ 1,140 $ 1,140,000
6.3%, 7-2-98 .......................... 7,500 7,498,688
5.75%, 7-7-98 ......................... 3,675 3,671,478
5.78%, 7-7-98 ......................... 3,500 3,496,628
5.85%, 7-7-98 ......................... 4,185 4,180,920
5.78%, 7-20-98 ........................ 5,000 4,984,747
Total ................................. 24,972,461
Metal Mining - 0.19%
BHP Finance (USA) Inc.,
5.73%, 7-16-98 ........................ 1,000 997,613
Nondepository Institutions - 1.62%
Associates Financial Services Co. of Puerto
Rico Inc. (Associates Corp. of North
America, Guarantor):
5.55%, 7-6-98 ......................... 1,400 1,398,921
5.55%, 7-29-98 ........................ 4,000 3,982,733
Island Finance Puerto Rico Inc.,
5.51%, 7-8-98 ......................... 3,300 3,296,464
Total ................................. 8,678,118
Personal Services - 1.22%
Block Financial Corp.:
5.55%, 8-21-98 ........................ 1,600 1,587,420
5.53%, 8-27-98 ........................ 5,000 4,956,221
Total ................................. 6,543,641
Security and Commodity Brokers - 0.19%
Merrill Lynch & Co., Inc.,
6.0%, 7-2-98 .......................... 1,000 999,833
Total Commercial Paper - 24.36% 130,673,305
Commercial Paper (backed by irrevocable bank
letter of credit) - 1.41%
Electric, Gas and Sanitary Services
CommEd Fuel Co. Inc.,
5.53%, 8-14-98 ........................ 7,612 7,560,551
Notes
Auto Repair, Services and Parking - 3.17%
PHH Corporation:
5.5963%, 2-5-99 ....................... 5,000 4,999,707
5.59%, 2-10-99 ........................ 5,000 4,994,947
5.61%, 3-11-99 ........................ 7,000 6,992,098
Total ................................. 16,986,752
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Notes (Continued)
Electric, Gas and Sanitary Services - 2.79%
Baltimore Gas and Electric Company,
5.6175%, 9-1-98 ....................... $15,000 $ 15,000,000
Nondepository Institutions - 2.61%
General Electric Capital Corp.,
5.5625%, 9-8-98 ....................... 14,000 13,993,564
Real Estate - 0.34%
Trap Rock Industries, Inc. (CoreStates Bank, N.A.),
5.6712%, 7-1-98 ....................... 1,825 1,825,000
Security and Commodity Brokers - 2.79%
Merrill Lynch & Co., Inc.,
5.78%, 4-27-99 ........................ 15,000 15,000,000
Wholesale Trade -- Durable Goods - 0.93%
Caterpillar Financial Services Corp.,
5.6875%, 7-22-98 ...................... 5,000 5,000,189
Total Notes - 12.63% 67,805,505
TOTAL CORPORATE OBLIGATIONS - 38.40% $206,039,361
(Cost: $206,039,361)
MUNICIPAL OBLIGATIONS
California - 7.89%
California Pollution Control Financing Authority,
Environmental Improvement Revenue Bonds:
(Air Products and Chemicals, Inc./ Wilmington
Facility), Taxable Series 1997A (Air Products
and Chemicals, Inc.),
5.63%, 7-13-98 ........................ 11,500 11,500,000
(Shell Martinez Refining Company Project),
Series 1996 (Taxable), (Shell Oil Company),
5.6%, 9-2-98 .......................... 10,000 10,000,000
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.65%, 9-1-98 ......................... 16,000 16,000,000
Community Redevelopment Agency of the City of
Visalia, California, East Visalia Redevelopment
Project, Variable Interest Short Term Adjustable
Securities (Bank of Tokyo, Mitsubishi),
5.76%, 7-2-98.......................... 4,830 4,830,000
Total ................................. 42,330,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Colorado - 1.23%
Panorama Metropolitan District, Arapahoe
County, Colorado (Taxable/Tax Exempt),
Series 1997A (Banque Nationale de Paris,
San Francisco Branch),
6.05%, 12-1-98 ........................ $ 4,575 $ 4,575,000
Kit Carson County, Colorado, Architectural
Development Revenue Bonds (Taxable), (Midwest
Farms, L.L.C. Project), Series 1997 (Norwest
Bank Minnesota, National Association),
5.75%, 7-2-98 ......................... 2,000 2,000,000
Total ................................. 6,575,000
Indiana - 2.98%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
5.57%, 8-7-98 ......................... 16,000 16,000,000
Kentucky - 1.50%
City of Bardstown, Kentucky, Taxable Variable
Rate Demand Industrial Revenue Bonds, Series 1994
(R.J. Tower Corporation Project), (Comerica Bank),
5.69%, 7-2-98 ......................... 8,035 8,035,000
Louisiana - 2.98%
Industrial Development Board of the Parish
Of Calcasieu, Inc., Environmental Revenue
Bonds (CITGO Petroleum Corporation Project),
Series 1996 (Taxable),(ABN AMRO Bank N.V.),
5.6%, 8-7-98 .......................... 16,000 16,000,000
New Jersey - 2.51%
New Jersey Economic Development Authority,
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (The Morey
Organization, Inc. Project), Series of 1997
(CoreStates Bank, N.A.),
5.75%, 7-1-98.......................... 13,470 13,470,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
New York - 2.25%
The City of New York, General Obligation Bonds,
Fiscal 1995 Series B, Taxable Adjustable Rate
Bonds (Bayerische Landesbank Girozentrale,
New York Branch),
5.63%, 7-20-98 ........................ $ 8,500 $ 8,500,000
Town of Hempstead, Industrial Development Agency,
Variable Rate Demand Taxable Industrial Development
Revenue Bonds, Series 1996 (1500 Hempstead TPK,
LLC Facility), (The Bank of New York),
5.76%, 7-2-98 ......................... 3,590 3,590,000
Total ................................. 12,090,000
North Carolina - 0.33%
Wake Forest University, Taxable Variable Rate
Demand Bonds, Series 1997 (Wachovia Bank, N.A.),
5.61%, 7-1-98 ......................... 1,800 1,800,000
Ohio - 2.80%
City of Cleveland, Ohio, Subordinated Income Tax,
Variable Rate Refunding Bonds, Series 1994
(Toronto-Dominion Bank, Houston Branch),
5.62%, 7-8-98 ......................... 15,000 15,000,000
Pennsylvania - 4.48%
Montgomery County Industrial Development
Authority:
Federally Taxable Variable Rate Demand
Revenue Bonds (Neose Technologies,
Inc. Project), Series B of 1997 (CoreStates
Bank, N.A.),
5.75%, 7-1-98 ......................... 7,900 7,900,000
Federally Taxable Variable Rate Demand/
Fixed Rate Revenue Bonds (Collegeville
Inn Project), Series of 1996 (CoreStates Bank,
N.A.),
5.75%, 7-1-98 ......................... 2,430 2,430,000
Taxable Fixed Rate/Variable Rate
Demand Revenue Bonds (410 Horsham
Associates Project), Series of 1995
(Meridian Bank),
5.75%, 7-1-98 ......................... 1,480 1,480,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CASH MANAGEMENT, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Pennsylvania (Continued)
Berks County Industrial Development Authority
(Commercial Facilities Project), Series
B of 1995 (Meridian Bank),
5.75%, 7-1-98 ......................... $ 8,390 $ 8,390,000
Philadelphia Authority for Industrial Development,
Variable/Fixed Rate Federally Taxable
Economic Development Bonds (Mothers Work,
Inc.), Series of 1995 (Meridian Bank),
5.75%, 7-1-98 ......................... 3,825 3,825,000
Total ................................. 24,025,000
South Dakota - 0.47%
Central Plains Clinic Ltd., Floating Rate
Taxable Bonds, Series 1996 (Cooperatieve
Centrale Raiffeisen-Borenleenbank B.A.,
"Rabobank Nederland", New York Branch),
5.65%, 7-27-98 ........................ 2,500 2,500,000
Texas - 3.99%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.5696%, 8-4-98........................ 16,000 15,915,838
Gulf Coast Waste Disposal Authority, Pollution
Control Revenue Bonds (Amoco Oil Company
Project), Taxable Series 1995,
5.57%, 7-7-98 ......................... 5,480 5,480,000
Total ................................. 21,395,838
TOTAL MUNICIPAL OBLIGATIONS - 33.41% $179,220,838
(Cost: $179,220,838)
TOTAL INVESTMENT SECURITIES - 93.24% $500,189,074
(Cost: $500,189,074)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 6.76% 36,265,075
NET ASSETS - 100.00% $536,454,149
Notes to Schedule of Investments
Cost of investments owned is the same as that used for Federal income tax
purposes.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value (Note 1) ........ $500,189
Cash ............................................ 292
Receivables:
Fund shares sold ................................ 40,119
Interest ........................................ 3,962
Prepaid insurance premium ........................ 18
--------
Total assets .................................. 544,580
--------
Liabilities
Payable to Fund shareholders ..................... 7,567
Dividends payable ................................ 298
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 165
Accrued accounting services fee (Note 2) ......... 6
Accrued management fee (Note 2) .................. 5
Accrued service fee (Note 2) ..................... 1
Other ............................................ 84
--------
Total liabilities ............................. 8,126
--------
Total net assets ............................. $536,454
========
Net Assets
$0.01 par value capital stock, authorized -- 5,000,000;
Class A shares outstanding - 532,840
Class B shares outstanding - 3,614
Capital stock ................................... $ 5,365
Additional paid-in capital ...................... 531,089
--------
Net assets applicable to outstanding
units of capital ............................. $536,454
========
Net asset value, redemption and offering price
per share for Class A and Class B ................ $1.00
=====
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1998
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $29,702
-------
Expenses (Note 2):
Investment management fee ....................... 2,047
Transfer agency and dividend disbursing -
Class A ........................................ 2,001
Class B ....................................... 5
Custodian fees .................................. 119
Accounting services fee ......................... 63
Distribution fee - Class B ...................... 22
Legal fees ...................................... 16
Audit fees ...................................... 11
Service fee - Class B ........................... 6
Other ........................................... 362
-------
Total expenses ................................ 4,652
-------
Net investment income ........................ 25,050
-------
Net increase in net assets resulting
from operations ........................... $25,050
=======
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the fiscal year ended
June 30,
-------------------------
1998 1997
------------- ------------
Increase in Net Assets
Operations:
Net investment income .............. $ 25,050 $ 22,264
-------- --------
Net increase in net assets
resulting from operations ....... 25,050 22,264
-------- --------
Dividends to shareholders
from net investment income:*
Class A (24,935) (22,156)
Class B (115) (108)
-------- --------
(25,050) (22,264)
-------- --------
Capital share transactions:**
Proceeds from sale of shares:
Class A .......................... 3,626,568 3,102,133
Class B .......................... 7,455 14,994
Proceeds from reinvestment
of dividends:
Class A .......................... 23,831 21,290
Class B .......................... 109 95
Payments for shares redeemed:
Class A .......................... (3,631,832) (3,011,159)
Class B .......................... (7,470) (12,199)
-------- --------
Net increase in net assets
resulting from capital
share transactions .............. 18,661 115,154
-------- --------
Total increase .................. 18,661 115,154
Net Assets
Beginning of period ................. 517,793 402,639
-------- --------
End of period ....................... $536,454 $517,793
======== ========
Undistributed net investment
income ........................... $--- $---
==== ====
*See "Financial Highlights" on pages - .
**The number of shares transacted during the periods corresponds to the
amounts included in this statement because shares are recorded at $1.00 per
share.
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended June 30,
------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net investment
income ........... 0.0484 0.0472 0.0487 0.0465 0.0252
Less dividends
declared ......... (0.0484)(0.0472)(0.0487)(0.0465)(0.0252)
------ ------ ------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= =======
Total return........ 4.93% 4.80% 5.01% 4.74% 2.55%
Net assets, end of
period (000
omitted) ......... $532,840$514,272$402,009$368,800$316,920
Ratio of expenses to
average net
assets ........... 0.89% 0.87% 0.91% 0.97% 1.04%
Ratio of net
investment income
to average net
assets ........... 4.84% 4.70% 4.89% 4.68% 2.51%
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the fiscal year period
ended June 30, from 9/5/95*
----------------------- through
1998 1997 6/30/96
-------- -------- --------
Net asset value,
beginning of
period ........... $1.00 $1.00 $1.00
------ ------ ------
Net investment
income ........... 0.0403 0.0407 0.0312
Less dividends
declared ......... (0.0403) (0.0407) (0.0312)
------ ------ ------
Net asset value,
end of period .... $1.00 $1.00 $1.00
======= ======= =======
Total return........ 4.10% 4.13% 3.15%
Net assets, end of
period (000
omitted) ......... $3,614 $3,521 $630
Ratio of expenses to
average net
assets ........... 1.71% 1.48% 1.88%**
Ratio of net
investment income
to average net
assets ........... 4.03% 4.14% 3.76%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CASH MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 -- Significant Accounting Policies
United Cash Management, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to seek maximum current income to the
extent consistent with stability of principal by investing in a portfolio of
money market instruments meeting specified quality standards. The following is
a summary of significant accounting policies consistently followed by the Fund
in the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles.
A. Security valuation -- The Fund invests only in money market securities with
maturities or irrevocable put options within 397 days. The Fund uses the
amortized cost method of security valuation which is accomplished by
valuing a security at its cost and thereafter assuming a constant
amortization rate to maturity of any discount or premium.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses, if any, are calculated on
the identified cost basis. Interest income is recorded on the accrual
basis.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. Accordingly, no provision has been made for Federal income
taxes.
D. Dividends to shareholders -- All of the Fund's net income is declared and
recorded by the Fund as dividends on each day to shareholders of record at
the time of the previous determination of net asset value. Dividends are
declared from the total of net investment income, plus or minus realized
gains or losses on portfolio securities. Since the Fund does not expect to
realize any long-term capital gains, it does not expect to pay any capital
gains distributions.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of a "Group" fee computed each day on the combined net asset values of
all of the funds in the United Group of mutual funds (approximately $19.9
billion of combined net assets at June 30, 1998) at annual rates of .51% of the
first $750 million of combined net assets, .49% on that amount between $750
million and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45%
between $2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion,
.40% between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge of $1.75 for each
shareholder account which was in existence at any time during the prior month
and $0.75 for each shareholder check it processed. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
The Fund has adopted a 12b-1 plan for Class B shares under which W&R,
principal underwriter and sole distributor of the Fund's shares, is compensated
in an amount calculated and payable daily up to 1% annually of the Fund's
average daily net assets for Class B shares. This fee consists of two elements:
(i) up to 0.75% may be paid to the Distributor (W&R) for distribution services
and distribution expenses including commissions paid by the Distributor to its
sales representatives and managers and (ii) up to 0.25% may be paid to reimburse
the Distributor for continuing payments made to the Distributor's
representatives and managers, its administrative costs in overseeing these
payments, and the expenses of WARSCO in providing certain personal services to
shareholders. During the period ended June 30, 1998, W&R paid no sales
commissions.
A contingent deferred sales charge may be assessed against a shareholder's
redemption amount of Class B shares and paid to the Distributor, W&R. The
purpose of the deferred sales charge is to compensate the Distributor for the
costs incurred by the Distributor in connection with the sale of a Fund's
shares. The amount of the deferred sales charge will be the following percent
of the total amount invested during a calendar year to acquire the shares or the
value of the shares redeemed, whichever is less. Redemption at any time during
the calendar year of investment and the first full calendar year after the
calendar year of investment, 3%; the second full calendar year, 2%; the third
full calendar year, 1%; and thereafter, 0%. All investments made during a
calendar year shall be deemed as a single investment during the calendar year
for purposes of calculating the deferred sales charge. The deferred sales
charge will not be imposed on shares representing payment of dividends or
distributions or on amounts which represent an increase in the value of the
shareholder's account resulting from capital appreciation above the amount paid
for shares purchased during the deferred sales charge period. During the period
ended June 30, 1998, the Distributor received $20,559 in deferred sales charges.
The Fund paid Directors' fees of $18,261, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary
of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Multiclass Operations
On September 5, 1995, the Fund was authorized to offer investors a choice
of two classes of shares, Class A and Class B, each of which has equal rights as
to assets and voting privileges. Class A shares are not subject to a sales
charge on purchases or a contingent deferred sales charge on redemption; they
are not subject to a Rule 12b-1 Service Plan. A comprehensive discussion of the
terms under which shares of either class are offered is contained in the
Prospectus and the Statement of Additional Information for the Fund.
Income and non-class specific expenses are allocated daily to each class of
shares based on the value of relative net assets as of the beginning of each day
adjusted for the prior day's capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Cash Management, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Cash Management, Inc. (the "Fund") as of
June 30, 1998, and the related statements of operations for the fiscal year then
ended and changes in net assets for each of the fiscal years in the two-year
period then ended, and the financial highlights for each of the fiscal years in
the five-year period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June
30, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Cash
Management, Inc. as of June 30, 1998, the results of its operations, the changes
in its net assets and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 7, 1998
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Cash Management, Inc.
Included in Part B:
-------------------
As of June 30, 1998
Statement of Assets and Liabilities
For the year ended June 30, 1998
Statement of Operations
For each of the two years ended June 30, 1998
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of June 30, 1998
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
(b) Exhibits:
(1) Articles of Incorporation, as amended, attached hereto as EX-
99.B1-charter
(2) Bylaws, filed October 29, 1996 as Exhibit EX-99.B2-cmbylaw to
Post-Effective Amendment No. 30 to the Registration Statement on
Form N-1A*
(3) Not applicable
(4) Article FIFTH, Article SEVENTH and Article EIGHTH of the Articles
of Incorporation attached hereto as EX-99.B1-charter; Article I,
Article IV and Article VIII of the Bylaws of the Registrant,
filed October 29, 1996 as Exhibit EX-99.B2-cmbylaw to Post-
Effective Amendment No. 30 to the Registration Statement on Form
N-1A*
(5) Investment Management Agreement, as amended, filed by EDGAR July
7, 1995 as Exhibit EX-99.B5-cmima to Post-Effective Amendment No.
28 to the Registration Statement on Form N-1A*
Assignment of the Investment Management Agreement, filed by EDGAR
July 7, 1995 as Exhibit EX-99.B5-cmassign to Post-Effective
Amendment No. 28 to the Registration Statement on Form N-1A*
(6) Underwriting Agreement, filed by EDGAR July 7, 1995 as Exhibit
EX-99.B6-cmua to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended, attached hereto as EX-99.B8-cmca
(9) Shareholder Servicing Agreement, attached hereto as Exhibit EX-
99.B9-cmssa
Fund Class A Application, as amended, filed May 30, 1997 as
Exhibit EX-99.B9-cmappca to Post-Effective Amendment No. 31 to
the Registration Statement on Form N-1A*
Fund NAV Application, filed by EDGAR July 7, 1995 as Exhibit EX-
99.B9-cmappnav to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A*
Accounting Services Agreement, filed by EDGAR July 7, 1995 as
Exhibit EX-99.B9-cmaca to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A*
(10) Not applicable
(11) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B11-cmconsnt
(12) Not applicable
(13) Not applicable
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-s401gis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-smppgis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description
field December 16, 1994 as EX-99.B14-17-spspgis to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
20. Simple IRA Plan Document filed March 26, 1997 as EX-99.B14-
20-simple to Post-Effective Amendment No. 119 to the
Registration Statement on Form N-1A of United Funds, Inc.*
21. Individual Retirement Plan filed March 26, 1997 as EX-
99.B14-21-crp00005 to Post-Effective Amendment No. 119 to
the Registration Statement on Form N-1A of United Funds,
Inc.*
22. Retirement Plan Distribution/Withdrawal Document filed May
16, 1997 as EX-99.B14-22-crp1665 to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A of Waddell
& Reed Funds, Inc.*
23. Special Tax Notice Regarding Plan Payments filed May 16,
1997 as EX-99.B14-23-crp1666 to Post-Effective Amendment No.
8 to the Registration Statement on Form N-1A of Waddell &
Reed Funds, Inc.*
24. Waiver of Joint and Survivor Annuity filed May 16, 1997 as
EX-99.B14-24-crp1667 to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A of Waddell & Reed
Funds, Inc.*
25. Spousal Consent on Early Distribution filed May 16, 1997 as
EX-99.B14-25-crp1668 to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A of Waddell & Reed
Funds, Inc.*
26. Consent to Lump Sum Distribution filed May 16, 1997 as EX-
99.B14-26-crp1669 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A of Waddell & Reed Funds,
Inc.*
(15) Service Plan, filed by EDGAR July 7, 1995 as Exhibit EX-99.B15-
cmspcb to Post-Effective Amendment No. 28 to the Registration
Statement on Form N-1A*
(16) Computation of yield performance quotations for Class A shares
filed October 29, 1996 as EX-99.B16-cmayield to Post-Effective
Amendment No. 30 to the Registration Statement on Form N-1A*
Computation of yield performance quotations for Class B shares
filed October 29, 1996 as EX-99.B16-cmbyield to Post-Effective
Amendment No. 30 to the Registration Statement on Form N-1A*
(17) Financial Data Schedule, attached hereto as EX-27.B17-cmfds
(18) Multiple Class Plan, filed October 29, 1996 as Exhibit EX-99.B18-
cmmcp to Post-Effective Amendment No. 30 to the Registration
Statement on Form N-1A*
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class August 31, 1998
-------------- ------------------------------
Capital Stock Class A 76,522
Capital Stock Class B 178
27. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through 6(f) of the
Articles of Incorporation, as amended, attached hereto as EX.99.B1-charter,
and to Article IV of the Underwriting Agreement, filed July 7, 1995 as
EX.99.B6-cmua to Post-Effective Amendment No. 28 to the Registration
Statement on Form N-1A*, each of which provides indemnification. Also
refer to Section 2-418 of the Maryland General Corporation Law regarding
indemnification of directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment 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 Registrant and except for Ronald K. Richey.
Mr. Richey is Chairman of the Executive Committee of Torchmark Corporation,
the parent company of Waddell & Reed, Inc. Mr. Richey's address is 2001
Third Avenue South. The address of the others is 6300 Lamar Avenue,
Shawnee Mission, Kansas 66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter. It is also the
principal underwriter to the following investment companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, 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.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to Items (b)(9) and
(b)(15) hereof.
32. Not applicable
--------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
rule 485(b) of the Securities Act of 1933, and the Registrant has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 29th day of October, 1998.
UNITED CASH MANAGEMENT, INC.
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 October 29, 1998
- ---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President October 29, 1998
- ---------------------- (Principal Financial Officer) ----------------
Robert L. Hechler
/s/Theodore W. Howard* Vice President, Treasurer October 29, 1998
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director October 29, 1998
- ------------------- ----------------
James M. Concannon
/s/John A. Dillingham* Director October 29, 1998
- ------------------- ----------------
John A. Dillingham
/s/David P. Gardner* Director October 29, 1998
- ------------------- ----------------
David P. Gardner
/s/Linda Graves* Director October 29, 1998
- ------------------- ----------------
Linda Graves
/s/John F. Hayes* Director October 29, 1998
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director October 29, 1998
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director October 29, 1998
- ------------------- ----------------
William T. Morgan
/s/Ronald K. Richey* Director October 29, 1998
- ------------------- ----------------
Ronald K. Richey
/s/Frank J. Ross, Jr.* Director October 29, 1998
- ------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz* Director October 29, 1998
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director October 29, 1998
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director October 29, 1998
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Kristen Richards
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. 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 SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/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: August 19, 1998 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board August 19, 1998
- -------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler President August 19, 1998
- -------------------- (Principal Financial ----------------
Robert L. Hechler Officer)
/s/Theodore W. Howard Vice President, Treasurer August 19, 1998
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon Director August 19, 1998
- -------------------- ----------------
James M. Concannon
/s/John A. Dillingham Director August 19, 1998
- -------------------- ----------------
John A. Dillingham
/s/David P. Gardner Director August 19, 1998
- -------------------- ----------------
David P. Gardner
/s/Linda Graves Director August 19, 1998
- -------------------- ----------------
Linda Graves
/s/John F. Hayes Director August 19, 1998
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director August 19, 1998
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director August 19, 1998
- -------------------- ----------------
William T. Morgan
/s/Ronald K. Richey Director August 19, 1998
- -------------------- ----------------
Ronald K. Richey
/s/Frank J. Ross, Jr. Director August 19, 1998
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor Schwartz Director August 19, 1998
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director August 19, 1998
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director August 19, 1998
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-charter
ARTICLES OF INCORPORATION
OF
UNITED CASH MANAGEMENT, INC.
(as amended)
THIS IS TO CERTIFY:
FIRST: THE UNDERSIGNED, Rodney O. McWhinney, whose post office address is
One Crown Center, Kansas City, Missouri 64141, being of full legal age, does
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations, act as incorporator with the intention of forming a
corporation.
SECOND: The name of the corporation is United Cash Management, Inc.,
(hereinafter called the "Corporation").
THIRD: The purpose or purposes for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it, are as
follows:
(1) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or
otherwise acquire hold for investment or otherwise, sell, assign,
negotiate, transfer, exchange or otherwise dispose of or turn to account or
realize upon, securities (which term "securities" shall for the purposes of
these Articles of Incorporation, without limitation of the generality
thereof, be deemed to include any stocks, shares, bonds, debentures, notes,
mortgages or other obligations, and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase, or subscribe
for the same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any issuer
(which term "issuer" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof); and to
exercise as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for
the preservation, protection, improvement and enhancement in value of any
or all such securities.
(2) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration (including without limitation thereto, securities)
now or hereafter permitted by the laws of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine.
(3) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its stock of any class, in any
manner and to the extent now or hereafter permitted by the laws of said
State and by these Articles of Incorporation.
(4) To conduct its business in all its branches at one or more
offices in Maryland and elsewhere in any part of the world, without
restriction or limit as to extent.
(5) To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of Maryland, as a member of, or as the
owner or holder of any stock of, or shares of interest in, any issuer, and
in connection therewith to make or enter into such deeds or contracts with
any issuers and to do such acts and things and to exercise such powers, as
a natural person could lawfully make, enter into, do or exercise.
(6) To do any and all such further acts and things and to exercise
any and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent, and construed as
powers as well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of the State of Maryland, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
FOURTH: The post office address of the place at which the principal office
of the Corporation in the State of Maryland will be located is First Maryland
Building, 25 South Charles Street, Baltimore, Maryland 21201.
The Corporation's resident agent is The Corporation Trust Incorporated,
whose post office address is First Maryland Building, 25 South Charles Street,
Baltimore, Maryland 21201. Said resident agent is a corporation of the State of
Maryland.
FIFTH: (1) The total number of shares of stock of all classes (which
term, as used herein shall include a class designated as a "Series" as set forth
below) which the Corporation has authority to issue is Five Billion
(5,000,000,000) shares. The number of the shares of stock of each class is such
number, if any, of shares of unissued stock as is classified or reclassified
into such class by the Corporation's Board of Directors pursuant to the
authority contained in Section 2-105 of the Maryland General Corporation Law (or
any successor provision). The par value of the shares of stock of each class is
$.01 per share. The aggregate par value of all the shares of all classes is
Fifty Million Dollars ($50,000,000.00). A description of each class, including
any preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemptions is set forth below. Unless and until the Corporation's Board of
Directors classifies unissued stock into one or more classes which are in
addition to a single outstanding class, or after the Board has reclassified
issued stock of one or more classes into a single class, all shares of stock of
the Corporation shall be of a single class designated as "Capital Stock".
The Board of Directors of the Corporation may classify unissued shares into one
or more additional classes which shall, together with the issued shares of stock
of the Corporation, have such designations as the Board shall determine
(provided that such designations shall include the word "Class"), and which
shall be treated for all purposes other than as to dividends as if all shares
were shares of one class. The dividends payable to the holders of each such
class) or any class designated as a "series" as described below) shall, subject
to any applicable rule, regulation or order of the Securities and Exchange
Commission or other applicable law or regulation, be determined by the Board and
need not be individually declared but may be declared and paid in accordance
with a formula adopted by the Board. The Board of Directors of the Corporation
may in the alternative classify unissued shares into one or more additional
classes which shall, together with the issued shares of stock of the
Corporation, have such designations as the Board may determine (provided that
such designations shall include the word "Series"), and shall, subject to any
applicable rule, regulation or order of the Securities and Exchange Commission
or other applicable law or regulation, have the following characteristics:
(a) Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly designates and classifies the capital stock of
the Corporation among the classes of the Corporation as follows:
Class A (2,500,000,000 shares)
Class B (2,500,000,000 shares)
The aggregate number of shares of all classes of stock of the Corporation
remains at Five Billion (5,000,000,000) shares of capital stock, the par
value remains $0.01 per share, and the aggregate par value of all
authorized stock remains Fifty Million Dollars ($50,000,000.00).
(b) The capital stock of the Corporation is divided into classes and
there are no changes in the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as shares of capital stock as set
forth in the Corporation's Articles of Incorporation, except as follows:
(1) The capital stock of the Class A shares shall not be subject
to either a front-end or contingent deferred sales charge or Rule 12b-1
fees; and
(2) The capital stock of Class B shares shall be subject to a
contingent deferred sales charge and a Rule 12b-1 fee, as determined by the
Board of Directors of the Corporation from time to time, and Class B shares
held by a shareholder for eight years shall convert automatically to Class
A shares of the Corporation.
(c) All consideration received by the Corporation for the issue or
sale of shares of stock of each such class, together with all income,
earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to the class of shares of stock with
respect to which such assets, payments, or funds were received by the
Corporation for all purposes, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Corporation. Such
assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, any asset
derived from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" such a class.
(d) Dividends or distributions on shares of any such class of stock,
whether payable in stock or cash, shall be paid only out of earnings,
surplus or other assets belonging to such class.
(e) In the event of the liquidation or dissolution of the
Corporation, shareholders of each such class shall be entitled to receive,
as a class, out of the assets of the Corporation available for distribution
to shareholders, but other than general assets not belonging to any
particular class of stock, the assets belonging to such class; and the
assets so distributable to the shareholders of any such class shall be
distributed among such shareholders in proportion to the number of shares
of such class held by them and recorded on the books of the Corporation.
In the event that there are any general assets not belonging to any
particular class of stock and available for distribution, such distribution
shall be made to the holders of stock of all classes in proportion to the
asset value of the respective classes.
(f) The assets belonging to any such class of stock shall be charged
with the liabilities in respect to such class and shall also be charged
with its share of the general liabilities of the Corporation, in proportion
to the asset value of the respective classes. The determination of the
Board of Directors shall be conclusive as to the amount of liabilities,
including accrued expenses and reserves, and as to the allocation of the
same as to a given class, and as to whether the same, or general assets of
the Corporation, are allocable to one or more classes. The liabilities so
allocated to a class are herein referred to as "liabilities belonging to"
such class.
(g) At all meetings of stockholders each stockholder of each share of
stock of each such class of the Corporation shall be entitled to one vote
for each share of stock irrespective of the class standing in his name on
the books of the Corporation, except that where a vote of the holders of
the shares of stock of any class, or more than one class, voting by class,
is required by the Investment Company Act of 1940 and/or Maryland law as to
any proposal, only the holders of such class or classes, voting by class,
shall be entitled to vote upon such proposal and the holders of any other
class or classes shall not be entitled to vote thereon. Any fractional
share, if any such fractional shares are outstanding, shall carry
proportionately all the rights of a whole share, including the right to
vote and the right to receive dividends.
(h) The provisions of paragraph (5) of this Article FIFTH relating to
voting shall apply when the Corporation has only one class of shares
outstanding or when the Corporation has more than one class of shares
outstanding but which differ only as to their dividend rights.
(i) When the Corporation has more than one class of shares
outstanding and which classes have separate assets and liabilities: (i)
the redemption rights provided to the holders of the Corporation's shares
shall be deemed to apply only to the assets belonging to the class of stock
in question; and (ii) the net asset value per share computation as provided
for in Article SEVENTH shall be applied as if each such class of shares
were the Corporation as referred to in such computation, but with its
assets limited to the assets belonging to such class and its liabilities
limited to the liabilities belonging to such class.
(2) At all meetings of stockholders each stockholder of the Corporation
shall be entitled to one vote for each share of stock standing in his name on
the books of the Corporation. Any fractional share, if any such fractional
shares are outstanding, shall carry proportionately all the rights of a whole
share, including the right to vote and the right to receive dividends.
(3) Each holder of the capital stock of the Corporation, upon proper
written request (including signature guarantees, if required by the Board of
Directors) to the Corporation accompanied, when stock certificates representing
such shares are outstanding, by surrender of the appropriate stock certificate
or certificates in proper form for transfer, or any such other form as the Board
of Directors may provide, shall be entitled to require the Corporation to redeem
all or any part of the capital stock standing in the name of such holder on the
books of the Corporation, at the net asset value of such shares. The method of
computing such net asset value, the time as of which such net asset value shall
be computed and the time within which the Corporation shall make payment
therefore shall be determined as hereinafter provided in Article SEVENTH of
these Articles of Incorporation. Notwithstanding the foregoing, the right of
the holders of the capital stock of the Corporation to require the Corporation
to redeem such capital stock shall be suspended when such suspension is required
under the 1940 Act (which term the "1940 Act" shall for the purposes of these
Articles of Incorporation mean the Investment Company Act of 1940 as from time
to time amended and any rule, regulation or order thereunder) and may be
suspended when such suspension is permitted under the 1940 Act.
(4) All shares of the capital stock of the Corporation now or hereafter
authorized shall be subject to redemption and redeemable, in the sense used in
the Maryland General Corporation Law, at the redemption price for any such
shares, determined in the manner set out in these Articles of Incorporation. In
the absence of any specification as to the purposes for which shares are
redeemed or purchased by it, all shares so redeemed or purchased shall be deemed
to be acquired for retirement in the sense contemplated by the laws of the state
of Maryland and the number of the authorized shares of the stock of the
Corporation shall not be reduced by the number of any shares of such class
redeemed or purchased by it.
(5) Notwithstanding any provision of Maryland law requiring any action to
be taken or authorized by the affirmative vote of the holders of a majority or
other designated proportion of the shares, or to be otherwise taken or
authorized by a vote of the stockholders, such action shall be effective and
valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
pursuant to the provisions of these Articles of Incorporation.
(6) No holder of stock of the Corporation shall, as such holder, have any
right to purchase or subscribe for any shares of the capital stock of the
Corporation which it may issue or sell (whether out of the number of shares
authorized by these Articles of Incorporation, or out of any shares of the stock
of the Corporation acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(7) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of these Articles of Incorporation.
SIXTH: The number of Directors of the Corporation shall be four and the
names of those who shall act as such until the first annual meeting or until
their successors are duly chosen and qualified are as follows:
Benjamin C. Korschot John A. Kroh
Jay B. Dillingham Doyle Patterson
However, the By-Laws of the Corporation may fix the number of Directors at
a number greater or less than that named in these Articles of Incorporation and
may authorize the Board of Directors, by the vote of a majority of the entire
Board of Directors, to increase or decrease the number of Directors fixed by
these Articles of Incorporation or by the By-Laws within a limit specified in
the By-Laws, provided that in no case shall the number of Directors be less than
three, and to fill the vacancies created by any such increase in the number of
Directors. Unless otherwise provided by the By-Laws of the Corporation, the
Directors of the Corporation need not be stockholders therein.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining and regulating the powers of the Corporation and of the Directors and
stockholders.
(1) The holders of shares of the Corporation shall have only such
rights to inspect the records, documents, accounts and books of the
Corporation as are provided by Maryland law, subject to reasonable
regulations of the Board of Directors, not contrary to Maryland law, as to
whether and to what extent, and at what times and places, and under what
conditions and regulations such rights shall be exercised.
(2) Any Director, or any officer elected or appointed by the Board of
Directors or by any committee of said Board or by the stockholders or
otherwise, may be removed at any time with or without cause, in such lawful
manner as may be provided in the By-Laws of the Corporation.
(3) If the By-Laws so provide, the Board of Directors of the
Corporation shall have power to hold their meetings, to have an office or
offices and, subject to the provisions of the laws of Maryland, to keep the
books of the Corporation outside of said State at such places as may from
time to time be designated by them.
(4) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the Board of Directors may exercise
all such powers and do all such acts and things as may be exercised or done
by the Corporation, subject, nevertheless, to the express provisions of the
laws of Maryland, of these Articles of Incorporation and of the By-Laws of
the Corporation.
(5) Shares of stock in other corporations shall be voted by the
President or a Vice President, or such officer or officers of the
Corporation or such other person or persons as the Board of Directors shall
designate for the purpose, or by a proxy or proxies thereunto duly
authorized by the Board of Directors, except as otherwise ordered by vote
of the holders of a majority of the shares of the capital stock of the
Corporation outstanding and entitled to vote in respect thereto.
(6) (a) Subject to the provisions of the 1940 Act, any director,
officer or employee individually, or any partnership of which any director,
officer or employee may be a member, or any corporation or association of
which any director, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may be pecuniarily
or otherwise interested in, any contract or transaction of the Corporation,
and in the absence of fraud no contract or other transaction shall be
thereby affected or invalidated; provided that in case a director, or a
partnership, corporation or association of which a director is a member,
officer, director, trustee, employee or stockholder is so interested, such
fact shall be disclosed or shall have been known to the Board of Directors,
or a majority thereof; and any director of the Corporation who is so
interested, or who is also a director, officer, trustee, employee or
stockholder of such other corporation or association or a member of such
partnership which is so interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such contract or transaction, and may
vote thereat to authorize any such contract or transaction, with like force
and effect as if he were not such director, officer, trustee, employee or
stockholder of such other corporation or association or not so interested
or a member of a partnership so interested.
(b) As used in this subparagraph 6(b) through (f) of this paragraph
(6) of this Article SEVENTH, the following terms shall have the meanings
set forth below:
(i) the term "indemnitee" shall mean any present or former
director or officer of the Corporation, any present or former director
or officer of another corporation whose securities are or were owned
by the Corporation or of which the Corporation is or was a creditor
and who served or serves in such capacity at the request of the
Corporation and the heirs, executors and administrators of any of the
foregoing; however, whenever conduct by an indemnitee is referred to,
the conduct shall be that of the original indemnitee rather than that
of the heir, executor or administrator;
(ii) the term "covered proceeding" shall mean any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which an indemnitee is
or was a party or is threatened to be made a party by reason of the
fact or facts under which he is an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office in question;
(iv) the term "covered expenses" shall mean expenses (including
attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnitee in connection with a
covered proceeding; and
(v) the term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitees, an adverse determination
as to the indemnitee whether by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent.
(c) The Corporation shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been an
adjudication of liability against such indemnitee expressly based on a
finding of disabling conduct.
(d) Except as set forth in (c) above, the Corporation shall indemnify
any indemnitee for covered expenses in any covered proceeding, whether or
not there is an adjudication of liability as to such indemnitee, if a
determination has been made that the indemnitee was not liable by reason of
disabling conduct by (i) a final decision of the court or other body before
which the covered proceeding was brought; or (ii) in the absence of such
decision, a reasonable determination, based on a review of the facts, by
either (a) the vote of a majority of a quorum of directors who are neither
"interested persons", as defined in the 1940 Act nor parties to the covered
proceeding or (b) an independent legal counsel in a written opinion; in
voting of such matter, or in giving such opinion, such directors or counsel
may consider that the dismissal of a covered proceeding against an
indemnitee for insufficiency of evidence of any disabling conduct with
which indemnitee has been charged would provide reasonable assurance that
the indemnitee was not liable by reason of disabling conduct.
(e) Covered expenses incurred by an indemnitee in connection with a
covered proceeding shall be advanced by the Corporation to an indemnitee
prior to the final disposition of a covered proceeding upon the request of
the indemnitee for which such advance and the undertaking by or on behalf
of the indemnitee to repay the advance unless it is ultimately determined
that the indemnitee is entitled to indemnification hereunder, but only if
one or more of the following is the case: (i) the indemnitee shall provide
a security for such undertaking; (ii) the Corporation shall be insured
against losses arising out of any lawful advances; or (iii) there shall
have been a determination, based on a review of the readily available facts
(as opposed to a full trial-type inquiry) that there is reason to believe
that the indemnitee ultimately will be found entitled to indemnification by
either independent legal counsel in a written opinion or by the vote of a
majority of a quorum of directors who are neither interested persons as
defined in the 1940 Act nor parties to the covered proceeding.
(f) Nothing herein shall be deemed to affect the right of the
Corporation and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by the 1940 Act or
to affect any other indemnification rights to which any indemnitee may be
entitled to the extent permitted by the 1940 Act.
(g) Specifically, but without limitation of the foregoing, the
Corporation may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do
business with any manager or investment adviser for the Corporation and/or
principal underwriter of the Corporation or any subsidiary or affiliate of
any such manager or investment adviser and/or principal underwriter and may
permit any such firm or corporation to enter into any contracts or other
arrangements with any other firm or corporation relating to the Corporation
notwithstanding that the Board of Directors of the Corporation may be
composed in part of partners, directors, officers or employees of any such
firm or corporation, and officers of the Corporation may have been or may
be or become partners, directors, officers or employees of any such firm or
corporation, and in the absence of fraud the Corporation and any such firm
or corporation may deal freely with each other, and no such contract or
transaction between the Corporation and any such firm or corporation shall
be invalidated or in any wise affected thereby, nor shall any director or
officer of the Corporation be liable to the Corporation or to any
stockholder or creditor thereof or to any other persons for any loss
incurred by it or him solely because of the existence of any such contract
or transaction; provided that nothing herein shall protect any director or
officer of the Corporation against any liability to the Corporation or to
its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
(7) The computation of net asset value of each share of capital stock, as
in these Articles of Incorporation referred to, shall be determined as provided
in the 1940 Act, and, except as so provided shall be computed in accordance with
the following rules:
(a) The net asset value of each share of stock of the Corporation
tendered to the Corporation for redemption shall be determined as of the
close of business on the New York Stock Exchange next succeeding the tender
of such share;
(b) The net asset value of each share of stock of the Corporation for
the purpose of the issue of such share shall be determined as of the close
of business on the New York Stock Exchange next succeeding the receipt of
an order to purchase such share;
(c) The net asset value of each share of stock of the Corporation, as
of the close of business on the New York Stock Exchange on any day, shall
be the quotient obtained by dividing the value, as at such close, of the
net assets of the Corporation (i.e., the value of the assets of the
Corporation less the liabilities of the Corporation exclusive of the par
value of its shares and surplus) by the total number of shares of stock of
the Corporation outstanding at such close. The assets and liabilities of
the Corporation shall be determined in accordance with generally accepted
accounting principles; provided, however, that in determining the
liabilities, there shall be included such reserves for taxes or contingent
liabilities as may be authorized or approved by the Board of Directors, and
provided further that in determining the value of the assets of the
Corporation for the purpose of obtaining the net asset value, each security
listed on the New York Stock Exchange shall be valued on the basis of the
closing sale thereof on the New York Stock Exchange on the business day as
of which such value is being determined; if there be no sale on such day,
then the security shall be valued on the basis of the mean between closing
bid and asked prices on such day; if no bid and asked prices are quoted for
such day, then the security shall be valued by such method as the Board of
Directors shall deem in good faith to reflect its fair market value;
securities not listed on the New York Stock Exchange shall be valued in
like manner on the basis of quotations on any other stock exchange which
the Board of Directors may from time to time approve for that purpose;
readily marketable securities traded in the over-the-counter market shall
be valued at the mean between their bid and asked prices, or, if the Board
of Directors shall so determine, at their bid prices; and all other
securities and other assets of the Corporation and all securities as to
which the Corporation might be considered an "underwriter" (as that term is
used in the Securities Act of 1933), whether or not such securities are
listed or traded in the over-the-counter market, shall be valued by such
method as they shall deem in good faith to reflect their fair market value.
In connection with the accrual of any fee or refund payable to or by an
investment adviser of the Corporation, the amount of which accrual is not
definitely determinable as of any time at which the net asset value of each
share of the capital stock of the Corporation is being determined due to
the contingent nature of such fee or refund, the Board of Directors is
authorized to establish from time to time formulae for such accrual, on the
basis of the contingencies in question to the date of such determination,
or on such other basis as the Board of Directors may establish.
For the purposes hereof:
(A) Shares of stock to be issued shall be deemed to be
outstanding as of the time of the determination of the net asset value
per share applicable to such issuance and the net price thereof shall
be deemed to be an asset of the Corporation.
(B) Shares of stock to be redeemed by the Corporation shall be
deemed to be outstanding until the time of the determination of the
net asset value applicable to such redemption and thereupon and until
paid the redemption price thereof shall be deemed to be a liability of
the Corporation.
(d) The net asset value of each share of capital stock of the
Corporation, as of any time other than the close of business on the New
York Stock Exchange on any day, may be determined by applying to the net
asset value as of the close of business on that Exchange on the preceding
business day, computed as provided in paragraph 7(c) of this Article
SEVENTH, such adjustments as are authorized by or pursuant to the direction
of the Board of Directors and designed reasonably to reflect any material
changes in the market value of securities and other assets of the
Corporation and any other material changes in the assets or liabilities of
the Corporation and in the number of its outstanding shares which shall
have taken place since the close of business on such preceding business
day.
(e) In addition to the foregoing, the Board of Directors is
empowered, in its absolute discretion, to establish other bases or times,
or both, for determining the net asset value of each share of stock of the
Corporation in accordance with the 1940 Act and to authorize the voluntary
purchase by the Corporation, either directly or through an agent, of shares
of capital stock of the Corporation upon such terms and conditions and for
such consideration as the Board of Directors shall deem advisable in
accordance with the 1940 Act. Without limiting the generality of the
foregoing, the Board of Directors may authorize the payment of dividends on
each day, the amounts of which are designed to reflect all income and
expenses and all realized and unrealized capital gains and losses, to the
end that the net asset value per share remains fixed, unless and until the
Board of Directors elects to change such dividend policy.
(f) Payment of the net asset value of shares of capital stock of the
Corporation properly surrendered to it for redemption shall be made by the
Corporation within seven days after tender of such stock to the Corporation
for such purpose plus any period of time during which the right of the
holders of the shares of capital stock of the Corporation to require the
Corporation to redeem such capital stock has been suspended. Any such
payment may be made in portfolio securities of the Corporation and/or in
cash, as the Board of Directors shall deem advisable, and no shareholder
shall have a right, other than as determined by the Board of Directors, to
have his shares redeemed in kind.
(g) The Board of Directors is empowered to cause the redemption of
the shares held in any account if the aggregate net asset value of such
shares (taken at cost or value, as determined by the Board) is less than
$1,000, or such lesser amount as the Board may fix, upon such notice to the
shareholders in question, with such permission to increase the investment
in question and upon such other terms and conditions as may be fixed by the
Board of Directors in accordance with the 1940 Act.
(h) In the event that any person advances the organizational expenses
of the Corporation, such advances shall become an obligation of the
Corporation subject to such terms and conditions as may be fixed by, and on
a date fixed by, or determined in accordance with criteria fixed by the
Board of Directors, to be amortized over a period or periods to be fixed by
the Board.
(i) Whenever any action is taken under this paragraph (7) of this
Article SEVENTH of these Articles of Incorporation under any authorization
to take action which is permitted by the 1940 Act, such action shall be
deemed to have been properly taken if such action is in accordance with the
construction of the 1940 Act then in effect as expressed in "no action"
letters of the staff of the Securities and Exchange Commission or any
release, rule, regulation or order under the 1940 Act or any decision of a
court of competent jurisdiction notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or modified by any
of the foregoing.
(j) Any action which may be taken by the Board of Directors of the
Corporation under this paragraph (7) of this Article SEVENTH of these
Articles of Incorporation may be taken by the description thereof in the
then effective prospectus relating to the Corporation's shares under the
Securities Act of 1933 rather than by formal resolution of the Board.
(k) Whenever under this paragraph (7) of this Article SEVENTH of
these Articles of Incorporation, the Board of Directors of the Corporation
is permitted or required to place a value on assets of the Corporation,
such action may be delegated by the Board, and/or determined in accordance
with a formula determined by the Board, to the extent permitted by the 1940
Act.
EIGHTH: From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed upon the vote of the holders
of a majority of the shares of capital stock of the Corporation outstanding and
entitled to vote, and other provisions which might under the statutes of the
State of Maryland at the time in force be lawfully contained in articles of
incorporation, may be added or inserted upon such a vote and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article EIGHTH.
The term "these Articles of Incorporation" as used herein and in the By-
Laws of the Corporation shall be deemed to mean these Articles of Incorporation
as from time to time amended and restated.
IN WITNESS WHEREOF, the undersigned incorporator of United Cash Management,
Inc., who executed the foregoing Articles of Incorporation hereby acknowledges
the same to be his act and further acknowledges that, to the best of his
knowledge, information and belief the matters and facts set forth therein are
true in all material respects under the penalties of perjury.
Dated the 5th day of February, 1979.
/s/Rodney O. McWhinney
Rodney O. McWhinney
EX-99.B8-cmca
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Amended and Restated as of May 13, 1998
Between
UMB BANK, n.a.
and
UNITED CASH MANAGEMENT, INC.
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposits
2.13 Foreign Exchange Transactions
2.14 Securities Loans
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
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 Cash
Management, Inc. (the "Fund") and UMB Bank, n.a., formerly, United Missouri
Bank, n.a. (the "Custodian") 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 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 terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a)
cash, certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national securities exchange of which the Custodian is a member; or (c) credit
to the Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , as "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however, the
Custodian shall promptly notify the Fund in writing of any intent to exercise a
right of set-off against Assets hereunder and shall not exercise any such right
of set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice of intent to
exercise a right of set-off), any Overdraft, together with all accrued interest
thereon. Notwithstanding the provisions of any applicable law, including,
without limitation, the Uniform Commercial Code, the only rights or remedies
which the Custodian is entitled to with respect to Overdrafts is the right set-
off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed and which has been
designated as a Foreign Custody Manager (as such term is defined in Rule 17f-5
of the 1940 Act) by the Custodian and approved by the Fund's board ("Approved
Foreign Custody Manager") may appoint a Foreign Sub-Subcustodian or Interim Sub-
Subcustodian (as each are hereinafter defined) in accordance with this Article
IV; provided that the Fund's board also has approved the agreement between the
Custodian and the Foreign Custody Manager specifying the Foreign Custody
Manager's duties ("Delegation Agreement"). For purposes of this Agreement, all
Domestic Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and
Interim Sub-Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. 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 the Foreign Custody Manager has not appointed an Eligible
Foreign Custodian, the Custodian shall, or shall cause the Domestic Subcustodian
to, promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian shall agree in writing of the
unavailability of an approved Foreign Sub-Subcustodian in such country; and upon
the receipt of Special Instructions, the Custodian shall, or shall cause the
Domestic Subcustodian to, appoint or approve any Person (as hereinafter defined)
designated by the Fund in such Special Instructions, to hold such security or
other Asset. (Any Person appointed or approved as a sub-subcustodian pursuant
to this Section 4.02(b) is hereinafter referred to as an "Interim Sub-
Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and 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.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
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.
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.
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 Cash Management, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
UMB Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
UNITED CASH MANAGEMENT, INC. UMB BANK, n.a.
By: /s/Sharon K. Pappas By: /s/Ralph Santoro
Name: Sharon K. Pappas Name: Ralph Santoro
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED CASH MANAGEMENT, INC.
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:
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.
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 CASH MANAGEMENT, INC.
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:
A. Domestic Custodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Custodians
Country Sub-Custodian Depository
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
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
EX-99.B9-cmssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1st day of July, 1989, by and between UNITED
CASH MANAGEMENT, INC. (the "Company") 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;
(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 including bank wire transfers 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) Causing checking accounts to be available and maintained for
shareholders who elect to redeem shares by drawing checks on such accounts,
including accepting or rejecting signatures on all checks drawn on the checking
account and notifying the payor bank to dishonor any check the Agent deems not
to be validly signed;
(f) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(g) 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;
(h) 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;
(i) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(j) 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 an amount payable on the first day of each month of $1.75 for each
account of the Company which was in existence during any portion of the
immediately preceding month and $.75 for each check drawn on the checking
account of the Company maintained for its shareholders presented to the Agent
for review during the immediately preceding month. 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, and bank charges for wire transfers and maintenance of
shareholder checking accounts pursuant to Section 3(1)(e) herein above; (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.
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 of 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 B,
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.
The Company, at its expense, will include as part of its insurance
coverages maintained pursuant to Section 17(j) of the Investment Company Act of
1940 fidelity insurance with respect to forgery or alteration of checks drawn on
its checking account referred to in Section 3(1)(e) of this Agreement subject to
such deductible for this particular coverage as it may deem appropriate. The
Agent will maintain at is expense such insurance coverages with respect to the
Agent's duties under Section 3(1)(e) for loss caused by errors or omissions as
it deems appropriate. Any loss to the Company by reason of the deductible on
coverages maintained by it hereunder shall be paid by the Agent.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed, Inc. or Waddell & Reed Investment Management Company, cast in person at
a meeting called for the purpose of voting on such approval. Such a vote is
hereinafter referred to as a "disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED CASH MANAGEMENT, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
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
Voice-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.B11-cmconsnt
INDEPENDENT AUDITORS' CONSENT
United Cash Management, Inc.:
We consent to the use in Post-Effective Amendment No. 33 to Registration
Statement No. 2-64526 of our report dated August 7, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which also is a part of such Registration
Statement.
Deloitte & Touche LLP
Kansas City, Missouri
October 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000311405
<NAME> UNITED CASH MANAGEMENT, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 500,189,074
<INVESTMENTS-AT-VALUE> 500,189,074
<RECEIVABLES> 44,081,000
<ASSETS-OTHER> 18,000
<OTHER-ITEMS-ASSETS> 292,000
<TOTAL-ASSETS> 544,580,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,126,000
<TOTAL-LIABILITIES> 8,126,000
<SENIOR-EQUITY> 5,365,000
<PAID-IN-CAPITAL-COMMON> 531,089,000
<SHARES-COMMON-STOCK> 536,454,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 536,454,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,702,000
<OTHER-INCOME> 0
<EXPENSES-NET> (4,652,000)
<NET-INVESTMENT-INCOME> 25,050,000
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 25,050,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,050,000)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,634,023,000
<NUMBER-OF-SHARES-REDEEMED> (3,639,302,000)
<SHARES-REINVESTED> 23,850,000
<NET-CHANGE-IN-ASSETS> 18,661,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,047,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,652,000
<AVERAGE-NET-ASSETS> 517,620,853
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
October 29, 1998
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Cash Management, Inc.
Post-Effective Amendment No. 33
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:fr
