<PAGE>
File No. 33-5648
File No. 811-4520
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. 17
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 17
UNITED HIGH INCOME FUND II, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ 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(a)(1). Notice for the Registrant's
fiscal year ended September 30, 1995 will be filed on or about November 23,
1995.
<PAGE>
UNITED HIGH INCOME FUND II, 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) ..................... An Overview of the Fund; 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) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... About the Management and Expenses of the Fund
(g)(i)................... *
(g()ii).................. About the Management and Expenses of the Fund
5A........................ **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... About 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
(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) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... *
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv).................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Included in Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated January 12, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone
number below. The SAI is incorporated by reference into this Prospectus and
you will not be aware of all facts unless you read both this Prospectus and the
SAI.
THE FUND MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS ISSUED BY DOMESTIC OR
FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS,"
WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER
RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUND" INCLUDED IN THIS
PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-INVESTMENT GRADE
DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND RATINGS.
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 High Income Fund II, Inc.
Class A Shares
This Fund seeks as its primary goal a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund invests primarily in a diversified portfolio of high-yield,
high-risk fixed-income securities, the risks of which are, in the judgment of
the Fund's investment manager, consistent with the Fund's goals.
This Prospectus describes one class of shares of the Fund -- Class A Shares.
Prospectus
January 12, 1996
UNITED HIGH INCOME FUND II, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................7
EXPENSES........................................8
FINANCIAL HIGHLIGHTS............................9
PERFORMANCE....................................10
Explanation of Terms .........................10
ABOUT WADDELL & REED...........................11
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....12
Investment Goals and Principles ..............12
ABOUT YOUR ACCOUNT.............................19
Ways to Set Up Your Account ..................19
Buying Shares ................................21
Minimum Investments ..........................22
Adding to Your Account .......................22
Selling Shares ...............................22
Shareholder Services .........................23
Personal Service ...........................23
Reports ....................................24
Exchanges ..................................24
Automatic Transactions .....................24
Dividends, Distributions
and Taxes ....................................24
Distributions ..............................24
Taxes ......................................24
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..26
WRIMCO and Its Affiliates ....................26
Breakdown of Expenses ........................27
Management Fee .............................27
Other Expenses .............................27
APPENDIX A.....................................29
DESCRIPTION OF BOND RATINGS ..................29
DESCRIPTION OF PREFERRED STOCK RATINGS .......31
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United High Income
Fund II, Inc., an open-end, diversified management investment company.
Goals and Strategies: United High Income Fund II, Inc. (the "Fund") seeks, as
a primary goal, a high level of current income. As a secondary goal, the Fund
seeks capital growth when consistent with its primary goal. There is no
assurance that the Fund will achieve its goals. The Fund invests primarily in
a diversified portfolio of high-yield, high-risk fixed-income securities, the
risks of which are, in the judgment of the Fund's investment manager,
consistent with the Fund's goals. See "About the Investment Principles of the
Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of the Fund
is the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them. See
"About Your Account" for a description of redemption and reinvestment
procedures.
Risk Considerations: Investments in high-yield, high-risk securities ("junk
bonds") may entail risks that are different or more pronounced than that
involved in higher-rated securities. The value of the Fund's investments and
the income generated will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments. See
"About the Investment Principles of the Fund" for information about the risks
associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases 5.75%
(as a percentage of offering price)
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees 0.11%
Other expenses 0.22%
Total Fund operating expenses1 0.89%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return2 and (2) redemption at the end of each time period:
1 year $ 66
3 years $ 84
5 years $104
10 years $161
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class A shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
1Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
2Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements
and notes thereto, together with the report of Price Waterhouse LLP, included
in the SAI.
For a Class A share outstanding throughout each period.3
<TABLE>
For the
period
from July 1,
For the fiscal year ended September 30, 1986 through
------------------------------------------------------------------------------------- September 30,
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986*
---- ---- ---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $3.96 $4.21 $4.06 $3.75 $3.45 $4.22 $4.66 $4.71 $4.96 $5.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income ... 0.35 0.35 0.36 0.39 0.45 0.44 0.54 0.53 0.55 0.13
Net realized and
unrealized gain (loss)
on investments ........ 0.07 (0.25) 0.15 0.31 0.30 (0.77) (0.44) (0.05) (0.25) (0.04)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .............. 0.42 0.10 0.51 0.70 0.75 (0.33) 0.10 0.48 0.30 0.09
Less distributions:
Dividends declared from
net investment
income ................ (0.35) (0.35) (0.36) (0.39) (0.45) (0.44) (0.54) (0.53) (0.55) (0.13)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........... $4.03 $3.96 $4.21 $4.06 $3.75 $3.45 $4.22 $4.66 $4.71 $4.96
===== ===== ===== ===== ===== ===== ===== ===== ==== =====
Total return** ............ 11.25% 2.31% 13.07% 19.31% 23.66% -8.03% 1.96% 10.98% 5.89%
7.11%***
Net assets, end of
period (000 omitted) .... $367,782 $362,643 $380,819 $345,376 $291,436 $257,118 $313,339 $259,606 $165,392 $36,091
Ratio of expenses to
average net assets ...... 0.89% 0.88% 0.80% 0.82% 0.89% 0.89% 0.83% 0.87% 0.88%
0.19%****
Ratio of net investment
income to average
net assets .............. 8.93% 8.41% 8.64% 9.79% 12.94% 11.74% 11.90% 11.45% 11.11% 2.82%
Portfolio turnover
rate .................... 26.82% 47.05% 69.24% 80.28% 53.88% 55.94% 122.30% 147.01% 178.30% 5.36%
*The Fund's inception date is May 8, 1986; however, since the Fund did not have investment activity or incur expenses prior
to the date of public offering, the per share data and ratios are for a capital share outstanding for the period from July 1,
1986 (initial public offering) through September 30, 1986. On an annual basis, the ratios of expenses and net investment
income to average net assets would have been approximately 0.77% and 11.20%, respectively.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
***Annualized.
****For the period from July 1, 1986 through December 31, 1986, Waddell & Reed, Inc. agreed to a voluntary assumption of Fund
expenses. The ratio of expenses to average net assets for the period ended September 30, 1986 shown in the table would have
been 0.22% without this assumption of expenses.
3On January 12, 1996, the Fund began offering Class Y shares to the public. Fund
shares outstanding prior to that date were designated Class A shares.
</TABLE>
Information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders which may be obtained without charge by
request to the Fund at the address or phone number shown on the cover of this
Prospectus.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class
of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may not reflect deduction
of the applicable sales charge or may be for periods other than those required
to be presented or may otherwise differ from standardized total return. Total
return quotations that do not reflect the applicable sales charge will reflect
a higher rate of return.
Yield refers to the income generated by an investment in the Fund over a given
period of time, expressed as an annual percentage rate. The Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information
as published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you
and your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The primary goal of the Fund is to earn a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk fixed income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Fund's
goals. There is no assurance that the Fund will achieve its goals.
There are three main types of securities that the Fund owns: debt securities,
preferred stock and common stock. The Fund may also own convertible
securities. In general, the high income that the Fund seeks is paid by debt
securities in the lower rating categories of the established rating services or
unrated securities that are, in the opinion of WRIMCO, of similar quality to
rated securities in these categories; these are securities rated BBB or lower
by Standard & Poor's Ratings Services ("S&P") or Baa or lower by Moody's
Investors Service, Inc. ("MIS") and unrated securities. S&P and MIS ratings
are described in Appendix A.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include an issuer's past, current and estimated future: (i)
financial strength; (ii) cash flow; (iii) management; (iv) borrowing
requirements; and (v) responsiveness to changes in interest rates and business
conditions. When WRIMCO believes that a full or partial temporary defensive
position is desirable, due to present or anticipated market or economic
conditions, WRIMCO may take any one or more of the following steps with respect
to up to all of the assets in the Fund's portfolio: (i) shortening the average
maturity of the Fund's debt portfolio; (ii) holding cash or cash equivalents
(short-term investments, such as commercial paper and certificates of deposit)
in varying amounts designed for defensive purposes; and (iii) emphasizing high-
grade debt securities. Going defensive in any one or more of these manners
might involve a reduction in the yield on the Fund's portfolio. As an
alternative to taking a temporary defensive position or in order to more
quickly participate in anticipated market changes or market conditions, the
Fund may invest in options and futures.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risks, you should anticipate that
the share price of the Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of the Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Certain types of instruments in which the Fund may invest, and certain
strategies WRIMCO may employ in pursuit of the Fund's goals, involve special
risks. Lower-quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty. Foreign
securities and foreign currencies may involve risks relating to currency
fluctuations, political or economic conditions in the foreign country, and the
potentially less stringent investor protection and disclosure standards of
foreign markets. These factors could make foreign investments, especially
those in developing countries, more volatile.
The Fund can use various techniques to increase or decrease its exposure to
changing security prices, interest rates, or other factors that affect security
values. These techniques may involve derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
stripped securities and mortgage-backed securities. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into. See "Risks of Derivative Instruments"
for further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest and strategies WRIMCO may employ in
pursuit of the Fund's goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted by the Fund's investment policies and restrictions
unless it believes that doing so will help the Fund achieve its goals. As a
shareholder, you will receive annual and semiannual reports detailing the
Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also stated
below. A fundamental policy of the Fund may not be changed without the
approval of the shareholders of the Fund. Operating policies may be changed by
the Board of Directors without the approval of the affected shareholders. The
goals of the Fund are fundamental policies. Unless otherwise indicated, the
types of securities and other assets in which the Fund may invest and other
policies are operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Fund's investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Policies and Restrictions: As a fundamental policy, the Fund may not purchase,
or otherwise voluntarily acquire, any common stocks if, as a result, more than
20% of its total assets would consist of common stocks.
The Fund does not intend to invest more than 4% of its total assets in non-
dividend-paying common stocks.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which
the Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
U.S. Government Securities are high-quality instruments issued or guaranteed as
to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Lower-quality debt securities (commonly called "junk bonds") are considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. While the market for
high-yield, high-risk corporate debt securities has been in existence for many
years and has weathered previous economic downturns, the 1980s brought a
dramatic increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may not provide an
accurate indication of the future performance of the high-yield, high-risk bond
market, especially during periods of economic recession. The market for lower-
rated debt securities may be thinner and less active than that for higher-rated
debt securities, which can adversely affect the prices at which the former are
sold. Adverse publicity and changing investor perceptions may decrease the
values and liquidity of lower-rated debt securities, especially in a thinly-
traded market. Valuation becomes more difficult and judgment plays a greater
role in valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, WRIMCO's research and credit analysis are an especially important
part of managing securities of this type held by the Fund. WRIMCO continuously
monitors the issuers of lower-rated debt securities in the Fund's portfolio in
an attempt to determine if the issuers will have sufficient cash flow and
profits to meet required principal and interest payments. The Fund may choose,
at its expense or in conjunction with others, to pursue litigation or otherwise
to exercise its rights as a security holder to seek to protect the interests of
security holders if it determines this to be in the best interest of the Fund's
shareholders.
Subject to its investment restrictions, the Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by S&P
and C by MIS). In addition, the Fund will treat unrated securities judged by
WRIMCO to be of equivalent quality to a rated security to be equivalent to
securities having that rating. The Fund may invest in securities in default.
While credit ratings are only one factor WRIMCO relies on in evaluating high-
yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk. Credit ratings for individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has
been changed.
Policies and Restrictions: At least 80% of the Fund's total assets normally
will be invested to seek a high level of current income.
Debt Holdings, by Rating. During the fiscal year ended September 30, 1995, the
percentage of the assets of the Fund invested in debt securities in each of the
rating categories of S&P and the corporate debt securities not rated by an
established rating service, determined on a dollar-weighted average, were as
follows:
Percentage of
Rated Assets of
by S&P the Fund
- ------ -------------
AAA 0.1%
AA 0.1
A 0.6
BBB 0.0
BB 9.9
B 68.1
CCC 3.4
CC 0.0
C 0.2
D 0.2
Unrated (Equivalent to)
AAA 0.0
AA 0.0
A 0.0
BBB 0.0
BB 0.0
B 4.1
CCC 0.5
CC 0.0
C 0.0
D 1.7
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in the Fund's portfolio at
the end of each month in the thirteen-month period ended with its last fiscal
year, averaged over its last fiscal year. The rating used for each security is
that security's rating as of the end of each month and, as ratings may change
over time, does not necessarily indicate past or future ratings of any
particular security or the ratings of securities in the portfolio in general.
Asset composition of the Fund by rating categories at any particular time does
not necessarily indicate future asset composition by rating categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A. The
Fund may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be
of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique
investment characteristics in that they generally have higher yields than those
of common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the United
States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase an unlimited amount of
foreign securities. The Fund may not hold foreign currency except in
connection with the purchase or sale of such foreign securities. The Fund will
not invest more than 25% of its total assets in securities issued by the
government of any one foreign country.
Options, Futures and Other Strategies. The Fund may use certain options and
indexed securities to attempt to enhance income or yield or may attempt to
reduce the overall risk of its investments by using certain options, futures
contracts, and certain other strategies described herein. The strategies
described below may be used in an attempt to manage certain risks of the Fund's
investments that can affect fluctuation in its net asset value.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. The Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed. The risks associated with such strategies are described below. Also
see the SAI for more information on these instruments and strategies and their
risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right
to buy, and obligates the writer to sell, the underlying investment at the
agreed upon exercise price during the option period. A put option gives the
purchaser the right to sell, and obligates the writer to buy, the underlying
investment at the agreed upon exercise price during the option period.
Purchasers of options pay an amount, known as a premium, to the option writer
in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist
for exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to
maintain the securities, or cash in the case of an option on an index, subject
to the call or the collateral underlying the put until a closing purchase
transaction can be entered into or the option expires. Because index options
are settled in cash, the Fund cannot provide in advance for its potential
settlement obligations on a call it has written on an index by holding the
underlying securities. The Fund bears the risk that the value of the
securities it holds will vary from the value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may purchase and
write (sell) put and call options only on debt securities, common stocks,
broadly-based stock indices (i.e., include stocks that are not limited to
issuers in any particular industry or similar industries), and the options on
futures contracts described below, subject to certain restrictions that are set
forth in the SAI.
As a fundamental policy, the Fund may write calls on securities only if the
calls are covered calls (i.e., the Fund must own the related investments or
other investments suitable for escrow arrangements).
Futures Contracts and Options on Futures Contracts. When the Fund purchases a
futures contract, it incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. When the Fund sells a futures contract, it
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
When the Fund writes an option on a futures contract, it becomes obligated, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the
Fund has written a call, it assumes a short futures position. If it has
written a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires a right in return for the premium it
pays to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy and
sell futures contracts relating to debt securities and futures contracts on
broadly-based stock indices, and options thereon.
The Fund intends to use futures contracts and options thereon only to attempt
to hedge against market risks that could adversely affect the value of its
portfolio.
Indexed Securities. The Fund may purchase and sell indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer
of the security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may be more volatile than
the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations, and stripped mortgage-backed securities.
The value of these securities may be significantly affected by changes in
interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage-backed securities and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if the Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. Accelerated prepayments on securities purchased by the Fund
at a premium also impose a risk of loss of principal because the premium may
not have been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not a
guarantee against market decline of the value of these securities or shares of
the Fund. It is possible that the availability and marketability (i.e.,
liquidity) of these securities could be adversely affected by actions of the
U.S. Government to tighten the availability of its credit.
Policies and Restrictions: The Fund intends to invest less than five percent
of its total assets in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: The Fund intends to invest less than five percent
of its total assets in stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities,
stripped securities and mortgage-backed securities involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument
at a particular time, (iii) the need for additional portfolio management skills
and techniques, (iv) losses due to unanticipated market price movements, (v)
the fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by the Fund on
options it purchases, and (viii) the possible inability of the Fund to purchase
or sell a portfolio security at a time when it would otherwise be favorable for
it to do so, or the possible need for the Fund to sell a portfolio security at
a disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instruments may not be the same
investment that is being hedged. WRIMCO will attempt to create a closely
correlated hedge but hedging activity may not be completely successful in
eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to adjust
the return characteristics of the Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose
return of principal or interest, in part, is determined by reference to
something that is not intrinsic to the security itself. The use of derivative
techniques for speculative purposes can increase investment risk. If WRIMCO
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's investments, these techniques could result in a
loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of the Fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the counterparty to the
transaction does not perform as promised or if there is not a liquid secondary
market to close out a position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate or
stock market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various
interest rate movements or stock market movements or the time span within which
the movements take place.
Options and futures transactions may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transaction costs
and may result in certain tax consequences.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its goals, investment policies and regulatory requirements applicable to
investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to
deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity, or could suffer a loss.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Restricted and Illiquid Securities. 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
restricted securities may be determined 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: As a fundamental policy, the Fund may not purchase
a security if, as a result, more than 10% of its net assets would consist of
restricted securities.
The Fund may not purchase a security if, as a result, more than 10% of its net
assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting securities
or any class of securities of an issuer, or if more than 5% of the Fund's total
assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result, more
than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow money
only from banks, as a temporary measure or for extraordinary or emergency
purposes but only up to 5% of its total assets. The Fund does not intend to
borrow for temporary measures; however, it may borrow to cover redemptions or
settlements of securities transactions. See the SAI for further information on
the Fund's ability to borrow.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. This practice could result in a
loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund may not lend more
than 10% of its assets at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include warrants, and securities of closed-end investment
companies. As a shareholder in an investment company, the Fund would bear its
pro rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may invest up to
5% of its net assets in warrants. The Fund does not intend to invest more than
2% of its net assets in warrants that are not listed on the New York Stock
Exchange (the "NYSE") or American Stock Exchange. Warrants acquired in units
or attached to other securities are not considered for purposes of computing
these limitations.
As a fundamental policy, the Fund may buy shares of other investment companies
that do not redeem their shares only if it does so in a regular transaction in
the open market and only if not more than 10% of the Fund's total assets would
be invested in these shares. The Fund does not intend to invest more than 5%
of its assets in such securities.
The Fund will not purchase securities of unseasoned issuers (including
predecessor companies), which have been in operation for less than three years,
if the value of its investment in such securities would exceed 5% of its total
assets.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions,
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
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.
Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
Custodial Accounts are available to employees of public school systems or
certain types of charitable organizations.
Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to
Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a Class A share (price to buy one Class A share) is the
Fund's Class A net asset value ("NAV") plus the sales charge shown in the table
below.
Sales
Sales Charge
Charge as
as Approx.
PercentPercent
of of
Size of Offering Amount
Purchase Price Invested
- -----------------------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,0001.50 1.52
$1,000,000
to less
than
$2,000,0001.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding, with respect to that Class, the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at
the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds that offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Fund is open for business each day the NYSE is open. The Fund normally
calculates the net asset values of its shares as of the later of the close of
business of the NYSE, normally 4 p.m. Eastern time, or the close of the regular
session of any other securities or commodities exchange on which an option held
by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may trade
on Saturdays or on customary U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of Fund shares may be significantly affected on
days when the Fund does not price its shares and when you have no access to the
Fund.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and whether you
are subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of shares
of a corresponding class of any of the funds in the United Group, to the extent
otherwise permitted, except United Municipal Bond Fund, Inc., United Cash
Management, Inc., United Government Securities Fund, Inc. and United Municipal
High Income Fund, Inc., with the net asset value of Class A shares already held
("rights of accumulation") and by grouping all purchases of Class A shares made
during a thirteen-month period ("Statement of Intention"). Shares of a
corresponding class of another fund purchased through a contractual plan may
not be included unless the plan has been completed. Purchases by certain
related persons may be grouped. Additional information and applicable forms
are available from Waddell & Reed account representatives.
Class A shares may be purchased at net asset value by the Directors and
officers of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, account representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and account representative. Purchases of Class A
shares in certain retirement plans and certain trusts for these persons may
also be made at net asset value. Purchases of Class A shares in a 401(k) plan
having 100 or more eligible employees and purchases of Class A shares in a 457
plan having 100 or more eligible employees may be made at net asset value.
Shares may also be issued at net asset value in a merger, acquisition or
exchange offer made pursuant to a plan of reorganization to which the Fund is a
party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
a letter showing your account number, the account registration and stating
the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class A
NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell & Reed
account representative, or write a letter of instruction with:
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.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account 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 authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after receipt of a written request 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.
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.
The Fund reserves the right to redeem at NAV all shares of the Fund owned or
held by you having an aggregate NAV of less than $500. The Fund will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested amounts
must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in shares of a corresponding class of
any of the funds in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class A shares and buy corresponding shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of the Fund may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual or
annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit and
will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses, and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed account representative for
more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service To move money from United Cash Management, Inc. to the Fund
whether in the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed monthly from the
Fund's net investment income, which includes accrued interest, earned discount,
dividends and other income earned on portfolio assets less expenses. Net
capital gains (and any net realized gains from foreign currency transactions)
ordinarily are distributed in December. The Fund may make additional
distributions if necessary to avoid Federal income or excise taxes on
undistributed income and capital gains.
Distribution Options. When you open an account, specify on your application
how you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will
be automatically paid in additional Class A shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class A
shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), so that it will be relieved of Federal income tax on that
part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gains and net gains from certain
foreign currency transactions) and net capital gains (the excess of net long-
term capital gains over net short-term capital losses) that are distributed to
its shareholders.
There are certain tax requirements that the Fund must follow in order to avoid
Federal taxation. In its effort to adhere to these requirements, the Fund may
have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid
in additional Fund shares. Distributions of the Fund's realized net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or 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. Under certain circumstances, the
Fund may elect to permit shareholders to take a credit or deduction for foreign
income taxes paid by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or paid
in additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends, 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.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other
fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within ninety days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day reinvestment
privilege or exchange privilege. See "About Your Account." In these cases,
any gain on the disposition of the Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Class A shares of the Fund
within thirty days before or after redeeming other Class A shares of the Fund
at a loss, part or all of that loss will not be deductible and will increase
the basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United High Income Fund II, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end management investment company organized as a
corporation under Maryland law on April 22, 1986.
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 January 12, 1996, the Fund
offered only one class of shares to the public. Shares outstanding on that
date were designated as Class A shares, which are offered by this Prospectus.
In addition, the Fund offers Class Y shares through a separate prospectus.
Class Y shares are designed for institutional investors. Class Y shares are
not subject to a sales charge on purchases and are not subject to redemption
fees. Class Y shares are not subject to a Rule 12b-1 fee. Additional
information about Class Y shares may be obtained by calling 913-236-2000 or by
writing to Waddell & Reed, Inc. at the address on the inside back cover of this
Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting
for the election of directors. To the extent that Section 16(c) of the
Investment Company Act of 1940, as amended (the "1940 Act"), applies to the
Fund, the directors are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any director when requested
in writing to do so by the shareholders of record of not less than 10% of the
Fund's outstanding shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate vote
of any Class is required by the 1940 Act, and except as to any matter which
affects the interests of one or more particular Classes, in which case only the
shareholders of the affected Classes are entitled to vote, each as a separate
Class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds,
Inc. since that fund's inception, until January 8, 1992, when it assigned its
duties as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager
for Waddell & Reed Funds, Inc. since its inception in September 1992, Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc.
since each commenced operations in February 1993, and United Asset Strategy
Fund, Inc. since it commenced operations in March 1995.
Louise D. Rieke is primarily responsible for the day-to-day management of the
Fund. Ms. Rieke has held her Fund responsibilities from the Fund's inception
to January 1990 and from May 1992 to the present. She is Vice President of
WRIMCO, Vice President of Waddell & Reed Asset Management company, an affiliate
of WRIMCO, Vice President of the Fund, and Vice President of other investment
companies for which WRIMCO serves as investment manager. Ms. Rieke has served
as the portfolio manager for investment companies managed by Waddell & Reed,
Inc. and its successor, WRIMCO, since July 1986, and has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since May 1971. Other members
of WRIMCO's investment management department provide input on market outlook,
economic conditions, investment research and other considerations relating to
the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc., and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Fund and processes the payments of dividends. Waddell & Reed
Services Company also acts as agent ("Accounting Services Agent") in providing
bookkeeping and accounting services and assistance to the Fund and pricing
daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, and an indirect subsidiary of United
Investors Management Company, a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so may
consider sales of shares of the Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .15 of 1% of its net assets. The group
fee is a pro rata participation based on the relative net asset size of the
Fund in the group fee computed each day on the combined net asset values of all
the funds in the United Group at the annual rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $13.3 billion as of September 30, 1995. Management fees for the
fiscal year ended September 30, 1995 were 0.56% of the Fund's average net
assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class A
shares, the Fund pays the Shareholder Servicing Agent a monthly fee for each
Class A shareholder account that was in existence at any time during the month,
and a fee for each account on which a dividend or distribution had a record
date during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act with
respect to its Class A shares. Under the Plan, the Fund may pay monthly a fee
to Waddell & Reed, Inc. in an amount not to exceed .25% of the Fund's average
annual net assets of its Class A shares. The fee is to be paid to reimburse
Waddell & Reed, Inc. for amounts it expends in connection with the provision of
personal services to Class A shareholders and/or maintenance of Class A
shareholder accounts. In particular, the Service Plan and a related Service
Agreement between the Fund and Waddell & Reed, Inc. contemplate that these
expenditures may include costs and expenses incurred by Waddell & Reed, Inc.
and its affiliates in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders by
office personnel located at field sales offices; engaging in other activities
useful in providing personal services to Class A shareholders and/or the
maintenance of Class A shareholder accounts; and in compensating broker-dealers
who may regularly sell Class A shares, and other third parties, for providing
Class A shareholder services and/or maintaining Class A shareholder accounts.
The total expenses for the fiscal year ended September 30, 1995 for the Fund's
Class A shares were 0.89% of the average net assets of the Fund's Class A
shares.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
the Fund may have a high portfolio turnover. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
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 Ratings Services. A S&P corporate bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished to S&P by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not perform
an audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by 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.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in payment default. It is used when interest payments or
principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings) are
generally regarded as eligible for bank investment. In addition, the laws of
various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable 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.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Some bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's Ratings Services. A S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock
rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the debt rating symbol assigned to, or that would
be assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay
preferred stock obligations. BB indicates the lowest degree of speculation and
CCC the highest degree of speculation. While such issues will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in default
on debt instruments.
NR -- This indicates that no 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.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating 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.
A preferred stock 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.
Moody's Investors Service, Inc. Because of the fundamental differences between
preferred stocks and bonds, a variation of MIS' familiar bond rating symbols is
used in the quality ranking of preferred stock. The symbols are designed to
avoid comparison with bond quality in absolute terms. It should always be
borne in mind that preferred stock occupies a junior position to bonds within a
particular capital structure and that these securities are rated within the
universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba -- An issue which is rated ba is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payments.
c -- This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
<PAGE>
United High Income Fund II, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
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
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United High Income Fund II, Inc.
Class A Shares
PROSPECTUS
January 12, 1996
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.
NUP2015(1-96)
printed on recycled paper
<PAGE>
SUBJECT TO COMPLETION -- Information contained herein is subject to completion
or amendment. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
before the time the registration statement becomes effective. This Prospectus
shall not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful before registration or
qualification under the securities laws of any such state.
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated January 12, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone
number below. The SAI is incorporated by reference into this Prospectus and
you will not be aware of all facts unless you read both this Prospectus and the
SAI.
THE FUND MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS ISSUED BY DOMESTIC OR
FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS,"
WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER
RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUND" INCLUDED IN THIS
PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-INVESTMENT GRADE
DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND RATINGS.
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 High Income Fund II, Inc. Class Y Shares
This Fund seeks as its primary goal a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund invests primarily in a diversified portfolio of high-yield,
high-risk fixed income securities, the risks on which are, in the judgment of
the Fund's investment manager, consistent with the Fund's goals.
This Prospectus describes one class of shares of the Fund -- Class Y Shares.
Prospectus
January 12, 1996
UNITED HIGH INCOME FUND II, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United High Income
Fund II, Inc., an open-end, diversified management investment company.
Goals and Strategies: United High Income Fund II, Inc. (the "Fund") seeks, as
a
primary goal, a high level of current income. As a secondary goal, the Fund
seeks capital growth when consistent with its primary goal. There is no
assurance that the Fund will achieve its goals. The Fund invests primarily in
a diversified portfolio of high-yield, high-risk, fixed-income securities, the
risks of which are, in the judgment of the Fund's investment manager,
consistent with the Fund's goals. See "About the Investment Principles of the
Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class Y share of the Fund
is the net asset value of a Class Y share. There is no sales charge incurred
upon purchase of Class Y shares of the Fund. See "About Your Account" for
information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them. See
"About Your Account" for a description of redemption procedures.
Risk Considerations: Investments in high-yield, high-risk securities ("junk
bonds") may entail risks that are different or more pronounced that those
involved in higher-rated securities. The value of the Fund's investments and
the income generated will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments. See
"About the Investment Principles of the Fund" for information about the risks
associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating
expenses (as a percentage of average net assets). 4
Management fees 0.56%
12b-1 fees None
Other expenses 0.22%
Total Fund
operating expenses 0.78%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return5 and (2) redemption at the end of each time period:
1 year $ 8
3 years $25
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class Y shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
4Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended September 30, 1995, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those shown.
5Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
Financial Highlights for Class Y shares are not included because the Fund did
not offer Class Y shares during the fiscal year ended September 30, 1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class
of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may be for periods other
than those required to be presented or may otherwise differ from standardized
total return.
Yield refers to the income generated by an investment in the Fund over a given
period of time, expressed as an annual percentage rate. The Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information
as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you
and your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The primary goal of the Fund is to earn a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk fixed income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Fund's
goals. There is no assurance that the Fund will achieve its goals.
There are three main types of securities that the Fund owns: debt securities,
preferred stock and common stock. The Fund may also own convertible
securities. In general, the high income that the Fund seeks is paid by debt
securities in the lower rating categories of the established rating services or
unrated securities that are, in the opinion of WRIMCO, of similar quality to
rated securities in these categories; these are securities rated BBB or lower
by Standard & Poor's Ratings Services ("S&P") or Baa or lower by Moody's
Investors Service, Inc. ("MIS") and unrated securities. S&P and MIS ratings
are described in Appendix A.
WRIMCO may look at a number of factors in selecting securities for the Fund's
portfolio. These include an issuer's past, current and estimated future: (i)
financial strength; (ii) cash flow; (iii) management; (iv) borrowing
requirements; and (v) responsiveness to changes in interest rates and business
conditions. When WRIMCO believes that a full or partial temporary defensive
position is desirable, due to present or anticipated market or economic
conditions, WRIMCO may take any one or more of the following steps with respect
to up to all of the assets in the Fund's portfolio: (i) shortening the average
maturity of the Fund's debt portfolio; (ii) holding cash or cash equivalents
(short-term investments, such as commercial paper and certificates of deposit)
in varying amounts designed for defensive purposes; and (iii) emphasizing high-
grade debt securities. Going defensive in any one or more of these manners
might involve a reduction in the yield on the Fund's portfolio. As an
alternative to taking a temporary defensive position or in order to more
quickly participate in anticipated market changes or market conditions, the
Fund may invest in options and futures.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risks, you should anticipate that
the share price of the Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of the Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Certain types of instruments in which the Fund may invest, and certain
strategies WRIMCO may employ in pursuit of the Fund's goals, involve special
risks. Lower-quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty. Foreign
securities and foreign currencies may involve risks relating to currency
fluctuations, political or economic conditions in the foreign country, and the
potentially less stringent investor protection and disclosure standards of
foreign markets. These factors could make foreign investments, especially
those in developing countries, more volatile.
The Fund can use various techniques to increase or decrease its exposure to
changing security prices, interest rates, or other factors that affect security
values. These techniques may involve derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
stripped securities and mortgage-backed securities. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into. See "Risks of Derivative Instruments"
for further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest and strategies WRIMCO may employ in
pursuit of the Fund's goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted by the Fund's investment policies and restrictions
unless it believes that doing so will help the Fund achieve its goals. As a
shareholder, you will receive annual and semiannual reports detailing the
Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also stated
below. A fundamental policy of the Fund may not be changed without the
approval of the shareholders of the Fund. Operating policies may be changed by
the Board of Directors without the approval of the affected shareholders. The
goals of the Fund are fundamental policies. Unless otherwise indicated, the
types of securities and other assets in which the Fund may invest and other
policies are operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Fund's investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Policies and Restrictions: As a fundamental policy, the Fund may not purchase,
or otherwise voluntarily acquire, any common stocks if, as a result, more than
20% of its total assets would consist of common stocks.
The Fund does not intend to invest more than 4% of its total assets in non-
dividend-paying common stocks.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which
the Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
U.S. Government Securities are high-quality instruments issued or guaranteed as
to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Lower-quality debt securities (commonly called "junk bonds") are considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. While the market for
high-yield, high-risk corporate debt securities has been in existence for many
years and has weathered previous economic downturns, the 1980s brought a
dramatic increase in the use of such securities to fund highly leveraged
corporate acquisitions and restructurings. Past experience may not provide an
accurate indication of the future performance of the high-yield, high-risk bond
market, especially during periods of economic recession. The market for lower-
rated debt securities may be thinner and less active than that for higher-rated
debt securities, which can adversely affect the prices at which the former are
sold. Adverse publicity and changing investor perceptions may decrease the
values and liquidity of lower-rated debt securities, especially in a thinly-
traded market. Valuation becomes more difficult and judgment plays a greater
role in valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, WRIMCO's research and credit analysis are an especially important
part of managing securities of this type held by the Fund. WRIMCO continuously
monitors the issuers of lower-rated debt securities in the Fund's portfolio in
an attempt to determine if the issuers will have sufficient cash flow and
profits to meet required principal and interest payments. The Fund may choose,
at its expense or in conjunction with others, to pursue litigation or otherwise
to exercise its rights as a security holder to seek to protect the interests of
security holders if it determines this to be in the best interest of the Fund's
shareholders.
Subject to its investment restrictions, the Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by S&P
and C by MIS). In addition, the Fund will treat unrated securities judged by
WRIMCO to be of equivalent quality to a rated security to be equivalent to
securities having that rating. The Fund may invest in securities in default.
While credit ratings are only one factor WRIMCO relies on in evaluating high-
yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk. Credit ratings for individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has
been changed.
Policies and Restrictions: At least 80% of the Fund's total assets normally
will be invested to seek a high level of current income.
Debt Holdings, by Rating. During the fiscal year ended September 30, 1995, the
percentage of the assets of the Fund invested in debt securities in each of the
rating categories of S&P and the corporate debt securities not rated by an
established rating service, determined on a dollar-weighted average, were as
follows:
Percentage of
Rated Assets of
by S&P the Fund
- ------ -------------
AAA 0.1%
AA 0.1
A 0.6
BBB 0.0
BB 9.9
B 68.1
CCC 3.4
CC 0.0
C 0.2
D 0.2
Unrated (Equivalent to)
AAA 0.0
AA 0.0
A 0.0
BBB 0.0
BB 0.0
B 4.1
CCC 0.5
CC 0.0
C 0.0
D 1.7
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in the Fund's portfolio at
the end of each month in the thirteen-month period ended with its last fiscal
year, averaged over its last fiscal year. The rating used for each security is
that security's rating as of the end of each month and, as ratings may change
over time, does not necessarily indicate past or future ratings of any
particular security or the ratings of securities in the portfolio in general.
Asset composition of the Fund by rating categories at any particular time does
not necessarily indicate future asset composition by rating categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A. The
Fund may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be
of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for
aprescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique
investment characteristics in that they generally have higher yields than those
of common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the United
States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase an unlimited amount of
foreign securities. The Fund may not hold foreign currency except in
connection with the purchase or sale of such foreign securities. The Fund will
not invest more than 25% of its total assets in securities issued by the
government of any one foreign country.
Options, Futures and Other Strategies. The Fund may use certain options and
indexed securities to attempt to enhance income or yield or may attempt to
reduce the overall risk of its investments by using certain options, futures
contracts, and certain other strategies described herein. The strategies
described below may be used in an attempt to manage certain risks of the Fund's
investments that can affect fluctuation in its net asset value.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. The Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed. The risks associated with such strategies are described below. Also
see the SAI for more information on these instruments and strategies and their
risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right
to buy, and obligates the writer to sell, the underlying investment at the
agreed upon exercise price during the option period. A put option gives the
purchaser the right to sell, and obligates the writer to buy, the underlying
investment at the agreed upon exercise price during the option period.
Purchasers of options pay an amount, known as a premium, to the option writer
in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist
for exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to
maintain the securities, or cash in the case of an option on an index, subject
to the call or the collateral underlying the put until a closing purchase
transaction can be entered into or the option expires. Because index options
are settled in cash, the Fund cannot provide in advance for its potential
settlement obligations on a call it has written on an index by holding the
underlying securities. The Fund bears the risk that the value of the
securities it holds will vary from the value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may purchase and
write (sell) put and call options only on debt securities, common stocks,
broadly-based stock indices (i.e., include stocks that are not limited to
issuers in any particular industry or similar industries), and the options on
futures contracts described below, subject to certain restrictions that are set
forth in the SAI.
As a fundamental policy, the Fund may write calls on securities only if the
calls are covered calls (i.e., the Fund must own the related investments or
other investments suitable for escrow arrangements).
Futures Contracts and Options on Futures Contracts. When the Fund purchases a
futures contract, it incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. When the Fund sells a futures contract, it
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
When the Fund writes an option on a futures contract, it becomes obligated, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the
Fund has written a call, it assumes a short futures position. If it has
written a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires a right in return for the premium it
pays to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy and
sell futures contracts relating to debt securities and futures contracts on
broadly-based stock indices, and options thereon.
The Fund intends to use futures contracts and options thereon only to attempt
to hedge against market risks that could adversely affect the value of its
portfolio.
Indexed Securities. The Fund may purchase and sell indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer
of the security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may be more volatile than
the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations, and stripped mortgage-backed securities.
The value of these securities may be significantly affected by changes in
interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage-backed securities and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if the Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if
the Fund purchases these securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce,
yield to maturity. Accelerated prepayments on securities purchased by the Fund
at a premium also impose a risk of loss of principal because the premium may
not have been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not a
guarantee against market decline of the value of these securities or shares of
the Fund. It is possible that the availability and marketability (i.e.,
liquidity) of these securities could be adversely affected by actions of the
U.S. Government to tighten the availability of its credit.
Policies and Restrictions: The Fund intends to invest less than five percent
of its total assets in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: The Fund intends to invest less than five percent
of its total assets in stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities,
stripped securities and mortgage-backed securities involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument
at a particular time, (iii) the need for additional portfolio management skills
and techniques, (iv) losses due to unanticipated market price movements, (v)
the fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by the Fund on
options it purchases, and (viii) the possible inability of the Fund to purchase
or sell a portfolio security at a time when it would otherwise be favorable for
it to do so, or the possible need for the Fund to sell a portfolio security at
a disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instruments may not be the same
investment that is being hedged. WRIMCO will attempt to create a closely
correlated hedge but hedging activity may not be completely successful in
eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to adjust
the return characteristics of the Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose
return of principal or interest, in part, is determined by reference to
something that is not intrinsic to the security itself. The use of derivative
techniques for speculative purposes can increase investment risk. If WRIMCO
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's investments, these techniques could result in a
loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of the Fund and may involve a
small investment of cash relative to the magnitude of the risk assumed. In
addition, these techniques could result in a loss if the counterparty to the
transaction does not perform as promised or if there is not a liquid secondary
market to close out a position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate or
stock market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various
interest rate movements or stock market movements or the time span within which
the movements take place.
Options and futures transactions may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transaction costs
and may result in certain tax consequences.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its goals, investment policies and regulatory requirements applicable to
investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to
deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity, or could suffer a loss.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Restricted and Illiquid Securities. 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
restricted securities may be determined 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: As a fundamental policy, the Fund may not purchase
a security if, as a result, more than 10% of its net assets would consist of
restricted securities.
The Fund may not purchase a security if, as a result, more than 10% of its net
assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting securities
or any class of securities of an issuer, or if more than 5% of the Fund's total
assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result, more
than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow money
only from banks, as a temporary measure or for extraordinary or emergency
purposes but only up to 5% of its total assets. The Fund does not intend to
borrow for temporary measures; however, it may borrow to cover redemptions or
settlements of securities transactions. See the SAI for further information on
the Fund's ability to borrow.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. This practice could result in a
loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund may not lend more
than 10% of its assets at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include warrants, and securities of closed-end investment
companies. As a shareholder in an investment company, the Fund would bear its
pro rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may invest up to
5% of its net assets in warrants. The Fund does not intend to invest more than
2% of its net assets in warrants that are not listed on the New York Stock
Exchange (the "NYSE") or American Stock Exchange. Warrants acquired in units
or attached to other securities are not considered for purposes of computing
these limitations.
As a fundamental policy, the Fund may buy shares of other investment companies
that do not redeem their shares only if it does so in a regular transaction in
the open market and only if not more than 10% of the Fund's total assets would
be invested in these shares. The Fund does not intend to invest more than 5%
of its assets in such securities.
The Fund will not purchase securities of unseasoned issuers (including
predecessor companies), which have been in operation for less than three years,
if the value of its investment in such securities would exceed 5% of its total
assets.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares are
available for purchase by:
participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has 100
or more eligible employees and holds the shares in an omnibus account on the
Fund's records;
banks, trust institutions and investment fund administrators investing for
their own accounts or for the accounts of their customers where such
investments for customer accounts are held in an omnibus account on the
Fund's records;
government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
certain retirement plans and trusts for employees and account representatives
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a Class Y share (price to buy one Class Y share) is the
Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are sold
without a sales charge.
To purchase by wire, you must first obtain an account number by calling 1-800-
366-2520, then mail a completed application to Waddell & Reed, Inc., P. O. Box
29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail the
check, along with your completed application, to Waddell & Reed, Inc., P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding, with respect to that Class, the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at
the direction of the Board of Directors. Bonds are generally valued according
to prices quoted by a dealer in bonds that offers a pricing service. Short-
term debt securities are valued at amortized cost, which approximates market
value. Other assets are valued at their fair value by or at the direction of
the Board of Directors.
The Fund is open for business each day the NYSE is open. The Fund normally
calculates the net asset values of its shares as of the later of the close
of business of the NYSE, normally 4 p.m. Eastern time, or the close of the
regular session of any other securities or commodities exchange on which an
option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may trade
on Saturdays or on customary U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of Fund shares may be significantly affected on
days when the Fund does not price its shares and when you have no access to the
Fund.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
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 Y shares of the Fund.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and whether you
are subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first
twelve
months)
For other
investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you wish
to invest, along with the account number and registration, to UMB Bank, n.a.,
ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name
and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc.
Mail the check along with a letter showing your account number, the account
registration and stating the fund whose shares you wish to purchase to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class Y
NAV.
To sell shares by telephone or fax: If you have elected this method in your
application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed account representative, or write a letter of
instruction with:
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.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account 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 authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after receipt of a written request 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 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.
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.
The Fund reserves the right to redeem at NAV all shares of the Fund owned or
held by you having an aggregate NAV of less than $500. The Fund will give you
notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in the
United Group. You may exchange only into funds that are legally registered for
sale in your state of residence. Note that exchanges out of the Fund may have
tax consequences for you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed monthly from the
Fund's net investment income, which includes accrued interest, earned discount,
dividends and other income earned on portfolio assets less expenses. Net
capital gains (and any net realized gains from foreign currency transactions)
ordinarily are distributed in December. The Fund may make additional
distributions if necessary to avoid Federal income or excise taxes on
undistributed income and capital gains.
Distribution Options. When you open an account, specify on your application
how you want to receive your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will
be automatically paid in additional Class Y shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class Y
shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains
and net gains from certain foreign currency transactions) and net capital gains
(the excess of net long-term capital gain over net short-term capital loss)
that are distributed to its shareholders.
There are certain tax requirements that the Fund must follow in order to avoid
Federal taxation. In its effort to adhere to these requirements, the Fund may
have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid
in additional Fund shares. Distributions of the Fund's realized net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or 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. Under certain circumstances, the
Fund may elect to permit shareholders to take a credit or deduction for foreign
income taxes paid by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or paid
in additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends, 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.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other
fund in the United Group generally will have similar tax consequences. In
addition, if you purchase Class Y shares of the Fund within thirty days before
or after redeeming other Class Y shares of the Fund at a loss, part or all of
that loss will not be deductible and will increase the basis of the newly
purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United High Income Fund II, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end management investment company organized as a
corporation under Maryland law on April 22, 1986.
The Fund is governed by a Board of Directors, which has overall responsibility
for the management of its affairs. The majority of directors are not
affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares offered
by this Prospectus, the Fund has issued and outstanding Class A shares which
are offered by Waddell & Reed, Inc. through a separate Prospectus. Prior to
January 12, 1996, the Fund offered only one class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Class A
shares are subject to a sales charge on purchases but are not subject to
redemption fees. Class A shares are subject to a Rule 12b-1 fee at an annual
rate of up to 0.25% of the Fund's average net assets attributable to Class A
shares. Additional information about Class A shares may be obtained by calling
913-236-2000 or by writing to Waddell & Reed, Inc. at the address on the inside
back cover of the Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting
for the election of directors. To the extent that Section 16(c) of the
Investment Company Act of 1940, as amended (the "1940 Act"), applies to the
Fund, the directors are required to call a meeting of shareholders for the
purpose of voting upon the question of removal of any director when requested
in writing to do so by the shareholders of record of not less than 10% of the
Fund's outstanding shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate vote
of any Class is required by the 1940 Act, and except as to any matter which
affects the interests of one or more particular Classes, in which case only the
shareholders of the affected Classes are entitled to vote, each as a separate
Class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds,
Inc. since that fund's inception, until January 8, 1992, when it assigned its
duties as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager
for Waddell & Reed Funds, Inc. since its inception in September 1992, Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc.
since each commenced operations in February 1993 and United Asset Strategy
Fund, Inc. since it commenced operations in March 1995.
Louise D. Rieke is primarily responsible for the day-to-day management of the
Fund. Ms. Rieke has held her Fund responsibilities from the Fund's inception
to January 1990 and from May 1992 to the present. She is Vice President of
WRIMCO, Vice President of Waddell & Reed Asset Management Company, an affiliate
of WRIMCO, Vice President of the Fund, and Vice President of other investment
companies for which WRIMCO serves as investment manager. Ms. Rieke has served
as the portfolio manager for investment companies managed by Waddell & Reed,
Inc. and its successor, WRIMCO, since July 1986 and has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since May 1971. Other members
of WRIMCO's investment management department provide input on market outlook,
economic conditions, investment research and other considerations relating to
the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc., and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Fund and processes the payments of dividends. Waddell & Reed
Services Company also acts as agent ("Accounting Services Agent") in providing
bookkeeping and accounting services and assistance to the Fund and pricing
daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, and an indirect subsidiary of United
Investors Management Company, a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so may
consider sales of shares of the Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .15 of 1% of its net assets. The group
fee is a pro rata participation based on the relative net asset size of the
Fund in the group fee computed each day on the combined net asset values of all
the funds in the United Group at the annual rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $13.3 billion as of September 30, 1995. Management fees for the
fiscal year ended September 30, 1995, were 0.56% of the Fund's average net
assets, which during that period consisted only of the Fund's Class A shares.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class Y
shares, the Fund pays the Shareholder Servicing Agent a monthly fee based on
the
average daily net assets of the Class for the preceding month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
the Fund may have a high portfolio turnover. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
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 Ratings Services. A S&P corporate bond rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by 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.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In
the event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or
other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable 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.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's Ratings Services. A S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock
rating differs from a bond rating inasmuch as it is assigned to an equity
issue, which issue is intrinsically different from, and subordinated to, a debt
issue. Therefore, to reflect this difference, the preferred stock rating
symbol will normally not be higher than the debt rating symbol assigned to, or
that would be assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking
fund requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no 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.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating 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.
A preferred stock 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.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS' familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to
bonds within a particular capital structure and that these securities are rated
within the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
United High Income Fund II, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
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
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United High Income Fund II, Inc.
Class Y Shares
PROSPECTUS
January 12, 1996
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.
NUP2015Y(1-96)
printed on recycled paper
<PAGE>
UNITED HIGH INCOME FUND II, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
January 12, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
("Prospectus") for the Class A shares or the Class Y shares, as applicable, of
United High Income Fund II, Inc. (the "Fund"), dated January 12, 1996, 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
Goals and Investment Policies....................4
Investment Management and Other Services............ 21
Purchase, Redemption and Pricing of Shares.......... 25
Directors and Officers.............................. 38
Payments to Shareholders............................ 42
Taxes .............................................. 43
Portfolio Transactions and Brokerage................ 47
Other Information................................... 49
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return information, yield information and/or
performance information in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the
average annual compounded rates of return over the one-, five-, and ten-year
periods that would equate the initial amount invested to the ending redeemable
value. Standardized total return information is calculated by assuming an
initial $1,000 investment and, for Class A shares, from which the maximum sales
load of 5.75% is deducted. All dividends and distributions are assumed to be
reinvested in shares of the applicable class at net asset value for the class
as of the day the dividend or distribution is paid. No sales load is charged
on reinvested dividends or distributions on Class A shares. The formula used
to calculate the total return for a particular class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to
have been invested. If the sales charge applicable to Class A shares were
reflected, it would reduce the performance quoted for that class.
The average annual total return quotations for Class A shares as of
September 30, 1995, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One year period from October 1, 1994 to
September 30, 1995: 4.85% 11.25%
Five-year period from October 1, 1990 to
September 30, 1995: 12.34 13.68
Period from July 1, 1986* to
September 30, 1995: 7.81 8.50
*Date of initial public offering
Prior to January 12, 1995, the Fund offered only one class of shares to
the public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Fund have been available to certain
institutional investors.
The Fund may also quote unaveraged or cumulative total return for a class
which reflects the change in value of an investment in that class over a stated
period of time. Cumulative total return will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Yield
A yield quoted for a class of the Fund is computed by dividing the net
investment income per share of that class earned during the period for which
the yield is shown by the maximum offering price per share of that class on the
last day of that period according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of the Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day
of the period.
The yield for Class A shares of the Fund computed according to the formula
for the 30-day period ended on September 30, 1995, the date of the most recent
balance sheet included in this SAI, is _____%.
Change in yields primarily reflect different interest rates received by
the Fund as its portfolio securities change. Yield is also affected by
portfolio quality, portfolio maturity, type of securities held and operating
expenses of the applicable class.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each class of the Fund may also compare its
performance to that of other selected mutual funds or selected recognized
market indicators such as the Standard & Poor's 500 Stock Index and the Dow
Jones Industrial Average. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Securities -- General
The Fund may invest in securities including common stock, preferred
stock and debt securities, as described in the Prospectus. These securities
may include the following described securities from time to time.
The Fund may purchase debt securities whose principal amount at maturity
is dependent upon the performance of a specified equity security. The issuer
of such debt securities, typically an investment banking firm, is unaffiliated
with the issuer of the equity security to whose performance the debt security
is linked. Equity-linked debt securities differ from ordinary debt securities
in that the principal amount received at maturity is not fixed, but is based on
the price of the linked equity security at the time the debt security matures.
The performance of equity-linked debt securities depends primarily on the
performance of the linked equity security and may also be influenced by
interest rate changes. In addition, although the debt securities are typically
adjusted for diluting events such as stock splits, stock dividends and certain
other events affecting the market value of the linked equity security, the debt
securities are not adjusted for subsequent issuances of the linked equity
security for cash. Such an issuance could adversely affect the price of the
debt security. In addition to the equity risk relating to the linked equity
security, such debt securities are also subject to credit risk with regard to
the issuer of the debt security. In general, however, such debt securities are
less volatile than the equity securities to which they are linked.
The Fund may also invest in a type of convertible preferred stock that
pays a cumulative, fixed dividend that is senior to, and expected to be in
excess of, the dividends paid on the common stock of the issuer. At the
mandatory conversion date, the preferred stock is converted into not more than
one share of the issuer's common stock at the "call price" that was established
at the time the preferred stock was issued. If the price per share of the
related common stock on the mandatory conversion date is less than the call
price, the holder of the preferred stock will nonetheless receive only one
share of common stock for each share of preferred stock (plus cash in the
amount of any accrued but unpaid dividends). At any time prior to the
mandatory conversion date, the issuer may redeem the preferred stock upon
issuing to the holder a number of shares of common stock equal to the call
price of the preferred stock in effect on the date of redemption divided by the
market value of the common stock, with such market value typically determined
one or two trading days prior to the date notice of redemption is given. The
issuer must also pay the holder of the preferred stock cash in an amount equal
to any accrued but unpaid dividends on the preferred stock. This convertible
preferred stock is subject to the same market risk as the common stock of the
issuer, except to the extent that such risk is mitigated by the higher dividend
paid on the preferred stock. The opportunity for equity appreciation afforded
by an investment in such convertible preferred stock, however, is limited,
because in the event the market value of the issuer's common stock increases to
or above the call price of the preferred stock, the issuer may (and would be
expected to) call the preferred stock for redemption at the call price. This
convertible preferred stock is also subject to credit risk with regard to the
ability of the issuer to pay the dividend established upon issuance of the
preferred stock. Generally, convertible preferred stock is less volatile than
the related common stock of the issuer.
Specific Securities and Investment Practices
Common Stocks
As a fundamental policy, the Fund will not purchase, or otherwise
voluntarily acquire, any common stocks unless, after such purchase or
acquisition, not more than 20% of the value of its total assets would be
invested in common stocks. This 20% limit includes common stocks acquired on
conversion of convertible securities, on exercise of warrants or call options,
or in any other voluntary manner. It does not include premiums paid or
received in connection with put or call options, or the amount of any margin
deposits as to options or futures contracts. If the Fund is invested up to 20%
in common stocks, it may still purchase or sell futures and options relating to
common stocks. The common stocks that the Fund purchases will be selected to
try to achieve either a combination of the Fund's primary and secondary goals,
in which case they will be dividend-paying, or its secondary goal, in which
case they may not be dividend-paying; however, the Fund does not intend to
invest more than 4% of its total assets in non-dividend-paying common stocks.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, General Services Administration, Central Bank
for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, 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 the Federal National Mortgage
Association, are supported only by the credit of the instrumentality and not by
the Treasury. If the securities are not backed by the full faith and credit of
the United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert a
claim against the United States in the event that the agency or instrumentality
does not meet its commitment.
U.S. Government Securities may include mortgage-backed securities of the
Government National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae"). These mortgage-backed securities include "pass-
through" securities and "participation certificates." Another type of
mortgage-backed security is a collateralized mortgage obligation ("CMO"). See
"Mortgage-Backed Securities." Timely payment of principal and interest on
Ginnie Mae pass-throughs is guaranteed by the full faith and credit of the
United States. Freddie Mac and Fannie Mae are both instrumentalities of the
U.S. Government, but their obligations are not backed by the full faith and
credit of the United States. It is possible that the availability and the
marketability (i.e., liquidity) of the securities discussed in this section
could be adversely affected by actions of the U.S. Government to tighten the
availability of its credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificate of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury security and selling them as
individual securities. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financing Corporation (FICO) can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued by
the U.S. Government, a government agency, or a corporation in zero coupon form.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of
mortgages including those on commercial real estate or residential properties.
Some mortgage-backed securities, such as collateralized mortgage obligations,
make payments of both principal and interest at a variety of intervals; others
make semiannual interest payments at a predetermined rate and repay principal
at maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with interests
sold in the pool; the assembly is made by an "issuer," such as a mortgage
banker, commercial bank or savings and loan association, which assembles the
mortgages in the pool and passes through payments of principal and interest for
a fee payable to it. Payments of principal and interest by individual
mortgagors are passed through to the holders of the interest in the pool.
Monthly or other regular payments on pass-through securities and participation
certificates include payments of principal (including prepayments on mortgages
in the pool) rather than only interest payments.
The Fund may purchase mortgage-backed securities issued by both government
and non-government entities such as banks, mortgage lenders, or other financial
institutions. Other types of mortgage-backed securities will likely be
developed in the future, and the Fund may invest in them if WRIMCO determines
they are consistent with the Fund's goals and investment policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase prices
of POs. Rising interest rates can have the opposite effect.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to
result in a market value for the instrument that approximates its par value.
Foreign Securities and Currency
The Fund may purchase foreign securities without limitation. The Fund
will not speculate in foreign currencies, but may briefly hold foreign
currencies in connection with the purchase or sale of foreign securities.
Waddell & Reed Investment Management Company (WRIMCO), the Fund's
investment manager, believes that there are investment opportunities as well as
risks in investing in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual foreign
companies may also differ favorably or unfavorably from domestic companies in
the same industry. Foreign currencies may be stronger or weaker than the U.S.
dollar or than each other. WRIMCO believes that the Fund's ability to invest a
substantial portion of its assets abroad might enable it to take advantage of
these differences and strengths where they are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage).
The Fund may bear a transaction charge in connection with the exchange of
currency. There may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock
markets have substantially less volume than the New York Stock Exchange (the
"NYSE") and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government regulation of stock exchanges, brokers and listed companies
than in the United States. In addition, with respect to certain foreign
countries, there is a possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments which could
adversely affect investments in securities of issuers located in those
countries. If it should become necessary, the Fund would normally encounter
greater difficulties in commencing a lawsuit against the issuer of a foreign
security than it would against a U.S. issuer.
Restricted Securities
Restricted securities are subject to legal or contractual restrictions
on resale because they are not registered under the Securities Act of 1933, as
amended (the "1933 Act").
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" below.
Lending Securities
One of the ways in which the Fund may try to realize income is by
lending its securities. 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 loan that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash, U.S. Government Securities or bank letters
of credit, at least equal in value to the market value of the securities loaned
on each day that the loan is outstanding. If the market value of the loaned
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities
loaned. If the market value of the securities decreases, the borrower is
entitled to return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive
interest on the U.S. Government Securities used as collateral. Part of the
interest received in either case may be shared with the borrower.
The letters of credit that the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities),
entered into at the request of the borrower and for its account and risk, under
which the banks are obligated to pay to the Fund, while the letter is in
effect, amounts demanded by the Fund if the demand meets the terms of the
letter. The Fund's right to make this demand secures the borrower's
obligations to it. The terms of any such letters and the creditworthiness of
the banks providing them (which might include the Fund's custodian bank) must
be satisfactory to the Fund. Under the Fund's current securities lending
procedures, the Fund may lend securities only to broker-dealers and financial
institutions deemed creditworthy by WRIMCO. The Fund will make loans only
under rules of the NYSE, which presently require the borrower to give the
securities back to the Fund within five business days after the Fund gives
notice to do so. If the Fund loses its voting rights on securities loaned, it
will have the securities returned to it in time to vote them if a material
event affecting the investment is to be voted on. The Fund may pay reasonable
finder's, administrative and custodian fees in connection with loans of
securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 10%
of its net assets to be invested in illiquid securities, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or broker-
dealer) agrees, at the time of purchase, that it will repurchase the security
at a specified time and price. The amount by which the resale price is greater
than the purchase price reflects an agreed-upon market interest rate effective
for the period of the agreement. The return on the securities subject to the
repurchase agreement may be more or less than the return on the repurchase
agreement.
The majority of the repurchase 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 and
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans, i.e., the
value of the 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 Investment Company Act of 1940, as amended (the "1940 Act"), is and, during
the entire term of the agreement, will remain at least equal to the value of
the loan, including the accrued interest earned thereon. Repurchase agreements
are entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase any securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis. The
securities so purchased or sold by the Fund are subject to market fluctuation;
their value may be less or more when delivered than the purchase price paid or
received. For example, delivery to the Fund and payment by the Fund in the
case of a purchase by it, or delivery by the Fund and payment to it in the case
of a sale by the Fund, may take place a month or more after the date of the
transaction. The purchase or sale price are fixed on the transaction date.
The Fund will enter into when-issued or delayed-delivery transactions in order
to secure what is considered to be an advantageous price and yield at the time
of entering into the transaction. No interest accrues to the Fund until
delivery and payment is completed. When the Fund makes a commitment to
purchase securities on a when-issued or delayed-delivery basis, it will record
the transaction and thereafter reflect the value of the securities in
determining its net asset value per share. The securities so sold by the Fund
on a delayed-delivery basis are also subject to market fluctuation; their value
when the Fund delivers them may be more than the purchase price the Fund
receives. When the Fund makes a commitment to sell securities on a delayed
basis, it will record the transaction and thereafter value the securities at
the sales price in determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the
securities. However, before the securities are delivered to the Fund and
before it has paid for them (the "settlement date"), the Fund could sell the
securities if WRIMCO decided it was advisable to do so for investment reasons.
The Fund will hold aside or segregate cash or other securities, other than
those purchased on a when-issued or delayed-delivery basis, at least equal to
the amount it will have to pay on the settlement date; these other securities
may, however, be sold at or before the settlement date to pay the purchase
price of the when-issued or delayed-delivery securities.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that the Fund may not invest more than
10%of its net assets in illiquid investments. Investments currently considered
to be illiquid include: (i) repurchase agreements not terminable within seven
days; (ii) restricted securities not determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors; (iii) securities for
which market quotations are not readily available; and (iv) over-the-counter
("OTC") options and their underlying collateral. The assets used as cover for
OTC options written by the Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase
any OTC option it writes at a maximum price to be calculated by a formula set
forth in the option agreement. The cover for an OTC option written subject to
this procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Indexed Securities
The Fund may purchase securities whose prices are indexed to the prices of
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. Gold-
indexed securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S. dollar-
denominated securities of equivalent issuers. Currency-indexed securities may
be positively or negatively indexed; that is, their maturity value may increase
when the specified currency value increases, resulting in a security that
performs similarly to a foreign-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations,
and certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Warrants
As a fundamental policy, the Fund may not invest more than 5% of its net
assets, valued at the lower of cost or market, in warrants. The Fund has
undertaken to certain State securities commissions that not more than 2% of the
Fund's net assets may be invested in warrants that are not listed on the NYSE
or the American Stock Exchange. Warrants acquired in units or attached to
other securities are not considered for purposes of computing these
limitations.
Warrants are options to purchase equity securities at specific prices
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer. Warrants are highly volatile and, therefore, more susceptible to a
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
Securities of Other Investment Companies
In order to comply with regulations of the State of Ohio, for so long as
such regulations are in effect and applicable to the Fund, the Fund will not
invest in securities of other investment companies, except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
the purchase other than the customary broker's commission, or except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
Real Estate
As an operating (i.e., non-fundamental) policy, the Fund may not invest in
real estate; however, the Fund may invest in securities (other than limited
partnership interests) issued by companies engaged in such business, including
real estate investment trusts.
Options, Futures and Other Strategies
As discussed in the Prospectus, WRIMCO may use certain options to attempt
to enhance income or yield or may attempt to reduce overall risk of its
investments by using certain options and futures contracts (sometimes referred
to as "futures"). Options and futures are sometimes referred to collectively
as "Financial Instruments." The Fund's ability to use a particular Financial
Instrument may be limited by its investment limitations or operating policies.
See "Investment Restrictions."
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held in the Fund's portfolio. Thus, in a short hedge the Fund
takes a position in a Financial Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not
own a corresponding security and, therefore, the transaction does not relate to
a security the Fund owns. Rather, it relates to a security that the Fund
intends to acquire. If the Fund does not complete the hedge by purchasing the
security it anticipated purchasing, the effect on the Fund's portfolio is the
same as if the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that the
Fund owns or intends to acquire. Financial Instruments on indices, in
contrast, generally are used to attempt to hedge against price movements in
market sectors in which the Fund has invested or expects to invest. Financial
Instruments on debt securities may be used to hedge either individual
securities or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several exchanges upon
which they are traded, the Commodity Futures Trading Commission (the "CFTC")
and various state regulatory authorities. In addition, the Fund's ability to
use Financial Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and
in the Prospectus, WRIMCO expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts and
other similar or related techniques. These new opportunities may become
available as WRIMCO develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts,
options on futures contracts or other techniques are developed. WRIMCO may
utilize these opportunities to the extent that they are consistent with the
Fund's goals and permitted by the Fund's investment limitations and applicable
regulatory authorities. The Fund's Prospectus or this SAI will be
supplemented to the extent that new products or techniques involve materially
different risks than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities and interest rate
markets, which requires different skills than predicting changes in the prices
of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of the
investments being hedged. For example, if the value of a Financial Instrument
used in a short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of
correlation might occur due to factors unrelated to the value of the
investments being hedged, such as speculative or other pressures on the markets
in which Financial Instruments are traded. The effectiveness of hedges using
Financial Instruments on indices will depend on the degree of correlation
between price movements in the index and price movements in the securities
being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match the Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although
this may not be successful in all cases. If price changes in the Fund's
options or futures positions are poorly correlated with its other investments,
the positions may fail to produce anticipated gains or result in losses that
are not offset by gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because WRIMCO projected a decline in the
price of a security in the Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss. In either such case, the
Fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties
(i.e., Financial Instruments other than purchased options). If the Fund were
unable to close out its positions in such Financial Instruments, it might be
required to continue to maintain such assets or accounts or make such payments
until the position expired or matured. These requirements might impair the
Fund's ability to sell a portfolio security or make an investment at a time
when it would otherwise be favorable to do so, or require that the Fund sell a
portfolio security at a disadvantageous time. The Fund's ability to close out
a position in a Financial Instrument prior to expiration or maturity depends on
the existence of a liquid secondary market or, in the absence of such a market,
the ability and willingness of the other party to the transaction
("counterparty") to enter into a transaction closing out the position.
Therefore, there is no assurance that any position can be closed out at a time
and price that is favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities or other options or futures contracts, or
(2) cash, receivables and short-term debt securities, with a value sufficient
at all times to cover its potential obligations to the extent not covered as
provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash, U.S. Government Securities or other liquid, high-grade debt securities in
a segregated account with its custodian in the prescribed amount as determined
daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. The Fund may purchase call options ("calls") and write (i.e.,
sell) calls only if (i) the investments to which the call relates (the "related
investments") are: (a) debt securities; (b) common stocks; or (c) "broadly-
based" stock indices (i.e., include stocks that are not limited to issuers in
any particular industry or similar industries); and (ii) in the case of calls
written by the Fund, such calls are (except for calls on stock indices and
futures) covered, i.e., the Fund owns the related investments (or other
investments suitable for escrow arrangements) while the call is outstanding.
The Fund may purchase put options ("puts") or write (i.e., sell) puts but only
if the related investment is one of those listed above as to calls. The Fund
may also purchase and sell the options on futures contracts described below.
The above limitations on the puts and calls the Fund may write or purchase are
fundamental policies, i.e., rules that may only be changed by a shareholder
vote. The Fund has no fundamental policies as to percentage limitations on its
purchase and sale of options.
The Fund has undertaken to certain State securities commissions that it
will not purchase put options or call options if after such purchase, the
premiums paid for all such options owned at that time would exceed 5% of its
total assets. The Fund has also undertaken to a State Securities Commission
that all calls written by the Fund will be covered. The Fund has undertaken to
a State securities commission that it will write a put only when it has
determined that it would be willing to purchase the underlying security at the
exercise price.
The purchase of call options serves as a long hedge, and the purchase of
put options serves as a short hedge. Writing put or call options can enable
the Fund to enhance income or yield by reason of the premiums paid by the
purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the Fund would expect to suffer a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be exercised and the Fund will be
obligated to sell the security at less than its market value.
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
security at more than its market value. If the put option is an OTC option,
the securities or other assets used as cover would be considered illiquid to
the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit the Fund to realize
profits or limit losses on an option position prior to its exercise or
expiration.
A type of put that the Fund may purchase is an "optional delivery standby
commitment", which is entered into by parties selling debt securities to the
Fund. An optional delivery standby commitment gives the Fund the right to sell
the security back to the seller on specified terms. This right is provided as
an inducement to purchase the security.
Risks of Options on Securities. The Fund is authorize to purchase and
sell both listed and OTC options. Exchange markets for options on debt
securities exist, but these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that,
in effect, guarantees completion of every exchange-traded option transaction.
In contrast, OTC options are contracts between the Fund and its counterparty
(usually a securities dealer or a bank) with no clearing organization
guarantee. Thus, when the Fund purchases an OTC option, it relies on the
counterparty from whom it purchased the option to make or take delivery of the
underlying investment upon exercise of the option. Failure by the counterparty
to do so would result in the loss of any premium paid by the Fund as well as
the loss of any expected benefit of the transaction. WRIMCO will evaluate the
ability to enter into closing purchase transactions in unlisted options prior
to writing them.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options only with major dealers
in unlisted options, there is no assurance that the Fund will in fact be able
to close out an OTC option position at a favorable price prior to expiration.
WRIMCO will evaluate the ability to enter into closing purchase transactions on
unlisted options prior to writing them. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by the Fund could cause material losses because the Fund would
be unable to sell the investment used as cover for the written option until the
option expires or is exercised.
Options on Stock Indices. The Fund is permitted to write and purchase
options on broadly-based stock indices. Broadly-based stock indices include
stocks that are not limited to issuers in any particular industry or similar
industries. The Fund may write options on stock indices to generate income.
The Fund may also purchase calls on stock indices to hedge against anticipated
increases in the price of securities it wishes to acquire and purchase puts on
stock indices to hedge against anticipated declines in the market value of its
portfolio securities.
Puts and calls on stock indices are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
gain or loss depends on changes in the broad-based index in question rather
than on price movements in individual securities or futures contracts. When
the Fund writes a call on a stock index, it receives a premium and agrees that,
prior to the expiration date, the purchaser of the call, upon exercise of the
call, will receive from the Fund an amount of cash if the closing level of the
stock index upon which the call is based is greater than the exercise price of
the call. The amount of cash is equal to the difference between the closing
price of the index and the exercise price of the call times a specified
multiple (the "multiplier"), which determines the total dollar value for each
point of such difference. When the Fund buys a call on a stock index, it pays
a premium and has the same rights as to a writer of such call as are indicated
above. When the Fund buys a put on a stock index, it pays a premium and has
the right, prior to the expiration date, to require the seller of such a put,
upon the Fund's exercise of the put, to deliver to the Fund an amount of cash
if the closing level of the stock index upon which the put is based is less
than the exercise price of the put, which amount of cash is determined by the
multiplier, as described above for calls. When the Fund writes a put on a
stock index, it receives a premium and the purchaser has the right, prior to
the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the stock index and the
exercise price times the multiplier if the closing level is less than the
exercise price.
Risks of Options on Stock Indices. The risks of investment in options on
stock indices may be greater than options on securities. Because stock index
options are settled in cash, when the Fund writes a call on a stock index it
cannot provide in advance for its potential settlement obligations by acquiring
and holding the underlying securities. The Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of stocks
similar to those on which the underlying index is based. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing exactly
the same stocks as underlie the index and, as a result, bears a risk that the
value of the securities held will vary from the value of the index.
Even if the Fund could assemble a stock portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, the Fund as the call writer will not learn that
ithas been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its stock
portfolio. This "timing risk" is an inherent limitation on the ability of
index call writers to cover their risk exposure by holding stock positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
Futures Contracts and Options Thereon. The Fund may buy and sell futures
contracts, but only futures contracts relating to debt securities ("Debt
Futures") and futures contracts on broadly-based stock indices (i.e., include
stocks that are not limited to issuers in any particular industry or similar
industries) ("Stock Index Futures"), and may also buy and sell options on Debt
Futures and Stock Index Futures. The limitation on buying and selling futures
contracts and options on futures contracts to the futures described above is a
fundamental policy that may only be changed by a shareholder vote. The Fund
has no other fundamental policies as to its use of futures and options thereon
and, thus, no fundamental policy as to a percentage limitation thereon; see
below, however, as to limitations relating to the CFTC.
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve as
a limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of the
Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average
duration of the Fund's fixed-income portfolio, the Fund may sell a futures
contract or a call option thereon, or purchase a put option on that futures
contract. If WRIMCO wishes to lengthen the average duration of the Fund's
fixed-income portfolio, the Fund may buy a futures contract or a call option
thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial
margin" consisting of cash or U.S. Government Securities in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call or put option on a futures contract, in accordance with
applicable exchange rules. Unlike margin in securities transactions, initial
margin on futures contracts does not represent a borrowing, but rather is in
the nature of a performance bond or good-faith deposit that is returned to the
Fund at the termination of the transaction if all contractual obligations have
been satisfied. Under certain circumstances, such as periods of high
volatility, the Fund may be required by an exchange to increase the level of
its initial margin payment, and initial margin requirements might be increased
generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures and options on futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or options on
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
As an operating policy, to the extent that the Fund enters into futures
contracts or options on futures contracts, in each case other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial margin
and premiums required to establish those positions (excluding the amount by
which options are "in-the-money" at the time of purchase) will not exceed 5% of
the liquidation value of the Fund's portfolio, after taking into account
unrealized profits and unrealized losses on any contracts the Fund has entered
into. (In general, a call option on a futures contract is "in-the-money if the
value of the underlying futures contract exceeds the strike, i.e., exercise,
price of the call; a put option on a futures contract is "in-the-money" if the
value of the underlying futures contract is exceeded by the strike price of the
put.) This policy does not limit to 5% the percentage of the Fund's assets
that are at risk in futures contracts and options on futures contracts.
Risk of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on
futures market), due to the differences in the natures of those markets, are
subject to the following factors, which may create distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close future contracts through offsetting
transactions, which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactionsrather than making or taking
delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures
market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest or stock market trends by
WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various
interest rate movements or stock market movements or the time span within which
the movements take place.
Stock Index Futures. The risk of imperfect correlation between movements
in the price of Stock Index Futures and movements in the price of the
securities that are the subject of the hedge increases as the composition of
the Fund's common stock portfolio diverges from the common stocks included in
the applicable index. The price of the Stock Index Future may move more than
or less than the price of the securities being hedged. If the price of the
Stock Index Future moves less than the price of the securities that are the
subject of the hedge, the hedge will not be fully effective but, if the price
of the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price
of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the futures contract. If the price of
the future moves more than the price of the securities, the Fund will
experience either a loss or a gain on the future that will not be completely
offset by movements in the price of the securities that are the subject of the
hedge. To compensate for the imperfect correlation of movements in the price
of the securities being hedged and movements in the price of the Stock Index
Futures, the Fund may buy or sell Stock Index Futures in a greater dollar
amount than the dollar amount of the securities being hedged if the historical
volatility of the prices of such securities being hedged is less than the
historical volatility of the stock index. It is also possible that, where the
Fund has sold Stock Index Futures to hedge its common stocks against decline in
the market, the market may advance and the value of securities held in the
portfolio may decline. If this occurred, the Fund would lose money on the
futures contracts and also experience a decline in value in its portfolio
securities. However, while this could occur for a very brief period or to a
very small degree, over time the value of a diversified portfolio of securities
will tend to move in the same direction as the market indices upon which the
futures are based.
Where Stock Index Futures are purchased to hedge against a possible
increase in the price of securities before the Fund is able to invest in them
in an orderly fashion, it is possible that the market may decline instead. If
the Fund then concludes not to invest in them at that time because of concern
as to possible further market decline or for other reasons, it will realize
loss on the futures contract that is not offset by a reduction in the price of
the common stocks it had anticipated purchasing.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures contracts, to
adjust the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause
it to sell or purchase related investments, thus increasing its turnover rate.
Once the Fund has received an exercise notice on an option it has written, it
cannot effect a closing transaction in order to terminate its obligation under
the option and must deliver or receive the underlying securities at the
exercise price. The exercise of puts purchased by the Fund may also cause the
sale of related investments, also increasing turnover; although such exercise
is within the Fund's control, holding a protective put might cause it to sell
the related investments for reasons that would not exist in the absence of the
put. The Fund will pay a brokerage commission each time it buys or sells a put
or call or purchases or sells a futures contract. Such commissions may be
higher than those that would apply to direct purchases or sales.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and, together with certain
restrictions described in the Prospectus, cannot be changed without shareholder
approval. Under these additional restrictions, the Fund may not:
(i) Buy commodities or commodity contracts; however, it may buy and sell
options and futures as permitted by any other fundamental policy,
whether or not any such option or future is considered to be a
commodity or a commodity contract;
(ii) Invest in mineral related programs or leases;
(iii) Buy the securities of a company if it would then own more than 10% of
the voting securities or any class of securities of that company; or
buy the securities of any company if more than 5% of the Fund's total
assets (valued at market value) would then be invested in that company;
or buy the securities of companies in any one industry if more than 25%
of the Fund's total assets would then be invested in companies in that
industry;
(iv) Buy shares of other investment companies that redeem their shares.
The Fund may buy shares of investment companies that do not redeem
their shares if it does so in a regular transaction in the open market
and then does not have more than one tenth (i.e., 10%) of its total
assets in these shares; the Fund may also buy these shares as part of a
merger or consolidation;
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Buy or continue to hold securities of a company if the Fund's Directors
or officers or certain others who own more than .5 of 1% of the shares
of that company own in the aggregate more than 5% of the shares of that
company;
(vii) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(viii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions; however, the Fund may make margin
deposits in connection with any of the financial instruments it is
permitted to buy or sell in accordance with any other fundamental
policies;
(ix) Engage in the underwriting of securities, except to the extent it may
be deemed to be an underwriter in connection with the sale of
restricted securities; however, the Fund will not purchase restricted
securities if as a result of such purchase more than 10% of its assets
would be invested in such securities;
(x) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets; this does not prohibit the escrow
arrangements contemplated by the writing of covered call options. The
Fund may borrow money from banks as a temporary measure or for
extraordinary or emergency purposes but only up to 5% of its total
assets;
(xi) Make loans other than certain limited types of loans; the Fund may buy
debt securities which have been sold to the public; it may also buy
other obligations customarily acquired by institutional investors; this
can be considered to be making loans. The Fund may also enter into
repurchase agreements (see "Repurchase Agreements" above) and lend its
securities (see "Lending Securities" above).
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year and
dividing it by the monthly average of the market value of such securities
during the year, excluding certain short-term securities. The Fund's turnover
rate may vary greatly from year to year as well as within a particular year and
may be affected by cash requirements for the redemption of its shares.
The Fund's portfolio turnover rate for the fiscal years ended September
30, 1995 and 1994 was 26.82% and 47.05%, respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell & Reed,
Inc. Under the Management Agreement, WRIMCO is employed to supervise the
investments of the Fund and provide investment advice to the Fund. The address
of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to TMK/United Funds, Inc. since that
fund's inception, until January 8, 1992 when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for Waddell & Reed Funds,
Inc. since its inception in September 1992 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995. Waddell & Reed, Inc. serves as
principal underwriter for the investment companies in the United Group of
Mutual Funds and Waddell & Reed Funds, Inc. and serves as distributor for
TMK/United Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund
and Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell &
Reed, Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records, pricing
of the Fund's shares, and preparation of prospectuses for existing
shareholders, proxy statements and certain reports. A new Accounting Services
Agreement, or amendments to an existing one, may be approved by the Fund's
Board of Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Fund pays WRIMCO a fee as described in the Prospectus. The management fees
paid by the Fund to WRIMCO during the Fund's fiscal years ended September 30,
1995, 1994 and 1993 were $2,021,032, $2,157,608, and $2,062,352, 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 $1.0208 for each shareholder account that was in existence at
any time during the prior month, plus $0.30 for each account on which a
dividend or distribution, of cash or shares, had a record date in that month.
For Class Y shares, the Fund pays the Agent a monthly fee equal to one-twelfth
of .15 of 1% of the average daily net assets of that class for the preceding
month. The Fund also pays certain out-of-pocket expenses of the Agent,
including long distance telephone communications costs; microfilm and storage
costs for certain documents; forms, printing and mailing costs; and costs of
legal and special services not provided by Waddell & Reed, Inc., WRIMCO or the
Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a 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 September 30, 1995,1994
and 1993 were $57,500, $60,000 and $56,667, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay by requiring WRIMCO to reduce its fee to the extent any
included expenses exceed 2.5% of the Fund's first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of any
remaining average net assets during a fiscal year. The limit does not include
interest, taxes, brokerage commissions and extraordinary expenses such as
litigation that usually do not arise in the normal operations of a mutual fund.
The Fund's other expenses, including its management fee, are included. The
Fund will notify shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares
and thus sells shares only for purchase orders received. Under this agreement,
WRIMCO pays the costs of sales literature, including the costs of shareholder
reports used as sales literature, and the costs of printing the prospectus
furnished to it by the Fund. The aggregate dollar amount of underwriting
commissions for Class A shares for the fiscal years ended September 30, 1995,
1994 and 1993 were $1,064,115, $1,437,569 and $1,766,782, respectively. The
amounts retained by WRIMCO for the same periods were $457,023, $633,769 and
$775,731, respectively.
A major portion of the sales charge for Class A shares is paid to account
representatives and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may
compensate its account representatives as to purchases for which there is no
sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Service Plan for Class A shares (the "Plan") adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay Waddell &
Reed, Inc., the principal underwriter for the Fund, a fee not to exceed .25% of
the Fund's average annual net assets attributable to Class A shares, paid
monthly, to reimburse Waddell & Reed, Inc. for its costs and expenses in
connection with the provision of personal services to Class A shareholders of
the Fund and/or maintenance of Class A shareholder accounts.
The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders of the Fund and/or maintaining Class
A shareholder accounts; increasing services provided to Class A shareholders of
the Fund by office personnel located at field sales offices; engaging in other
activities useful in providing personal service to Class A shareholders of the
Fund and/or maintenance of Class A shareholder accounts; and in compensating
broker-dealers, and other third parties, who may regularly sell Class A shares
of the Fund, and other third parties, for providing shareholder services and/or
maintaining shareholder accounts with respect to Class A shares. Service fees
in the amount of $398,763 were paid (or accrued) by the Fund with respect to
Class A shares for the fiscal year ended September 30, 1995.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan
Directors"). The Plan was also approved by the affected shareholders of the
Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will
be effective only if approved, by the Directors including the Plan Directors
acting in person at a meeting called for that purpose, (iii) amounts to be paid
by the Fund under the Plan may not be materially increased without the vote of
the holders of a majority of the outstanding Class A shares of the Fund, and
(iv) while the Plan remains in effect, the selection and nomination of the
Directors who are Plan Directors will be committed to the discretion of the
Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, the Custodian is responsible for holding the Fund's cash and
securities. If Fund assets are held in foreign countries, the Fund will comply
with Rule 17f-5 of the 1940 Act. Price Waterhouse LLP, Kansas City, Missouri,
the Fund's independent accountants, audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each Class of the shares of the Fund is the
value of the assets of that Class, less the liabilities of that Class, divided
by the total number of outstanding shares of that Class.
Class A shares of the Fund are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup as
of September 30, 1995 was as follows:
Net asset value per Class A share (Class A net assets divided
by Class A shares outstanding) ............ $4.03
Add: selling commission (5.75% of offering
price) .................................... .25
-----
Maximum offering price per Class A share (Class A net asset
value divided by 94.25%) .................. $4.28
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class Y share is its net asset value next determined
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
receives and accepts your order at its principal business office at the address
shown on the cover of this SAI. You will be sent a confirmation after your
purchase which will indicate how many shares you have purchased. Shares are
normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are computed once on
each day that the NYSE is open for trading as of the later of the close of the
regular session of the NYSE (ordinarily 4:00 p.m. Eastern time) or of the close
of the regular session of any domestic securities or commodities exchange on
which an option or future held by the Fund is traded. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that the NYSE will not be open on the following days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that
the NYSE may close on other days. The net asset value will change every
business day, since the value of the assets and the number of shares
outstanding
change every day.
The securities in the portfolio of the Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean
between the closing bid and asked prices. Other securities that are traded
over-the-counter are priced using Nasdaq (National Association of Securities
Dealers Automated Quotations), which provides information on bid and asked
prices quoted by major dealers in such stocks. Bonds, other than convertible
bonds, are valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days when there
is no sale reported. Short-term debt securities and other assets are valued at
amortized cost, which approximates market. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Board of Directors.
Options and futures purchased and held by the Fund are valued at the last
sales price thereof on the securities or commodities exchanges on which they
are traded, or, if there are no transactions, at the mean between bid and asked
prices. Ordinarily, the close of the regular session for option trading on
national securities exchanges is 4:10 p.m. Eastern time and the close of the
regular session of commodities exchanges is 4:15 p.m. Eastern time. Futures
contracts will be valued by reference to established futures exchanges. The
value of a futures contract purchased by the Fund will be either the closing
purchase price of the contract or the bid price. Conversely, the value of a
futures contract sold by the Fund will be either the closing price or the asked
price.
When the Fund writes a put or call, an amount equal to the premium
received is included in the Fund's Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability section.
The deferred credit is "marked-to-market" (that is, treated as sold for its
fair market value) to reflect the current market value of the put or call. If
a call the Fund wrote is exercised, the proceeds received on the sale of the
related investment are increased by the amount of the premium the Fund
received. If the Fund exercised a call it purchased, the amount paid to
purchase the related investment is increased by the amount of the premium paid.
If a put written by the Fund is exercised, the amount that the Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If the Fund exercises a put it purchased, the amount received from
the sale of the related investment is reduced by the amount of the premium it
paid. If a put or call written by the Fund expires, it has a gain in the
amount of the premium; if it enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less than
the cost of the closing transaction.
Foreign currency exchange rates are generally determined prior to the
close of trading of the regular session of the NYSE. Occasionally events
affecting the value of foreign investments and such exchange rates occur
between the time at which they are determined and the close of the regular
session of trading on the NYSE, which events will not be reflected in a
computation of the Fund's net asset value on that day. If events materially
affecting the value of such investments or currency exchange rates occur during
such time period, investments will be valued at their fair value as determined
in good faith by or under the direction of the Board of Directors. The foreign
currency exchange transactions of the Fund conducted on a spot (i.e., cash)
basis are valued at the spot rate for purchasing or selling currency prevailing
on the foreign exchange market. This rate under normal market conditions
differs from the prevailing exchange rate in an amount generally less than one-
tenth of one percent due to the costs of converting from one currency to
another.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Fund's Board of Directors. They
are accounted for in the same manner as exchange-listed puts.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time
of initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A $50
minimum initial investment also pertains to accounts for which an investor has
arranged, at the time of initial investment, to make subsequent purchases for
the account by having regular monthly withdrawals of $25 or more made from a
bank account. A minimum initial investment of $25 is applicable to purchases
made through payroll deduction for or by employees of WRIMCO, Waddell & Reed,
Inc., their affiliates or certain retirement plan accounts. Except with
respect to certain exchanges and automatic withdrawals from a bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges for
Shares of Other Funds in the United Group."
For Class Y shares, investments by government entities or authorities or
by corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges
Account Grouping (Applicable to Class A Shares Only)
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. For
the purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), Section 457 of the Internal Revenue
Code of 1986, as amended (the "Code") salary reduction plan account
provided that such purchases are subject to a sales charge (see "Net Asset
Value Purchases"), tax sheltered annuity account ("T.S.A.") or Keogh plan
account, provided that the individual and spouse are the only participants
in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in
the trust account is eligible for grouping with an IRA account of W,
H's wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account
held by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there
is more than one participant where one or more of the participants is other
than the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee
benefit plan of an incorporated business will be grouped. A "qualified"
employee benefit plan is established pursuant to Section 401 of the Code. All
qualified employee benefit plans of any one employer or affiliated employers
will also be grouped. An affiliate is defined as an employer that directly, or
indirectly, controls or is controlled by or is under control with another
employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee
pension plan ("SEP"), payroll deduction plan or similar arrangement adopted by
an employer or affiliated employers (as defined above) may be grouped provided
that the employer elects to have all such purchases grouped at the time the
plan is set up. If the employer does not make such an election, the purchases
made by individual employees under the plan may be grouped with the other
accounts of the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping
may be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is
eligible for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 of Class A shares is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that the
purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His wife,
W, now wishes to invest $20,000 in Class A shares of the Fund. W's
purchase will be combined with H's existing account and will be
entitled to a reduced sales charge of 4.75%. H's original purchase
was subject to a full sales charge and the reduced charge does not
apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan may be combined with the additional
purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a
Statement of Intention form, which is available from Waddell & Reed, Inc., the
purchaser indicates an intention to invest, over a 13-month period, a dollar
amount which is sufficient to qualify for a reduced sales charge. The 13-month
period begins on the date the first purchase made under the Statement is
accepted by Waddell & Reed, Inc. Each purchase made from time to time under
the Statement of Intention is treated as if the purchaser were buying at one
time the total amount which he or she intends to invest. The sales charge
applicable to all purchases of Class A shares made under the terms of the
Statement of Intention will be the sales charge in effect on the beginning date
of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement
is accepted by Waddell & Reed, Inc. of $15,000; H's wife, W, has an
account in her own name invested in another fund in the United Group
which charges the same sales load as the Fund, with a net asset value
as of the date of acceptance of the Statement of Intention of
$10,000; H needs to invest $75,000 in Class A shares over the 13-
month period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be
returned to the purchaser after it is accepted by Waddell & Reed, Inc. and will
set forth the dollar amount of Class A shares which must be purchased within
the 13-month period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the Statement of Intention only if the
contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement. An amount equal to
5% of the purchase required under the Statement of Intention will be held "in
escrow." If a purchaser does not, during the period covered by the Statement
of Intention, invest the amount required to qualify for the reduced sales
charge under the terms of the Statement of Intention, he or she will be
responsible for payment of the sales charge applicable to the amount actually
invested. The additional sales charge owed on purchases of Class A shares made
under a Statement of Intention which is not completed will be collected by
redeeming part of the shares purchased under the Statement of Intention and
held "in escrow" unless the purchaser makes payment of this amount to Waddell &
Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower than
that available under the Statement of Intention, the lower sales charge will
apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell
& Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of Intention will be deducted in computing the aggregate purchases
under the Statement of Intention.
Statements of Intention are not available for purchases made under a SEP
plan where the employer has elected to have all purchases under the SEP
grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a sales
charge. A purchase of, or shares held, in any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group have shares that are subject
to a maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United Retirement
Shares, Inc., United High Income Fund, Inc., United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc., United Asset Strategy Fund, Inc. and
United High Income Fund II, Inc. The following funds in the United Group have
shares that are subject to a "reduced" sales charge as described in the
prospectus of each fund: United Municipal Bond Fund, Inc., United Government
Securities Fund, Inc. and United Municipal High Income Fund, Inc. For the
purposes of obtaining the lower sales charge which applies to large purchases,
purchases in a fund in the United Group of shares that are subject to a full
sales charge may not be grouped with purchases of shares in a fund in the
United Group that are subject to a reduced sales charge; conversely, purchases
of shares in a fund with a reduced sales charge may not be grouped or combined
with purchases of shares of a fund that are subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be purchased
at net asset value by the Directors and officers of the Fund, employees of
Waddell & Reed, Inc., employees of their affiliates, account representatives of
Waddell & Reed, Inc. and the spouse, children, parents, children's spouses and
spouse's parents of each such Director, officer, employee and account
representative. "Child" includes stepchild; "parent" includes stepparent.
Purchases of Class A shares in an IRA sponsored by Waddell & Reed, Inc.
established for any of these eligible purchasers may also be at net asset
value. Purchases in any tax qualified retirement plan under which the eligible
purchaser is the sole participant may also be made at net asset value. Trusts
under which the grantor and the trustee or a co-trustee are each an eligible
purchaser are also eligible for net asset value purchases of Class A shares.
"Employees" includes retired employees. A retired employee is an individual
separated from service from Waddell & Reed, Inc. or affiliated companies with a
vested interest in any Employee Benefit Plan sponsored by Waddell & Reed, Inc.
or its affiliated companies. "Account representatives" includes retired
account representatives. A "retired account representative" is any account
representative who was, at the time of separation from service from Waddell &
Reed, Inc., a Senior Account Representative. A custodian under the UGMA or
UTMA purchasing for the child or grandchild of any employee or account
representative may purchase Class A shares at net asset value whether or not
the custodian himself is an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of instances
in which the Fund's Class A shares are sold or issued on a basis other than the
maximum public offering price, that is, the net asset value plus the highest
sales charge. Some of these relate to lower or eliminated sales charges for
larger purchases of Class A shares, whether made at one time or over a period
of
time as under a Statement of Intention or right of accumulation. See the table
of sales charges in the Prospectus. The reasons for these quantity discounts
are, in general, that (i) they are traditional and have long been permitted in
the industry and are therefore necessary to meet competition as to sales of
shares of other funds having such discounts; (ii) certain quantity discounts
are required by rules of the National Association of Securities Dealers, Inc.
(as are elimination of sales charges on the reinvestment of dividends and
distributions); and (iii) they are designed to avoid an unduly large dollar
amount of sales charge on substantial purchases in view of reduced selling
expenses. Quantity discounts are made available to certain related persons for
reasons of family unity and to provide a benefit to tax-exempt plans and
organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted
to Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted by the 1940 Act from the otherwise applicable restrictions as to what
sales charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing shareholders adversely
affected since, in each case, the Fund receives the net asset value per share
of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). The Service is
available not only for Class A shares of the Fund but also for corresponding
shares of any of the funds in the United Group. It would be a disadvantage to
an investor to make additional purchases of Class A shares while a withdrawal
program is in effect as this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
Class A or corresponding shares which you still own of any of the funds in the
United Group; or, you must own Class A or corresponding shares having a value
of at least $10,000. The value for this purpose is not the net asset value but
the value at the offering price, i.e., the net asset value plus the sales
charge.
To start the Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50
or more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each
month or quarter, by redeeming a fixed number of shares (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 reinvested in additional Class A shares. All payments are made by
redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments exceed dividends and distributions, the number of Class A
shares you own will decrease. When all of the shares in your account are
redeemed, you will not receive any further payments. Thus, the payments are
not an annuity or an income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. For
example, if you started out with a $50 monthly payment, you could change to a
$200 quarterly payment. You can at any time redeem part or all of the shares
in your account; if you redeem all of the shares, the Service is terminated.
The Fund can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will
be sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges. Once a sales charge has been paid on shares
of a fund in the United Group, these shares and any shares added to them from
reinvestment of dividends or distributions may be freely exchanged for
corresponding shares of another fund in the United Group. The shares you
exchange must be worth at least $100 or you must already own shares of the fund
in the United Group into which you want to exchange.
You may exchange corresponding shares you own in another fund in the
United Group for Class A shares of the Fund without charge if (i) a sales
charge was paid on these shares, or (ii) the shares were received in exchange
for shares for which a sales charge was paid, or (iii) the shares were acquired
from reinvestment of dividends and distributions paid on such shares. (There
may have been one or more such exchanges so long as a sales charge was paid on
the shares originally purchased.) Also, shares acquired without a sales charge
because the purchase was $2 million or more will be treated the same as shares
on which a sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Corresponding shares of these funds may be exchanged for
Class A shares of the Fund only if (i) you have received those shares as a
result of one or more exchanges of shares on which a sales charge was
originally paid, or (ii) the shares have been held from the date of the
original purchase for at least six months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of corresponding shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any other
fund in the United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must own
Class A shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange is
$100, which may be allocated among the Class A or corresponding shares of
different funds in the United Group so long as each fund receives a value of at
least $25. Minimum initial investment and minimum balance requirements apply
to such automatic exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges. Class Y shares of a Fund may be exchanged for
Class Y shares of any other fund in the United Group.
General Exchange Information. When you exchange shares, the total shares
you receive will have the same aggregate net asset value as the total shares
you exchange. The relative values are those next figured after your exchange
request is received in good order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be
set up as a funding vehicle for a retirement plan. For individual taxpayers
meeting certain requirements, Waddell & Reed, Inc. offers prototype documents
for the following retirement plans. All of these plans involve investment in
shares of the Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has
at least $2,000 of earned income in a taxable year, the annual maximum is
$4,000 ($2,000 for each spouse). The contributions are deductible unless the
investor (or, if married, either spouse) is an active participant in a
qualified retirement plan or if, notwithstanding that the investor or one or
both spouses so participate, their adjusted gross income does not exceed
certain levels.
An investor may also use an IRA to receive a rollover contribution which
is either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a
portion of that distribution generally may be rolled over to an IRA within 60
days after receipt of the distribution. Because mandatory Federal income tax
withholding applies to any eligible rollover distribution which is not paid in
a direct rollover, investors should consult their tax advisers or pension
consultants as to the applicable tax rules. If you already have an IRA, you
may have the assets in that IRA transferred directly to an IRA offered by
Waddell & Reed, Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500,
per year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government
or of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code. Some
organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms
are available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days unless delayed because of
emergency conditions determined by the SEC, when the NYSE is closed other than
for weekends or holidays, or when trading on the NYSE is restricted. Payment
is made in cash, although under extraordinary conditions redemptions may be
made in portfolio securities. Payment for redemption of shares of the Fund may
be made in portfolio securities when the Fund's Board of Directors determines
that conditions exist making cash payments undesirable. Securities used for
payment of redemptions are valued at the value used in figuring net asset
value. There would be brokerage costs to the redeeming shareholder in selling
such securities. The Fund, however, has elected to be governed by Rule 18f-1
under the 1940 Act, pursuant to which it is obligated to redeem shares solely
in cash up to the lesser of $250,000 or 1% of its net asset value during any
90-day period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege for
Class A shares under which, if you redeem your Class A shares and then decide
it was not a good idea, you may reinvest. If Class A shares of the Fund are
then being offered, you can put all or part of your redemption payment back
into Class A shares of the Fund without any sales charge at the net asset value
next determined after you have returned the amount. Your written request to do
this must be received within 30 days after your redemption request was
received. You can do this only once as to Class A shares of the Fund. You do
not use up this privilege by redeeming Class A shares to invest the proceeds at
net asset value in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board of Directors has no intent to compel redemptions in the foreseeable
future. If it should elect to compel redemptions, shareholders who are
affected will receive prior written notice and will be permitted 60 days to
bring their accounts up to the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wright is a member of the Fund's Board of Directors. The other
persons are officers but not members of the Board of Directors. For purposes
of this section, the term "Fund Complex" includes each of the registered
investment companies in the United Group of Mutual Funds, Waddell & Reed Funds,
Inc., TMK/United Funds, Inc., Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. Each of the Fund's Directors is also a
Director of each of the other funds in the Fund Complex and each of its
officers is also an officer of one or more of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of
Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; formerly, President of Gilliland &
Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to Mr.
Judd's property was filed under the Federal bankruptcy laws and is now final.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired
as Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly,
Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management
and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell &
Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.; President,
Chief Executive Officer, Chief Investment Officer and Director of WRIMCO and
Waddell & Reed Asset Management Company; Senior Vice President and Chief
Investment Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary
and General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary and General Counsel of Waddell & Reed Services Company; Secretary and
General Counsel of Waddell & Reed Asset Management Company; Vice President,
Secretary and General Counsel of Torchmark Distributors, Inc.; formerly,
Assistant General Counsel of WRIMCO, Waddell & Reed Financial Services, Inc.,
Waddell & Reed, Inc., Waddell & Reed Asset Management Company and Waddell &
Reed Services Company.
John M. Holliday
Vice President of the Fund and eight other funds in the Fund Complex;
Senior Vice President of WRIMCO; Senior Vice President of Waddell & Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.
Louise D. Rieke
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of WRIMCO; Vice President of Waddell & Reed Asset Management Company;
formerly, Vice President of Waddell & Reed, Inc.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be deemed
to be "interested persons" as defined in the 1940 Act of its underwriter,
Waddell & Reed, Inc., or of WRIMCO. The Directors who may be deemed to be
"interested persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director
of the funds in the United Group for a total of at least five years. A
Director Emeritus receives fees in recognition of his past services whether or
not services are rendered in his capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Fund. Currently,
no person serves as Director Emeritus.
The funds in the United Group (with the exception of United Asset Strategy
Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. pay to each
Director a total of $40,000 per year, plus $1,000 for each meeting of the Board
of Directors attended (prior to January 1, 1995, the fee was $500 for each
meeting of the Board of Directors attended) and $500 for each committee meeting
attended which is not in conjunction with a Board of Directors meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the funds in the United Group
(with the exception of United Asset Strategy Fund, Inc.), TMK/United Funds,
Inc. and Waddell & Reed Funds, Inc. based on their relative size. During the
Fund's fiscal year ended September 30, 1995, the Fund's Directors received the
following fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon
Dodds I. Buchanan
Jay B. Dillingham
Linda Graves
John F. Hayes
Glendon E. Johnson
James B. Judd
William T. Morgan
Doyle Patterson
Eleanor B. Schwartz
Frederick Vogel III
Paul S. Wise
Leslie S. Wright
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of December 31,, 1995, all of the Fund's Directors and officers as a
group owned less than 1% of the outstanding shares of the Fund. As of such
date
no person owned of record or was known by the Fund to own beneficially 5% or
more of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund of the Fund, other than payments
when you redeem your shares. The first source is the Fund's net investment
income, which is derived from the dividends, interest and earned discount on
the securities it holds less expenses (which will vary by class). The second
source is realized capital gains, which are derived from the proceeds received
from the sale of securities at a price higher than the Fund's tax basis
(usually cost) in such securities; these gains can be either long-term or
short-term, depending on how long the Fund has owned the securities before it
sells them. The third source is net realized gains from foreign currency
transactions. The payments made to shareholders from net investment income,
net short-term capital gains and net realized gains from certain foreign
currency transactions are called dividends. Payments, if any, from long-term
capital gains are called distributions.
The Fund pays distributions only if it has net capital gains (the excess
of net long-term capital gains over net short-term capital losses). It may or
may not have such gain, depending on whether or not securities are sold and at
what price. If the Fund has net realized capital gains, it will ordinarily pay
distributions once each year, in the latter part of the fourth calendar
quarter. Even if the Fund has capital gains for a year, the Fund does not pay
out the gains if it has applicable prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the same class as that with respect to which
they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares
of the Fund of the same class as that with respect to which they were paid.
All reinvestments are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date for
the dividend or distribution, although this could be changed by the Board of
Directors.
Even if you get dividend and distributions on Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of the
Fund at net asset value (i.e., no sales charge) next determined after receipt
by Waddell & Reed, Inc. of the amount clearly identified as a reinvestment.
The reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders
for each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains
and net gains from certain foreign currency transactions) and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of
its gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three months:
(i) options, futures contracts or forward contracts or (ii) foreign currencies
(or options, futures contracts or forward contracts thereon) that are not
directly related to the Fund's principal business of investing in securities
(or in options and futures with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government Securities, securities of 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 outstanding voting securities of the issuer; and
(4) at the close of each quarter of the Fund's taxable year, not more than 25%
of the value of its total assets may be invested in securities (other than U.S.
Government Securities or the securities of other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by you on
December 31 of that year even if they are paid by the Fund during the following
January. Accordingly, those dividends and distributions will be taxed to
shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the Fund's policy to make sufficient distributions each
year to avoid imposition of the Excise Tax. The Code permits the Fund to defer
into the next calendar year net capital losses incurred between each November 1
and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses
or other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are
treated as ordinary income or loss. These gains or losses, referred to under
the Code as "section 988" gains or losses, may increase or decrease the amount
of the Fund's investment company taxable income to be distributed to its
shareholders.
Income from Options, Futures and Currencies
The use of hedging strategies, such as writing (selling) and purchasing
options and futures, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses the
Fund realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in options and futures derived by the Fund with respect to
its business of investing in securities, will qualify as permissible income
under the Income Requirement. However, income from the disposition of options
and futures will be subject to the Short-Short Limitation if they are held for
less than three months. Income from the disposition of foreign currencies that
are not directly related to the Fund's principal business of investing in
securities (or options and futures with respect to securities) also will be
subject to the Short-Short Limitation if they are held for less than three
months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of certain options and futures beyond the time when it otherwise
would be advantageous to do so, in order for the Fund to continue to qualify as
a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many
options that it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may be
"section 1256 contracts." Section 1256 contracts held by the Fund at the end
of each taxable year, other than section 1256 contracts that are part of a
"mixed straddle" with respect to which the Fund has made an election not to
have the following rules apply, are "marked-to-market" (that is, treated as
sold for their fair market value) for Federal income tax purposes, with the
result that unrealized gains or losses are treated as though they were
realized. Sixty percent of any net gain or loss recognized on these deemed
sales, and 60% of any net realized gain or loss from any actual sales of
section 1256 contracts, are treated as long-term capital gains or losses, and
the balance is treated as short-term capital gains or losses. Section 1256
contracts also may be marked-to-market for purposes of the Excise Tax and for
other purposes.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a
position in a straddle may be deducted only to the extent the loss exceeds the
unrealized gain on the offsetting position(s) of the straddle. Section 1092
also provides certain "wash sale" rules, which apply to transactions where a
position is sold at a loss and a new offsetting position is acquired within a
prescribed period, and "short sale" rules applicable to straddles. If the Fund
makes certain elections, the amount, character and timing of the recognition of
gains and losses from the affected straddle positions will be determined under
rules that vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely clear.
Zero Coupon and Payment-in Kind Securities
The Fund may acquire zero coupon or other securities issued with original
issue discount. As the holder of those securities, the Fund must include in
its income the original issue discount that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Similarly, the Fund must include in its gross
income securities it receives as "interest" on payment-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other non-
cash income, in order to qualify for treatment as a RIC and to avoid imposition
of the Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from the Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gains. In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce the Fund's ability to sell other securities, or certain
options or futures, held for less than three months that it might wish to sell
in the ordinary course of its portfolio management.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the portfolio
of the Fund. Transactions in securities other than those for which an exchange
is the primary market are generally done with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained. The
individual who manages the Fund may manage other advisory accounts with similar
investment objectives. It can be anticipated that the manager will frequently
place concurrent orders for all or most accounts for which the manager has
responsibility. Transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each fund or advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of
brokers which provide execution and/or research services and other services,
including pricing or quotation services directly or through others ("brokerage
services") considered by WRIMCO to be useful or desirable for its investment
management of the Fund and/or the other funds and accounts over which WRIMCO or
its affiliates have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing
functions incidental thereto (such as clearance, settlement and custody).
"Investment discretion" is, in general, defined as having authorization to
determine what securities shall be purchased or sold for an account, or making
those decisions even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services
may be higher than another qualified broker would charge for effecting
comparable transactions if a good faith determination is made by WRIMCO that
the commission is reasonable in relation to the brokerage services provided.
Subject to the foregoing considerations, WRIMCO may also consider the
willingness of particular brokers and dealers to sell shares of the Fund and
other funds managed by WRIMCO or its affiliates as a factor in its selection.
No allocation of brokerage or principal business is made to provide any other
benefits to WRIMCO or its affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO or its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other
non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research, which may be supplied by a third party at the
instance of a broker, includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons;
and enables WRIMCO to obtain market information on the price of securities held
in the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider
sales of shares of the Fund and other funds managed by WRIMCO and its
affiliates as a factor in the selection of brokers to execute portfolio
transactions. WRIMCO intends to allocate brokerage on the basis of this factor
only if the sale is $2 million or more and there is no sales charge. This
results in the consideration only of sales which by their nature would not
ordinarily be made by Waddell & Reed, Inc.'s direct sales force and is done in
order to prevent the direct sales force from being disadvantaged by the fact
that it cannot participate in Fund brokerage.
During the Fund's fiscal years ended September 30, 1995, 1994 and 1993, it
paid brokerage commissions of $_______________, $37,454 and $43,462,
respectively. These figures do not include principal transactions or spreads
or concessions on principal transactions, i.e., those in which the Fund sells
securities to a broker-dealer firm or buys from a broker-dealer firm securities
owned by it.
During the Fund's fiscal year ended September 30, 1995, the transactions,
other than principal transactions, which were directed to broker-dealers who
provided research as well as execution totaled $___________ on which $_________
in brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group,
TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. or accounts
over which Waddell & Reed Asset Management Company exercises investment
discretion frequently buy or sell the same securities at the same time. If
this happens, the amount of each purchase or sale is divided. This is done on
the basis of the amount of securities each fund or account wanted to buy or
sell. Sharing in large transactions could affect the price the Fund pays or
receives or the amount it buys or sells. However, sometimes a better
negotiated commission is available.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two Classes of shares: Class A and Class Y. Prior to
January 12, 1996, the Fund offered only one Class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Each Class
represents an interest in the same assets of the Fund and differ as follows:
each Class of shares has exclusive voting rights on matters pertaining to
matters appropriately limited to that Class; Class A shares are subject to an
initial sales charge and to an ongoing service fee; each Class may bear
differing amounts of certain Class-specific expenses; and each Class has a
separate exchange privilege. The Fund does not anticipate that there will be
any conflicts between the interests of holders of the different Classes of
shares of the Fund by virtue of those Classes. On an ongoing basis, the Board
of Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of the Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two Classes, dividends and liquidation proceeds of Class
A shares are expected to be lower than for Class Y shares of the Fund. Each
fractional share of a Class has the same rights, in proportion, as a full share
of that Class.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS
Banks and Savings and Loans - 0.15%
California Federal Bank, F.S.B.,
Preferred, Series B ................... 5,000 $ 550,000
Reliance Group Holdings, Inc., Warrants* 1,061 2,122
WestFed Holdings, Inc., Preferred,
Series A* ............................. 14,243 28
WestFed Holdings, Inc., Series B* ...... 7,610 15
Total ................................. 552,165
Building - 2.62%
NVR L.P., Warrants* ................... 33,086 74,444
National Health Investors, Inc. ........ 27,150 821,288
Triangle Pacific Corp.* ................ 127,442 2,166,514
Walter Industries, Inc.* ............... 516,814 6,589,379
Total ................................. 9,651,625
Chemicals Specialty and Miscellaneous
Technology - 0.01%
Plastic Specialties and Technologies, Inc.* 20,000 25,000
Hospital Management - 0.29%
LTC Properties, Inc. ................... 75,000 1,087,500
Leisure Time - 0.81%
FLAGSTAR COMPANIES, INC.* .............. 24,600 132,225
Infinity Broadcasting Corporation,
Class A* .............................. 67,500 2,210,625
Sinclair Broadcast Group, Inc.* ........ 3,250 91,812
Trump Hotels & Casino Resorts, Inc.* ... 31,250 531,250
Total ................................. 2,965,912
Public Utilities - Electric - 0.11%
Consolidated Hydro, Inc., Preferred* ... 3,000 405,000
Consolidated Hydro, Inc., Warrants (A)* 5,400 5
Total ................................. 405,005
Publishing and Advertising - 0.14%
Advanstar Holdings, Inc.* .............. 30,000 510,000
Services, Consumer and Business - 0.26%
Bell & Howell Holdings Company* ........ 37,500 956,250
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON AND PREFERRED STOCKS
AND WARRANTS (Continued)
Textiles and Apparel - 0.01%
American Marketing Industries
Holdings, Inc., Preferred (A)* ........ 2,275 $ 18,200
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 4.40% $ 16,171,657
(Cost: $22,746,533)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Airlines - 1.94%
GP Group, Inc.,
8.75%, 12-15-98 ....................... $ 3,500 3,115,000
NWA, Inc.,
8.625%, 8-1-96 ........................ 4,000 4,040,000
Total ................................. 7,155,000
Automotive - 1.63%
Burlington Motor Holdings Inc.,
11.5%, 11-1-2003 ...................... 2,500 1,125,000
Lear Seating Corporation,
8.25%, 2-1-2002 ....................... 4,000 3,890,000
Walbro Corporation,
9.875%, 7-15-2005 (A).................. 1,000 980,000
Total ................................. 5,995,000
Beverages - 0.21%
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (B) ................... 1,000 785,000
Biotechnology and Medical Services - 0.57%
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2002 ....................... 2,000 2,085,000
Building - 7.92%
American Standard Inc.:
9.875%, 6-1-2001 ...................... 2,500 2,650,000
11.375%, 5-15-2004 .................... 500 550,000
0.0%, 6-1-2005 (B) .................... 1,250 1,015,625
9.25%, 12-1-2016 ...................... 5,000 5,150,000
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ 1,500 1,365,000
Del Webb Corporation:
9.75%, 3-1-2003 ....................... 2,000 1,960,000
9.0%, 2-15-2006 ....................... 2,000 1,855,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Building (Continued)
Eagle Industries, Inc.,
0.0%, 7-15-2003 (B) ................... $ 4,000 $ 3,120,000
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,500 1,455,000
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 2,000 1,815,000
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 2,500 2,587,500
Walter Industries, Inc.,
12.19%, 3-15-2000 ..................... 5,500 5,592,840
Total ................................. 29,115,965
Chemicals Major - 2.05%
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ....................... 5,500 5,665,000
0.0%, 5-1-2005 (B) .................... 2,500 1,862,500
Total ................................. 7,527,500
Chemicals Specialty and Miscellaneous
Technology - 1.32%
LaRoche Industries Inc.,
13.0%, 8-15-2004 ...................... 500 532,500
OSi Specialties, Inc.,
9.25%, 10-1-2003 ...................... 2,500 2,725,000
Scotsman Group, Inc.,
9.5%, 12-15-2000 ...................... 1,000 997,500
UCAR International Inc.,
12.0%, 1-15-2005 ...................... 535 596,525
Total ................................. 4,851,525
Computers and Office Equipment - 0.80%
Corporate Express, Inc.,
9.125%, 3-15-2004 ..................... 2,000 1,975,000
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 1,000 970,000
Total ................................. 2,945,000
Domestic Oil - 1.05%
Clark R&M Holdings, Inc.,
0.0%, 2-15-2000 ...................... 6,000 3,847,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Drugs and Hospital Supply - 1.79%
AmeriSource Distribution Corporation,
11.25%, 7-15-2005 ..................... $ 1,100 $ 1,156,499
General Medical Corporation:
10.875%, 8-15-2003 .................... 3,000 3,105,000
12.125%, 8-15-2005 .................... 2,250 2,320,890
Total ................................. 6,582,389
Electronics - 0.53%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... 2,000 1,940,000
Food and Related - 1.54%
Specialty Foods Corporation:
10.25%, 8-15-2001 ..................... 2,000 1,905,000
11.125%, 10-1-2002 (A)................. 1,000 980,000
11.25%, 8-15-2003 ..................... 3,000 2,782,500
Total ................................. 5,667,500
Hospital Management - 4.29%
Assisted Living Concepts, Inc.,
Convertible,
7.0%, 7-31-2005 (A).................... 1,000 1,155,000
GranCare, Inc.,
9.375%, 9-15-2005 ..................... 500 503,750
LTC Properties, Inc., Convertible:
8.5%, 1-1-2000 ........................ 2,000 2,010,000
8.5%, 1-1-2001 ........................ 1,000 1,002,500
Multicare Companies, Inc. (The),
12.5%, 7-1-2002 ....................... 415 472,581
Pathmark Stores, Inc.,
9.625%, 5-1-2003 ...................... 2,000 1,970,000
Quorum Health Group, Inc.,
11.875%, 12-15-2002 ................... 4,000 4,420,000
Tenet Healthcare Corporation:
9.625%, 9-1-2002 ...................... 2,000 2,115,000
10.125%, 3-1-2005 ..................... 2,000 2,115,000
Total ................................. 15,763,831
Household Products - 1.73%
Exide Corporation:
10.75%, 12-15-2002 .................... 3,000 3,195,000
0.0%, 12-15-2004 (B) .................. 2,000 1,580,000
10.0%, 4-15-2005 (A)................... 1,500 1,582,500
Total ................................. 6,357,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Insurance - 1.69%
American Annuity Group, Inc.:
9.5%, 8-15-2001 ....................... $ 2,500 $ 2,525,000
11.125%, 2-1-2003 ..................... 3,500 3,683,750
Total ................................. 6,208,750
Leisure Time - 20.75%
Act III Broadcasting, Inc.,
9.625%, 12-15-2003 .................... 2,000 2,030,000
Alliance Entertainment Corp.,
11.25%, 7-15-2005 (A).................. 1,500 1,496,250
American Safety Razor Company,
9.875%, 8-1-2005 (A)................... 2,000 2,000,000
CAI Wireless Systems, Inc.,
12.25%, 9-15-2002 ..................... 1,000 1,037,500
Cablevision Industries Corporation:
10.75%, 1-30-2002 ..................... 3,000 3,270,000
9.25%, 4-1-2008 ...................... 2,000 2,125,000
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 4,000 4,140,000
COMCAST CELLULAR CORPORATION,
0.0%, 3-5-2000 ........................ 3,700 2,830,500
COMCAST CORPORATION,
9.5%, 1-15-2008 ....................... 4,000 4,050,000
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................... 1,000 1,055,000
8.875%, 9-15-2005 ..................... 2,000 2,045,000
11.0%, 6-1-2007 ....................... 1,200 1,326,000
FLAGSTAR COMPANIES, INC.,
10.75%, 9-15-2001 ..................... 4,750 4,465,000
GNS Finance Corp.,
9.25%, 3-15-2003 ...................... 1,500 1,597,500
Granite Broadcasting Corporation,
10.375%, 5-15-2005 (A)................. 1,000 1,020,000
Harrah's Operating Company, Inc.,
10.875%, 4-15-2002 .................... 2,000 2,155,000
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 5,000 5,350,000
LaQuinta Motor Inns, Inc.,
9.25%, 5-15-2003 ...................... 4,000 4,190,000
Marcus Cable Operating Company, L.P.,
0.0%, 8-1-2004 (B)..................... 3,500 2,380,000
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 2,000 1,930,000
Premier Parks Inc.,
12.0%, 8-15-2003 (A)................... 1,000 1,025,000
Rio Hotel & Casino, Inc.,
10.625%, 7-15-2005 (A)................. 2,000 1,940,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Leisure Time (Continued)
Rogers Communications Incorporated,
10.875%, 4-15-2004 .................... $ 4,000 $ 4,160,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 4,000 3,780,000
Sinclair Broadcast Group, Inc.:
10.0%, 12-15-2003 ..................... 1,250 1,268,750
10.0%, 9-30-2005 ...................... 1,500 1,526,250
Trump Hotels & Casino Resorts Holdings, L.P.,
15.5%, 6-15-2005....................... 2,000 1,980,000
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 4,125 4,134,570
Viacom International, Inc.:
9.125%, 8-15-99 ....................... 2,000 2,095,000
8.0%, 7-7-2006 ........................ 4,000 3,920,000
Total ................................. 76,322,320
Machinery - 0.52%
Fairfield Manufacturing Company, Inc.,
11.375%, 7-1-2001 ..................... 2,000 1,900,000
Metals and Mining - 0.26%
Russel Metals Inc.,
10.25%, 6-15-2000 ..................... 1,000 970,000
Multi-Industry - 1.89%
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 2,000 1,870,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 5,100,000
Total ................................. 6,970,000
Oil Services - 1.10%
Falcon Drilling, Inc.,
9.75%, 1-15-2001 ...................... 1,500 1,500,000
Noble Drilling Corporation,
9.25%, 10-1-2003 ...................... 2,500 2,562,500
Total ................................. 4,062,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Packaging and Containers - 4.25%
Container Corporation of America,
10.75%, 5-1-2002 ...................... $ 2,000 $ 2,105,000
Gaylord Container Corporation:
11.5%, 5-15-2001 ...................... 2,000 2,080,000
0.0%, 5-15-2005 (B) ................... 2,000 1,970,000
Owens-Illinois, Inc.:
10.0%, 8-1-2002 ....................... 2,000 2,060,000
9.75%, 8-15-2004 ...................... 4,500 4,612,500
Silgan Corporation,
0.0%, 12-15-2002 (B) .................. 3,000 2,805,000
Total ................................. 15,632,500
Paper - 4.63%
Asia Pulp & Paper Company Ltd,
11.75%, 10-1-2005 ..................... 2,000 2,022,500
Fort Howard Corporation:
9.25%, 3-15-2001 ...................... 4,500 4,443,750
11.0%, 1-2-2002 ....................... 4,214 4,404,447
Repap New Brunswick Inc.,
10.625%, 4-15-2005 .................... 1,250 1,268,750
S. D. Warren Company,
12.0%, 12-15-2004 .................... 1,000 1,105,000
Stone Container Corporation,
10.75%, 10-1-2002 ..................... 1,750 1,815,625
Williamhouse-Regency of Delaware, Inc.,
11.5%, 6-15-2005 ...................... 2,000 1,980,000
Total ................................. 17,040,072
Propane - 0.29%
AmeriGas Partners, L.P.,
10.125%, 4-15-2007 .................... 1,000 1,065,000
Public Utilities - Electric - 0.08%
Consolidated Hydro, Inc.,
0.0%, 7-15-2003 (B) ................... 500 288,230
Publishing and Advertising - 3.42%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 3,000 3,097,500
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 2,500 2,537,500
Herff Jones, Inc.,
11.0%, 8-15-2005 (A)................... 2,000 2,045,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Publishing and Advertising (Continued)
Lamar Advertising Company,
11.00%, 5-15-2003 ..................... $ 2,000 $ 2,020,000
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ..................... 3,000 2,895,000
Total ................................. 12,595,000
Railroad Equipment - 0.90%
Harman International Industries, Incorporated,
12.0%, 8-1-2002 ....................... 1,635 1,737,187
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ..................... 1,500 1,560,000
Total ................................. 3,297,187
Railroads - 2.08%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 (A).................... 2,000 2,045,000
IntelCom Group Inc., Units,
0.0%, 9-15-2005 (A)(D)................. 22 1,248,750
Southern Pacific Rail Corporation,
9.375%, 8-15-2005 ..................... 4,000 4,340,000
Total ................................. 7,633,750
Retailing - 9.31%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... 1,500 1,207,500
Bruno's, Inc.,
10.5%, 8-1-2005 ....................... 2,000 1,940,000
Dominick's Finer Foods, Inc.,
10.875%, 5-1-2005 (A).................. 1,000 1,015,000
Eckerd Corporation,
9.25%, 2-15-2004 ...................... 5,500 5,788,750
Orchard Supply Hardware Stores Corporation,
9.375%, 2-15-2002 ..................... 2,500 2,312,500
Penn Traffic Company:
10.25%, 2-15-2002...................... 3,500 3,360,000
8.625%, 12-15-2003 .................... 2,500 2,150,000
9.625%, 4-15-2005 ..................... 2,350 1,903,500
Ralphs Grocery Company,
10.45%, 6-15-2004 ..................... 2,500 2,443,750
Safeway Inc.,
10.0%, 12-1-2001 ...................... 5,000 5,550,000
SuperRite, Inc.,
10.625%, 4-01-2002..................... 3,400 3,638,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 3,000 2,917,500
Total ................................. 34,226,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Services, Consumer and Business - 1.78%
Bell & Howell Company:
9.25%, 7-15-2000 ...................... $ 2,000 $ 2,000,000
10.75%, 10-01-2002 .................... 1,750 1,863,750
United Stationers Supply Co.,
12.75%, 5-1-2005 (A)................... 2,500 2,675,000
Total ................................. 6,538,750
Steel - 0.94%
AK Steel Corporation,
10.75%, 4-1-2004 ...................... 625 667,969
Inland Steel Industries, Inc.,
12.75%, 12-15-2002 .................... 2,500 2,787,500
Total ................................. 3,455,469
Telecommunications - 4.77%
MFS Communications Company, Inc.,
0.0%, 1-15-2004 (B) ................... 3,500 2,651,250
Metrocall, Inc.,
10.375%, 10-1-2007 .................... 1,000 1,014,380
PanAmSat, L.P.:
9.75%, 8-1-2000 ....................... 2,500 2,612,500
0.0%, 8-1-2003 (B) .................... 5,000 3,900,000
Rogers Cantel Mobile Communications Inc.,
10.75%, 11-1-2001 ..................... 3,000 3,150,000
Summit Communications Group, Inc.,
10.5%, 4-15-2005 ...................... 3,000 3,300,000
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ........................ 1,000 930,000
Total ................................. 17,558,130
Textiles and Apparel - 0.89%
CMI Industries, Inc.,
9.5%, 10-1-2003 ....................... 1,500 1,380,000
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... 2,000 1,880,000
Linter Textiles Corporation Limited,
13.75%, 10-1-2000 (C) ................. 2,500 12,500
Total ................................. 3,272,500
TOTAL CORPORATE DEBT SECURITIES - 86.92% $319,655,368
(Cost: $316,329,651)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.28%
U.S. Bancorp,
Master Note ........................... 1,018 1,018,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Financial - 0.81%
PHH Corp.,
5.73%, 10-5-95 ........................ $ 150 $ 149,905
Textron Financial Corp.,
5.94%, 10-27-95 ....................... 2,830 2,817,859
Total ................................. 2,967,764
Food and Related - 1.36%
ConAgra, Inc.,
5.85%, 11-1-95 ........................ 1,000 994,962
General Mills, Inc.,
Master Note ........................... 1,735 1,735,000
Sara Lee Corporation,
Master Note ........................... 2,283 2,283,000
Total ................................. 5,012,962
Retailing - 2.92%
K Mart Corporation,
5.90%, 10-24-95 ....................... 5,000 4,981,153
Kroger Co., (The):
6.07%, 10-26-95 ....................... 5,000 4,978,924
6.10%, 10-27-95 ....................... 800 796,476
Total ................................. 10,756,553
Telecommunications - 0.45%
NYNEX Corporation,
5.77%, 10-23-95 ....................... 1,670 1,664,111
TOTAL SHORT-TERM SECURITIES - 5.82% $ 21,419,390
(Cost: $21,419,390)
TOTAL INVESTMENT SECURITIES - 97.14% $357,246,415
(Cost: $360,495,574)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.86% 10,535,230
NET ASSETS - 100.00% $367,781,645
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Notes to Schedule of Investments
* No income dividends were paid during the preceding 12 months.
(A) As of September 30, 1995, the following restricted securities were owned:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
American Marketing
Industries
Holdings, Inc.,
Preferred Stock 5/12/89 2,275$ 7 56,875$ 18,200
Consolidated Hydro, Inc.,
Warrants 6/15/93 5,400 127,817 5
Alliance Entertainment Corp.,
11.25%, 7-15-2005 7/18/95 $1,000 1,000,000 997,500
7/21/95 500 503,750 498,750
American Safety Razor Company,
9.875%, 8-1-2005 7/27/95 2,000 2,000,000 2,000,000
Assisted Living Concepts,
Inc., Convertible,
7.0%, 7-31-2005 8/2/95 1,000 1,000,000 1,155,000
Communications & Power Industries,
Inc.,
12.0%, 8-1-2005 8/2/95 2,000 2,000,000 2,045,000
Dominick's Finer Foods, Inc.,
10.875%, 5-1-2005 8/2/95 1,000 1,027,500 1,015,000
Exide Corporation,
10.0%, 4-15-2005 4/21/95 1,500 1,500,000 1,582,500
Granite Broadcasting Corporation,
10.375%, 5-15-20055/12/95 1,000 1,000,000 1,020,000
Herff Jones, Inc.,
11.0%, 8-15-2005 8/14/95 2,000 2,000,000 2,045,000
IntelCom Group Inc.,
Units,
0.0%, 9-15-2005 8/3/95 22 1,155,240 1,248,750
Premier Parks Inc.,
12.0%, 8-15-2003 8/10/95 1,000 1,000,000 1,025,000
Rio Hotel & Casino, Inc.,
10.625%, 7-15-20057/18/95 2,000 2,000,000 1,940,000
Specialty Foods Corporation,
11.125%,0= 10-1-20027/12/95 1,000 1,000,000 980,000
United Stationers Supply Co.,
12.75%, 5-1-2005 4/26/95 2,500 2,500,000 2,675,000
Walbro Corporation,
9.875%, 7-15-2005 7/21/95 1,000 996,500 980,000
-----------------------
$20,867,682$21,225,705
=======================
The total market value of restricted securities represents approximately
5.77% of the total net assets at September 30, 1995.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND II, INC.
SEPTEMBER 30, 1995
Notes to Schedule of Investments (Continued)
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(C) Non-income producing as the issuer has either missed its most recent
interest payment or declared bankruptcy.
(D) Each Unit consists of 10 Senior Discount Notes and 33 Warrants to purchase
one share of Common Stock.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
Assets
Investment securities - at value (Notes 1 and 3) . $357,246,415
Cash ............................................. 6,654
Receivables:
Investment securities sold ...................... 7,743,125
Interest and dividends .......................... 7,148,571
Fund shares sold ................................ 286,349
Prepaid insurance premium ........................ 17,925
------------
Total assets .................................. 372,449,039
------------
Liabilities
Payable for investment securities purchased ...... 3,000,000
Payable for Fund shares redeemed ................. 1,234,847
Dividends payable ................................ 261,178
Accrued service fee .............................. 71,287
Accrued transfer agency and dividend disbursing .. 47,666
Accrued accounting services fee .................. 5,000
Other ............................................ 47,416
------------
Total liabilities ............................. 4,667,394
------------
Total net assets ............................. $367,781,645
============
Net Assets
$1.00 par value capital stock, authorized --
400,000,000; shares outstanding -- 91,160,325
Capital stock ................................... $ 91,160,325
Additional paid-in capital ...................... 329,390,006
Accumulated undistributed loss:
Accumulated undistributed net realized
loss on investment transactions ............... (49,519,527)
Net unrealized depreciation in value of
investments at end of period .................. (3,249,159)
------------
Net assets applicable to outstanding
units of capital ............................. $367,781,645
============
Net asset value per share (net assets divided
by shares outstanding) ........................... $4.03
Sales load (offering price x 5.75%)................. .25
-----
Offering price per share (net asset value divided
by 94.25%) ........................................ $4.28
=====
On sales of $100,000 or more the sales load is reduced as set forth in the
Prospectus.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1995
Investment Income
Income:
Interest ....................................... $35,000,614
Dividends ....................................... 208,003
-----------
Total income .................................. 35,208,617
-----------
Expenses (Note 2):
Investment management fee ....................... 2,021,032
Transfer agency and dividend disbursing ......... 551,431
Service fee ..................................... 398,763
Accounting services fee ......................... 57,500
Audit fees ...................................... 32,692
Legal fees ...................................... 24,289
Custodian fees .................................. 23,347
Other ........................................... 95,342
-----------
Total expenses ................................ 3,204,396
-----------
Net investment income ........................ 32,004,221
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net loss on investments ................. (9,062,829)
Unrealized appreciation in value of investments
during the period ............................... 15,239,840
-----------
Net gain on investments ......................... 6,177,011
-----------
Net increase in net assets resulting
from operations .............................. $38,181,232
===========
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
September 30,
-------------------------
1995 1994
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ...............$ 32,004,221 $ 32,038,734
Realized net gain (loss) on
investments ........................ (9,062,829) 7,099,487
Unrealized appreciation
(depreciation) .................... 15,239,840 (30,013,344)
------------ ------------
Net increase in net assets
resulting from operations ........ 38,181,232 9,124,877
------------ ------------
Dividends to shareholders from
net investment income* .............. (32,004,221) (32,038,734)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(7,993,791 and 9,117,319
shares, respectively) ............. 31,537,803 38,145,169
Proceeds from reinvestment of
dividends (7,199,082 and 6,784,080
shares, respectively) ............. 28,417,425 28,264,415
Payments for shares redeemed
(15,495,006 and 14,806,281 shares,
respectively) ..................... (60,993,212) (61,672,228)
------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions ............... (1,037,984) 4,737,356
------------ ------------
Total increase (decrease) ........ 5,139,027 (18,176,501)
Net Assets
Beginning of period .................. 362,642,618 380,819,119
------------ ------------
End of period ........................$367,781,645 $362,642,618
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net asset value,
beginning of
period ............ $3.96 $4.21 $4.06 $3.75 $3.45
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.35 .35 .36 .39 .45
Net realized and
unrealized gain
(loss) on
investments ..... 0.07 (0.25) .15 .31 .30
----- ----- ----- ----- -----
Total from investment
operations ....... 0.42 .10 .51 .70 .75
Less dividends declared
from net investment
income ............ (0.35) (0.35) (0.36) (0.39) (0.45)
----- ----- ----- ----- -----
Net asset value,
end of period .... $4.03 $3.96 $4.21 $4.06 $3.75
===== ===== ===== ===== =====
Total return* ...... 11.25% 2.31% 13.07% 19.31% 23.66%
Net assets, end of
period (000
omitted) ......... $367,782$362,643$380,819$345,376$291,436
Ratio of expenses to
average net assets 0.89% 0.88% 0.80% 0.82% 0.89%
Ratio of net investment
income to average
net assets ....... 8.93% 8.41% 8.64% 9.79% 12.94%
Portfolio turnover
rate ............. 26.82% 47.05% 69.24% 80.28% 53.88%
Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND II, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 -- Significant Accounting Policies
United High Income Fund II, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using
Nasdaq (National Association of Securities Dealers Automated Quotations)
which provides information on bid and asked or closing prices quoted by
major dealers in such stocks. Restricted securities and securities for
which market quotations are not readily available are valued at fair value
as determined in good faith under procedures established by and under the
general supervision of the Fund's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the
Internal Revenue Code), premiums on the purchase of bonds and post-1984
market discount are amortized for both financial and tax reporting
purposes over the remaining lives of the bonds. Dividend income is
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis. See Note 3 -- Investment Security Transactions.
C. Federal income taxes -- The Fund intends to distribute all of its net
investment income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue Code.
In addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
D. Dividends and distributions -- All of the Fund's net investment income is
declared and recorded by the Fund as dividends payable on each day to
shareholders of record at the time of the previous determination of net
asset value. Net investment income distributions and capital gains
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are due to differing treatments for items such as deferral of
wash sales and post-October losses, foreign currency transactions, net
operating losses and expiring capital loss carryforwards.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as
of the close of business each day at the annual rate of .15% of net assets and
(ii) a "Group" fee computed each day on the combined net asset values of all of
the funds in the United Group of mutual funds (approximately $13.3 billion of
combined net assets at September 30, 1995) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services,
the Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in
the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account
which was in existence at any time during the prior month, plus $0.30 for each
account on which a dividend or distribution of cash or shares had a record date
in that month. The Fund also reimburses W&R and WARSCO for certain out-of-
pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$1,064,115, out of which W&R paid sales commissions of $607,092 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to W&R in an
amount not to exceed .25% of the Fund's average annual net assets. The fee is
to be paid to reimburse W&R for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Fund paid Directors' fees of $13,376.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $87,999,760 while proceeds from maturities and
sales aggregated $89,549,172. Purchases of short-term securities aggregated
$322,216,364 while proceeds from maturities and sales aggregated $329,422,492.
For Federal income tax purposes cost of investments owned at September 30,
1995 was $360,026,838, resulting in net unrealized depreciation of $2,780,423,
of which $13,775,482 related to appreciated securities and $16,555,905 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$390,078 during its fiscal year ended September 30, 1995 including the effect of
losses of $8,672,751 which were deferred to the year ending September 30, 1996
(see discussion below). Capital loss carryforwards aggregated $41,040,060 at
September 30, 1995 and are available to offset future net realized capital gain
net income for Federal income tax purposes through September 30, 1998;
$40,548,748 of these amounts are available through September 30, 1999;
$8,619,748 are available through September 30, 2000 and $390,078 are available
through September 30, 2003.
Internal Revenue Code regulations permit the Fund to defer into its next
fiscal year net capital losses incurred between each November 1 and the end of
its next fiscal year ("post-October losses"). From November 1, 1994 through
September 30, 1995, the Fund incurred net long term capital losses of
$8,672,751 which have been deferred to the fiscal year ending September 30,
1996.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United High Income Fund II, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United High Income Fund II, Inc.
(the "Fund") at September 30, 1995, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
November 3, 1995
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United High Income Fund II, Inc.
Included in Part B:
-------------------
As of September 30, 1995
Statements of Assets and Liabilities
For the year ended September 30, 1995
Statements of Operations
For the two years ended September 30, 1995
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1995
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.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, attached hereto as EX-99.B1-h2charter
Articles Supplementary, attached hereto as EX-99.B1-h2artsup
(2) By-Laws, as amended, attached hereto as EX-99.B2-h2bylaw
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant attached hereto as EX-99.B1-
h2charter; Article I, Article IV and Article VII of the Bylaws
of
the Registrant, as amended, attached hereto as EX-99.B2-h2bylaw
(5) Investment Management Agreement attached hereto as EX-99.B5-
h2ima
Assignment of the Investment Management Agreement attached
hereto as EX-99.B5-h2assign
(6) Underwriting Agreement attached hereto as EX-99.B6-h2ua
(7) Not applicable
(8) Custodian Agreement attached hereto as EX-99.B8-h2ca
(9) (a) Shareholder Servicing Agreement attached hereto as EX-
99.B9-h2ssa
(b) Accounting Services Agreement attached hereto as EX-99.B9-
h2asa
(c) Service Agreement filed by electronic format on July 30,
1993 as Exhibit (b)(15) to Post-Effective Amendment No. 14
to the Registration Statement on Form N-1A*
(d) Amendment to Service Agreement attached hereto as EX-99.B9-
h2saa
(e) Fund Class A Application attached hereto as EX-99.B9-
h2appca
(f) Fund Class Y Application attached hereto as EX-99.B9-
h2appcy
(g) Fund NAV Application attached hereto as EX-99.B9-h2navapp
(10) Not applicable
(11) Consent of Independent Accountant attached hereto as EX-99.B11-
h2consent
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc.,
(refiling by EDGAR) attached hereto as EX-99.B13-h2inital
(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.*
- ---------------------------------
*Incorporated herein by reference
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.*
- ---------------------------------
*Incorporated herein by reference
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.*
(15) Service Plan for Class A Shares attached hereto as EX-99.B15-
h2spca
(16) (1) Computation of Average Annual Total Return Performance
Quotations filed by electronic format on July 30, 1993 as
Exhibit (b)(16)(1) to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A*
(2) Computation of Yield Performance Quotation filed November
24, 1992 as Exhibit (b)(16) on Form SE to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-
1A*
(17) Financial Data Schedule attached hereto as EX-27.B17-h2fds
(18) Multiple Class Plan attached hereto as EX-99.B18-h2mcp
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 September 30, 1995
-------------- ------------------------------
Common 30,257
27. Indemnification
---------------
Reference is made to Section 7 of ARTICLE Seventh of the Articles of
Incorporation of Registrant attached hereto as EX-99.B1-h2charter and to
Article IV of the Underwriting Agreement attached hereto as Ex-99.B6-h2ua,
both of which provide indemnification. Also refer to Section 2-418 of the
Maryland General Corporation Law regarding indemnification of directors,
officers, employees and agents.
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 not engaged in any
business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation or
employment during the past two years only his duties as an executive
officer and/or employee of Waddell & Reed Investment Management Company or
its predecessors, except as to persons who are directors and/or officers
of the Registrant and have served in the capacities shown in the Statement
of
- --------------------------------
*Incorporated herein by reference
Additional Information of the Registrant, and except for Mr. Ronald K.
Richey. Mr. Richey is Chairman of the Board and Chief Executive Officer
of Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a holding
company of which Waddell & Reed, Inc. is an indirect subsidiary. Mr.
Richey's address is 2001 Third Avenue South, Birmingham, Alabama 35233.
The address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter. It is 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 Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United Asset Strategy Fund, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United Science
and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form
BD, under the Securities Exchange Act of 1934, is herein incorporated
by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
- ---------------------------------
*Incorporated herein by reference
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There are no service contracts other than as discussed in Part A and B of
this Post-Effective Amendment and as listed in response to Items (b)(9)
and
(b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of
any director 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 the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(a) of the Securities Act of 1933 and has duly caused this Post-
Effective Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Overland Park, and State of Kansas, on the 13th
day of November, 1995.
UNITED HIGH INCOME FUND II, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board November 13, 1995
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director November 13, 1995
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer November 13, 1995
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and November 13, 1995
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director November 13, 1995
- ---------------------- ----------------
Henry L. Bellmon
Director
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director November 13, 1995
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director November 13, 1995
- ------------------- ----------------
Linda Graves
/s/John F. Hayes* Director November 13, 1995
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director November 13, 1995
- ------------------- ----------------
Glendon E. Johnson
/s/James B. Judd* Director November 13, 1995
- ------------------- ----------------
James B. Judd
/s/William T. Morgan* Director November 13, 1995
- ------------------- ----------------
William T. Morgan
Director
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B. Schwartz* Director November 13, 1995
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director November 13, 1995
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director November 13, 1995
- ------------------- ----------------
Paul S. Wise
Director
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: July 12, 1995 /s/Keith A. Tucker
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board July 12, 1995
- -------------------- --------------
Ronald K. Richey
/s/Keith A. Tucker President and Director July 12, 1995
- -------------------- (Principal Executive Officer) --------------
Keith A. Tucker
/s/Theodore W. Howard Vice President, Treasurer July 12, 1995
- -------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and July 12, 1995
- -------------------- Principal Financial --------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director July 12, 1995
- -------------------- --------------
Henry L. Bellmon
Director
- -------------------- --------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director July 12, 1995
- -------------------- --------------
Jay B. Dillingham
/s/Linda Graves Director July 12, 1995
- -------------------- --------------
Linda Graves
/s/John F. Hayes Director July 12, 1995
- -------------------- --------------
John F. Hayes
/s/Glendon E. Johnson Director July 12, 1995
- -------------------- --------------
Glendon E. Johnson
/s/James Judd Director July 12, 1995
- -------------------- --------------
James Judd
/s/William T. Morgan Director July 12, 1995
- -------------------- --------------
William T. Morgan
Director
- -------------------- --------------
Doyle Patterson
/s/Eleanor Schwartz Director July 12, 1995
- -------------------- --------------
Eleanor Schwartz
/s/Frederick Vogel III Director July 12, 1995
- -------------------- --------------
Frederick Vogel III
/s/Paul S. Wise Director July 12, 1995
- -------------------- --------------
Paul S. Wise
Director
- -------------------- --------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-h2charter
ARTICLES OF INCORPORATION
OF
UNITED HIGH INCOME FUND II, INC.
THIS IS TO CERTIFY:
FIRST: THE UNDERSIGNED, Rodney O. McWhinney, whose post office address is
2400 Pershing Road, Kansas City, Missouri 64108-2504, 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 High Income Fund II, 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, sell 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 of any class or
series 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 or series, 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 securities of 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 32 South Street,
Baltimore, Maryland 21202.
The Corporation's resident agent is The Corporation Trust Incorporated,
whose post office address is 32 South Street, Baltimore, Maryland 21202. 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 400,000,000 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 one dollar ($1.00) per share.
The aggregate par value of all the shares of all classes is $400,000,000. 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 designation 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 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 designation 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) 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 class.
(b) 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 and need not be
individually declared but may be declared and paid in accordance with a
formula adopted by the Board of Directors of the Corporation.
(c) 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.
(d) 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.
(e) 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 of 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.
(f) The provisions of paragraph (2) 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.
(g) When the Corporation has more than one class of shares
outstanding having 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.
(1) 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.
(2) Each holder of the capital stock (which term as used in the remainder
of these Articles of Incorporation shall be deemed to refer to stock of any
class or series) of the Corporation, upon proper written request (including
signature guarantees, if required by the Board of Directors) to the Corporation,
or other proper non-written request if so determined by the Board of Directors,
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.
(3) 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.
The number of the authorized shares of the stock of any class of the Corporation
shall not be reduced by the number of any shares of such class redeemed or
purchased by it; shares redeemed or purchased shall be retired automatically and
shall have the status of authorized but unissued stock.
(4) 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 of any class or series of 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 (or a majority
of the total number of shares of such class or series) outstanding and entitled
to vote thereon pursuant to the provisions of these Articles of Incorporation.
(5) No holder of capital 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.
(6) 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 twelve 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:
Henry L. Bellmon Benjamin C. Korschot
Wallace F. Bennett John A. Kroh
Dodds I. Buchanan William T. Morgan
Jay B. Dillingham Doyle Patterson
Herbert P. Evert Frederick Vogel, III
Glendon E. Johnson Leslie S. Wright
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 By-Laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes, but no class shall be elected for a period shorter than that from the
time of the election following the division into classes until the next annual
meeting and thereafter for a period shorter than the interval between annual
meetings or for a period longer than five years, and the term of office of at
least one class shall expire each year. Notwithstanding the foregoing, no such
division into classes shall be made prior to the first annual meeting of
stockholders of the Corporation.
(2) 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 which times and places, and under what conditions and regulations such rights
shall be exercised.
(3) 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. A Director may be removed only as permitted by
Maryland law.
(4) 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.
(5) In addition to the powers and authority herein 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.
(6) 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 Broad 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.
(7) (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) 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 advisor 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.
(c) (1) As used in the subparagraph (c) of this paragraph (7) 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, officer or employee of the Corporation (which term as used
in this paragraph (7) shall include a "Corporation" as defined in
Section 2-418(A) (2) of the Maryland General Corporation Law) and any
person who while a director, officer or employee of the corporation is
or was serving at the request of the Corporation as a director,
officer, partner, trustee or employee or agent of another Corporation,
partnership, joint venture, trust, other enterprise or employee
benefit plan, any present or former investment adviser of the
Corporation and the heirs, executors, administrators and successors 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, administrator or successor;
(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 or it 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 and, in the
case of a director or former director of the Corporation, failure to
meet the standard of conduct set forth in Section 2-418(B) (1) of the
Maryland General Corporation Law;
(iv) the term "covered expenses" shall mean judgments,
penalties, fines, settlements and reasonable expenses (including
attorneys' fees) actually 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 indemnitee, an adverse determination
as to the indemnitee whether by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent.
(2) 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.
(3) Except as set forth in (2) above or except as limited in Section
2-418(B) or 2-418(C) of the Maryland General Corporation Law, 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 indemnification is
permissible since the indemnitee was not liable by reason of disabling
conduct by (i) a final decision on the merits 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 1940 Act nor parties to the
covered proceeding or (b) any independent legal counsel in a written
opinion, such legal counsel to be selected in the manner set forth in
Section 2-418(E) (II) of the Maryland General Corporation Law; in voting on
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 the
indemnitee has been charged would provide reasonable assurance that the
indemnitee was not liable by reason of disabling conduct. In the event
such determination is made by legal counsel, authorization of
indemnification and determination as to reasonableness of expenses shall be
made as provided in Section 2-418(E) of the Maryland General Corporation
Law.
(4) 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 such advance, the written affirmation required by
Section 2-418(F) (1) (I) of the Maryland General Corporation Law and the
written 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 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 and that such facts would not preclude
indemnification under Section 2-418 of the Maryland General Corporation Law
by either independent legal counsel (selected as set forth in (3) above) 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. In the event such determination is made by legal
counsel, authorization of the advance and determination of reasonableness
of expenses shall be made as provided in Section 2-418(E) of the Maryland
General Corporation Law.
(5) 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.
(8) 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 in subsection 8(e) hereof, 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 later of
the close of business of the New York Stock Exchange or the close of
business of any securities exchange or commodities exchange on which an
option or futures contract held by the Corporation is traded, next
succeeding the tender of such shares;
(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 last close
of business referenced in subparagraph 8(a), next succeeding the receipt of
an order to purchase such share;
(c) The net asset value of each share of stock of the Corporation, shall
be the quotient obtained by dividing the value, as at the last close of
business referenced in subparagraph 8(a), 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; options shall be
valued at the last sale price thereof on the exchange on which they are
traded, or, if there are not transactions, at the mean between bid and
asked prices; futures purchased by the Corporation shall be valued at the
closing price or the bid price on the exchange on which the future is
traded; futures sold by the Corporation shall be valued at the closing
price or the asked price on the exchange on which the future is traded; 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 questions 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 last close of business
referenced in subparagraph 8(a), may be determined by applying to the net
asset value as of such close 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)has been reduced
by an investor to $400 or less 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 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 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) Subject to the provisions of the 1940 Act, the Corporation may
borrow from banks for the purpose of obtaining funds for investment
purposes or for temporary or emergency purposes and mortgage or pledge
assets of the Corporation in connection therewith.
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 High Income Fund
II, 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 this 18th day of April, 1986
___________________________________
Rodney O. McWhinney, Vice President
EX-99.B1-h2artsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
UNITED HIGH INCOME FUND II, INC.
United High Income Fund II, Inc. (the "Corporation"), a Maryland
corporation, having its principal office in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of
shares of capital stock which the Corporation is authorized to issue at Four
Hundred Million (400,000,000) shares of capital stock (par value $1.00 per
share), amounting in the aggregate to a par value of Four Hundred Million
Dollars ($400,000,000.00). All authorized shares that have not been designated
or classified remain available for future designation or classification.
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly designates and classifies the capital stock of the
Corporation among the classes of the Corporation as follows:
Class A (200,000,000 shares)
Class Y (200,000,000 shares)
The aggregate number of shares of all classes of stock of the Corporation
remains at Four Hundred Million (400,000,000) shares of capital stock, the par
value remains $1.00 per share, and the aggregate value of all authorized stock
remains Four Hundred Million Dollars ($400,000,000.00).
THIRD: The capital stock of the Corporation is divided into classes and
there are no changes in the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as shares of capital stock as set forth in the
Corporation's Articles of Incorporation, except as follows:
(1) The capital stock of Class A shares shall be subject to fees,
including a front-end sales load and a Rule 12b-1 fee, as
determined by the Board of Directors of the Corporation from time
to time;
(2) The capital stock of the Class Y shares shall not be subject to
either a front-end or contingent deferred sales charge or Rule 12b-
1 fees and is subject to a shareholder servicing fee which differs
from that of the Class A shares.
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
___ day of _________, 1995.
__________________________
Sharon K. Pappas, Vice President
Attest: _________________
Sheryl Strauss
Assistant Secretary
The undersigned, Vice President of United High Income Fund II, Inc. who
executed on behalf said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the act
of said Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
UNITED HIGH INCOME FUND II, INC.
By:
Sharon K. Pappas, Vice President
EX-99.B2-h2bylaw
UNITED HIGH INCOME FUND II, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such date
within 31 days after the 1st day of June in each year as may be fixed by the
Board of Directors for the purpose of electing directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called at by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at
such meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
eleven Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until the annual
meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board; may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. No Director shall receive any
stated salary or fees from the Corporation for his services as such Director if
such Director is, otherwise than by reason of being such Director, affiliated
(as such term is defined in the Investment Company Act of 1940) with the
Corporation or with any investment adviser of the Corporation. Except as
provided in the preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
MISCELLANEOUS
Section 1. Custodianship. All cash and securities owned by the
Corporation shall be held by one or more banks or trust companies of good
standing, each having a capital, surplus and undivided profits aggregating not
less than two million ($2,000,000), provided such a bank or trust company can be
found ready and willing to act. Upon the resignation or inability to serve of
any such bank or trust company the Corporation shall (i) use its best efforts to
obtain a qualified successor, (ii) require the cash and securities of the
Corporation held by such bank or trust company to be delivered directly to the
successor, and (iii) in the event that no qualified successor can be found,
submit to the holders of the shares of the capital stock of the Corporation at
the time outstanding and entitled to vote, before permitting delivery of such
cash and securities to anyone other than a qualified successor, the question
whether the Corporation shall be dissolved and liquidated or shall function
without a qualified bank of trust company selected by it, such assets to be held
subject to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article VII.
Nothing herein contained, however, shall prevent the termination of any
agreement between the Corporation and any such bank or trust company by the
Corporation at the discretion of the Board of Directors, and any such agreement
shall be terminated upon the affirmative vote of the holders of a majority of
all the shares of the capital stock of the Corporation at the time outstanding
and entitled to vote.
Section 2. Certain Transactions. The Corporation shall not purchase or
sell any securities (other than stock which may be issued by the Corporation)
from or to any of the following acting as principals and shall not make any loan
to any of the following: (i) any officer or director of the Corporation; (ii)
any person or organization furnishing managerial or supervisory services to the
Corporation; or (iii) any officer, director or partner of any person or
organization furnishing such managerial or supervisory services.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment, addition or
repeal of the By-Laws by action of the Board of Directors may be altered or
repealed by the stockholders. Article VII may be altered, amended or repealed
only by the stockholders.
EX-99.B5-h2ima
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of August, 1990, by and between UNITED HIGH INCOME
FUND II, INC. (hereinafter called "United"), and WADDELL & REED, INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed, Inc., agrees to act as investment adviser to United with
respect to the investment of its assets and in general to supervise the
investments of United, subject at all times to the direction and control of the
Board of Directors of United, all as more fully set forth herein.
II. Duties of Waddell & Reed, Inc., with respect to investment of assets of
United
A. Waddell & Reed Inc., shall regularly provide investment
advice to United and shall, subject to the succeeding provisions of this
section, continuously supervise the investment and reinvestment of cash,
securities or other property comprising the assets of the investment portfolios
of United; and in furtherance thereof, Waddell & Reed, Inc., shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or one or more of the
portfolios of United, and whether concerning the individual companies whose
securities are included in United's portfolios or the industries in which they
engage, or with respect to securities which Waddell & Reed, Inc., considers
desirable for inclusion in United's portfolios;
2. furnish continuously an investment program for each of the portfolios
of United;
3. determine what securities shall be purchased or sold by United;
4. take, on behalf of United, all actions which appear to Waddell & Reed,
Inc., necessary to carry into effect such investment programs and supervisory
functions as aforesaid, including the placing of purchase and sale orders.
B. Waddell & Reed, Inc., shall make appropriate and regular reports to the
Board of Directors of United on the actions it takes pursuant to Section II.A.
above. Any investment programs furnished by Waddell & Reed, Inc., under this
section, or any supervisory function taken hereunder by Waddell & Reed, Inc.,
shall at all times conform to and be in accordance with any requirements imposed
by:
1. the provisions of the Investment Company Act of 1940 and any rules or
regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of United as amended
from time to time;
4. the provisions of the Bylaws of United as amended from time to time;
5. the terms of the registration statements of United, as amended from
time to time, under the Securities Act of 1933 and the Investment Company Act of
1940.
C. Any investment programs furnished by Waddell & Reed, Inc., under this
section or any supervisory functions taken hereunder by Waddell & Reed, Inc.,
shall at all times be subject to any directions of the Board of Directors of
United, its Executive Committee, or any committee or officer of United acting
pursuant to authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of United and the expenses of Waddell & Reed, Inc., in
performing its functions under this Agreement shall be divided into two classes,
to wit:
(i) those expenses which will be paid in full by Waddell & Reed, Inc., as
set forth in subparagraph "A" hereof, and (ii) those expenses which will be paid
in full by United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed, Inc., under Section II
above, it shall pay in full, except as to the brokerage and research services
acquired through the allocation of commissions as provided in Section IV
hereinafter, for (a) the salaries and employment benefits of all employees of
Waddell & Reed, Inc. who are engaged in providing these advisory services; (b)
adequate office space and suitable office equipment for such employees; and (c)
all telephone and communications costs relating to such functions. In addition,
Waddell & Reed, Inc., shall pay the fees and expenses of all directors of United
who are affiliated with Waddell & Reed, Inc., or an affiliated corporation and
the salaries and employment benefits of all officers of United who are
affiliated persons of Waddell & Reed, Inc.
B. United shall pay in full for all of its expenses which are not listed
above (other than those assumed by Waddell & Reed, Inc., or its affiliates in
its capacity as Accounting Services Agent for United), including (a) the costs
of preparing and printing prospectuses and reports to shareholders of United
including mailing costs; (b) the costs of printing all proxy statements and all
other costs and expenses of meetings of shareholders of United; (c) interest,
taxes, brokerage commission and premiums on fidelity and other insurance; (d)
audit fees and expenses of independent accountants and legal fees and expenses
of attorneys, but not of attorneys who are employees of Waddell & Reed, Inc.;
(e) fees and expenses of its directors not affiliated with Waddell & Reed, Inc.;
(f) custodian fees and expenses; (g) fees payable by United under the Securities
Act of 1933, the Investment Company Act of 1940, and the securities or "Blue-
Sky" laws of any jurisdiction; (h) fees and assessments of the Investment
Company Institute or any successor organization; (i) such non recurring or
extraordinary expenses as may arise, including litigation affecting United and
any indemnification by United of its officers, directors, employees and agents
with respect thereto; (j) the costs and expenses provided for in any Shareholder
Servicing Agreement or Accounting Services Agreement, including amendments
thereto, contemplated by subsection C of this section III. In the event that
any of the foregoing shall, in the first instance, be paid by Waddell & Reed,
Inc., United shall pay the same to Waddell & Reed, Inc., on presentation of a
statement with respect thereto.
C. Waddell & Reed, Inc., or an affiliate of Waddell & Reed, Inc., may also
act as (i) transfer agent or shareholder servicing agent of United and/or as
(ii) accounting services agent of United if at the time in question there is a
separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between United and Waddell & Reed,
Inc., or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to such Agreement with United is referred to as
the "Agent." Each such Agreement shall provide in substance that it shall not
go into effect, or may be amended, or a new agreement covering the same topics
between United and the Agent may be entered into only if the terms of such
Agreement, such amendment or such new agreement have been approved by the Board
of Directors of United, including the vote of a majority of the directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
of either party to the Agreement, such amendment or such new agreement
(considering Waddell & Reed, Inc., to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed, Inc.), cast in person at a
meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of United and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of United; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in light of the usual and customary charges made by others
for services of the same nature and quality. Any such Agreement may also
provide in substance that any disinterested director vote may be conditioned on
the favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class of
United. Any such Agreement shall also provide in substance that it may be
terminated by the Agent at any time without penalty upon giving United one
hundred twenty (120) days' written notice (which notice may be waived by United)
and may be terminated by United at any time without penalty upon giving the
Agent sixty (60) days' written notice (which notice may be waived by the Agent),
provided that such termination by United shall be directed or approved by the
vote of a majority of the Board of Directors of United in office at the time or
by the vote of the holders of a majority (as defined in or under the Investment
Company Act of 1940) of the outstanding shares of each class of United.
IV. Brokerage
(a) Waddell & Reed, Inc., may select brokers to effect the portfolio
transactions of United on the basis of its estimate of their ability to obtain,
for reasonable and competitive commissions, the best execution of particular and
related portfolio transactions. For this purpose, "best execution" means prompt
and reliable execution at the most favorable price obtainable. Such brokers may
be selected on the basis of all relevant factors including the execution
capabilities required by the transaction or transactions, the importance of
speed, efficiency, or confidentiality, and the willingness of the broker to
provide useful or desirable investment research and/or special execution
services. Waddell & Reed, Inc., shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed, Inc., shall have discretion,
in the interest of United, to direct the execution of its portfolio transactions
to brokers who provide brokerage and/or research services (as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934) for United
and/or other accounts for which Waddell & Reed, Inc., and its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Act of 1934); and in connection with such transactions, to pay
commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed, Inc., determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of Waddell & Reed, Inc.,
and its investment advisory affiliates with respect to the accounts for which
they exercise investment discretion. In reaching such determination, Waddell &
Reed, Inc., will not be required to attempt to place a specified dollar amount
on the brokerage and/or research services provided by such broker; provided that
Waddell & Reed, Inc., shall be prepared to demonstrate that such determinations
were made in good faith, and that all commissions paid by United over a
representative period selected by its Board of Directors were reasonable in
relation to the benefits to United.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell &
Reed, Inc., may also consider sales of insurance policies funded by United's
shares and sales of shares of investment companies distributed by Waddell &
Reed, Inc., or its affiliates, and portfolio valuation or pricing services as a
factor in the selection of brokers to execute brokerage and principal portfolio
transactions.
V. Compensation of Waddell & Reed, Inc.
As compensation in full for services rendered and for the facilities and
personnel furnished under sections I, II, and IV of this Agreement, United will
pay to Waddell & Reed, Inc., for each day the fees specified in Exhibit A
hereto.
The amounts payable to Waddell & Reed, Inc., shall be determined as of the
close of business each day; shall, except as set forth below, be based upon the
value of net assets computed in accordance with the Articles of Incorporation of
United; and shall be paid in arrears whenever requested by Waddell & Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or policies of any
state in which shares of United are qualified for sale limit the operation and
management expenses of United, Waddell & Reed, Inc., will refund to United the
amount by which such expenses exceed the lowest of such state limitations.
VI. Undertakings of Waddell & Reed, Inc.; Liabilities
Waddell & Reed, Inc., shall give to United the benefit of its best
judgment, efforts and facilities in rendering advisory services hereunder.
Waddell & Reed, Inc., shall at all times be guided by and be subject to
United's investment policies, the provisions of its Articles of Incorporation
and Bylaws as each shall from time to time be amended, and to the decision and
determination of United's Board of Directors.
This Agreement shall be performed in accordance with the requirements of
the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed, Inc., as an investment adviser and
affiliated person of United, Waddell & Reed, Inc., shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed, Inc., it shall not be subject to liability to United or to any stockholder
of United (direct or beneficial) for any act or omission in the course of or
connected with rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on the date
hereof and shall continue in effect, unless terminated as hereinafter provided,
for a period of one year and from year-to-year thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of each class of United and
by the vote of a majority of the directors who are not parties to this Agreement
or "interested persons" (as so defined) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed, Inc., at any time
without penalty upon giving United one hundred twenty (120) days' written notice
(which notice may be waived by United) and may be terminated by United at any
time without penalty upon giving Waddell & Reed, Inc. sixty (60) days' written
notice (which notice may be waived by Waddell & Reed, Inc.), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of United. This Agreement shall automatically terminate in
the event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) UNITED HIGH INCOME FUND II, INC.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
Vice President
ATTEST:
/s/Sharon K. Pappas
- ---------------------
Sharon K. Pappas, Secretary
(Seal) WADDELL & REED, INC.
By:/s/Robert L. Hechler
-----------------------
Robert L. Hechler
Executive Vice President
ATTEST:
/s/Rodney O. McWhinney
- -----------------------
Rodney O. McWhinney, Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED HIGH INCOME FUND II, INC.
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on net asset value at the annual
rate of .15 of 1% of net assets; and
2. A pro rata participation based on the relative net asset size of United
in a "Group" fee computed each day on the combined net asset values of all the
Funds in the United Group listed hereafter at the annual rates shown in the
following table:
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate For Each Level
------------------------- --------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Determined as of the close of business that day or, if not a business day, as of
the close of business the first business day preceding.
The Funds in the United Group are:
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science & Technology Fund
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc.
United Asset Strategy Fund, Inc.
and such other funds for which Waddell & Reed, Inc., may now or hereafter act as
investment adviser, provided that the parties to this Agreement expressly agree
in writing that such fund shall be included in the present United Group for the
purpose of determining the group fee rate.
EX-99.B5-h2assign
Assignment
Waddell & Reed, Inc. ("W&R") does hereby assign, transfer and convey, and United
High Income Fund II, Inc. ("Fund") does hereby consent to the assignment,
transfer and conveyance of, effective January 8, 1992, the Investment Management
Agreement between W&R and the Fund, dated August l, 1990, to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of W&R. W&R
has provided certain undertakings, agreements and guarantees in connection with
this assignment as provided in the Guarantee of Performance attached hereto as
Exhibit A.
Executed this 8th day of January, 1992.
Waddell & Reed, Inc.
By: William T. Morgan
William T. Morgan, President
United High Income Fund II, Inc.
By William T. Morgan
William T. Morgan, President
Accepted:
Waddell & Reed Investment Management Company
By Rodney O. McWhinney
Rodney O. McWhinney, Sr. Vice President
Guarantee of Performance
In consideration of each of the Funds' listed in Exhibit A hereto consent to the
assignment by Waddell & Reed, Inc., of the Investment Management Agreement
between Waddell & Reed, Inc., and the particular Fund to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of Waddell &
Reed, Inc., Waddell & Reed, Inc. hereby undertakes and agrees that at all times
WRIMCO shall be staffed and adequately supported to assure that WRIMCO is fully
capable of carrying out any and all of its obligations, duties and
responsibilities under the Investment Management Agreements assigned to it and
hereby further guarantees that WRIMCO shall perform its obligations, duties and
responsibilities in accordance with the terms of the several Investment
Management Agreements and in accordance with all applicable Federal laws and
regulations.
Dated this 11th day of December, 1991.
Waddell & Reed, Inc.
By: Rodney O. McWhinney
Rodney O. McWhinney
Senior Vice President
<PAGE>
EXHIBIT A
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science & Energy Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United Government Securities Fund, Inc.
United Vanguard Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Retirement Shares, Inc.
United High Income Fund II, Inc.
United High Income Fund, Inc.
United Gold & Government Fund, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
TMK/United Funds, Inc.
Bond Portfolio
Growth Portfolio]
High Income Portfolio
Income Portfolio
Money Market Portfolio
EX-99.B6-h2ua
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 8th day of February, 1995, by and between United
High Income Fund II, Inc. (hereinafter the "Company"), a Maryland corporation,
and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) the shares of each of its classes of shares ("Fund") and of
each sub-class thereof ("Class"), if any, are, as of the date of the
effectiveness of this Agreement as to each such Fund or Class, registered with
the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Company in all states in which the shares are
currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of Securities
Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance sales
organization consisting in part of a number of representatives authorized under
Federal and state securities laws to solicit as representatives of W&R orders
for Company shares and other securities;
4) it maintains and enforces procedures to enable it to
supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for compliance
with applicable securities laws, rules and regulations all sales literature and
promotional materials used by it and authorized to be used by its
representatives in solicitation of orders to buy Company shares, and it files,
when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to act,
as the Company's principal underwriter under the terms and provisions of this
Agreement.
A. Company agrees
1) to use its best efforts to register from time to time under
the Securities Act of 1933 (the "Securities Act") adequate amounts of its shares
for sale by W&R to the public and to qualify or to permit W&R to qualify such
shares for offering to the public in such states as may from time to time be
agreed upon;
2) to immediately advise W&R (i) when any post-effective
amendment to its registration statement or any further amendment or supplement
thereto or any further registration statement or amendment or supplement thereto
becomes effective, (ii) of any request by the SEC for amendments to the
registration statement(s) or any then effective prospectus or for additional
information, (iii) of the issuance by the SEC of any stop-order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, and (iv) of the happening of any event which makes untrue any
material statement made in the registration statement or any then effective
prospectus or which, in the opinion of counsel for the Company, requires the
making of a change in the registration statement or any then effective
prospectus in order to make the statements therein not misleading; in case of
the happening at any time of any event which materially affects the Company or
its securities and which should be set forth in a supplement to or an amendment
of any then effective prospectus in order to make the statements therein not
misleading, to prepare and furnish to W&R such amendment or amendments to that
prospectus as will correct the prospectus so that as corrected it will not
contain, or such supplement or supplements to that prospectus which when read in
conjunction with that prospectus will make the combined information not contain
any untrue statement of a material fact or any omission to state any material
fact necessary in order to make the statements in that prospectus not
misleading; if any time the SEC shall issue any stop-order suspending the
effectiveness of the registration statement, to make every reasonable effort to
obtain the prompt lifting of such order; and, before filing any amendment to the
registration statement or to any then effective prospectus, to furnish W&R with
a copy of the proposed amendment;
3) to advise W&R of the net asset value of the shares of each of
its Funds and Classes, as applicable, as often as computed and to furnish to W&R
as soon as practical such information as may be reasonably requested by W&R in
order that it may know all of the facts necessary to sell shares of the Company;
4) to make delivery of its shares subject to the provisions of
its Articles of Incorporation and Bylaws to W&R as ordered by W&R as soon as
reasonably possible after receipt of the orders and against payment of the
consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses incident to the
issuance, transfer, registration and delivery of its shares, all taxes in
connection therewith, costs and expenses incident to preparing and filing any
registration statements and prospectuses and any amendments or supplements to a
registration statement or a prospectus, statutory fees incidental to the
registration of additional shares with the SEC, statutory fees and expenses
incurred in connection with any Blue Sky law qualifications undertaken by or at
the request of W&R, and the fees and expenses of the Company's counsel,
accountants or any other experts used in connection with the foregoing; and
6) not without the consent of W&R to offer any of its shares for
sale directly or to any persons or corporations other than W&R, except only
a) the reinvestment of dividends and/or distributions or
their declaration in shares of the Company, in optional form or otherwise;
b) the issuance of additional shares to stock splits or
stock dividends;
c) sale of shares to another investment or securities
holding company in the process of purchasing all or a portion of its assets;
d) in connection with an exchange of shares of the Company
for shares in another investment or securities holding company;
e) the sale of shares to registered unit investment trusts;
or
f) in connection with the exchange of one Fund's shares for
shares of another Fund of the Company.
B. W&R agrees
1) to offer Company shares in such states as may be agreed upon
through its retail account representatives and, at its sole discretion, through
broker-dealers which are members of the NASD on such terms as are not
inconsistent with this Agreement;
2) to order shares from the Company only after it has received a
purchase order therefor;
3) to pay to the Company the net asset value of shares sold
within two business days after the day payment is received by W&R at its
principal place of business from the investor or broker-dealer, or pay the
Company at such other time as may be agreed upon hereafter by the Company and
W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the provisions of the
Articles of Incorporation and Bylaws of the Company and with the provisions
stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or proceeding to
terminate, revoke or suspend W&R's registration as a broker-dealer with the SEC,
membership in the NASD, or authority with any state securities commission to
offer Company shares; and
6) to pay the cost of all sales literature, advertising and
other materials which it may at its discretion use in connection with the sale
of Company shares, including the cost of reports to the shareholders of the
Company in excess of the cost of reports to existing shareholders and the cost
of printing the prospectus(es) furnished to it by the Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters relating to
promotion and sale of Company shares, including the preparation and use of all
advertising, sales literature and other promotional materials, and shall make
and enter into all other arrangements, agreements and contracts as principal on
its own account and not as agent for the Company. Title to shares issued and
sold by the Company through W&R shall pass directly from the Company to the
dealer or investor, or shall first pass to W&R as it may from time to time be
determined by W&R and the Company; except provided, however, that W&R may, if so
agreed by W&R and the Company, act as agent of the Company without commission on
repurchase of shares of the Company;
2) certificates for shares shall not be created or delivered by
the Company in any case in which the purchase is pursuant to any provisions of
the Company described in its applicable then current prospectus(es) under the
terms of which certificates are not to be issued to the shareholder. Shares
sold by W&R shall be registered in such name or names and amounts as W&R may
request from time to time, and all shares when so paid for and issued shall be
fully paid and non-assessable;
3) the offering price at which shares of the Company may be sold
by W&R shall include such selling commission as may be applicable to that Class
and as may be fixed from time to time by W&R but shall not be in excess of 8.5
percent of the offering price. W&R shall retain any such sales commission and
may re-allow all or any part of the sales commission to its account
representatives and to selected brokers and dealers who sell shares of the
Company; and
4) W&R may designate, reduce or eliminate its selling
commissions in certain sales or exchanges to the extent described in the
applicable then current prospectus(es) of the Company and in accordance with
Section 22(d) of the Investment Company Act of 1940 and any rules, regulations
or orders of the SEC thereunder.
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (a
"Plan"), which Plan is applicable to certain shares and that the Company may in
the future adopt Plans applicable to certain Funds and Classes, respectively.
B. With respect to any Fund or Class as to which the Company has
adopted a Plan, pursuant to that Plan, each day the Company shall pay to W&R a
distribution fee and/or a service fee at the maximum rates and under the terms
and conditions set forth in the applicable Plan, as amended from time to time,
or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption proceeds
that portion represented by the reinvestment of dividends and distributions and
the appreciation of the value of Fund shares being redeemed, promptly pay W&R an
amount, if any, equal to the percent of the amount invested as determined by W&R
and as is then stated in the Company's current prospectus applicable to the
shares redeemed (the "contingent deferred sales charge"). For purposes of
determining the applicable contingent deferred sales charge, if any: the
redemptions shall be deemed in order of investment made when more than one
investment has been made; and when the shares being redeemed were acquired by
exchange of shares of another Fund or Class of the Company, or corresponding
class of another registered investment company for which W&R or its affiliate
serves as principal underwriter, the investment shall be deemed as if it had
been made when the Company's shares were first purchased, and the applicable
contingent deferred sales charges, if any, shall be with respect to the amount
originally invested in Company shares; and provided that any contingent deferred
sales charge shall be determined in accordance with and in the manner set forth
in the applicable then current prospectus and any applicable Order or Rule
issued by the SEC.
D. It is contemplated that W&R may pay commissions to its field sales
force at the time of sale of the Company's shares and may incur other expenses
substantially in advance of receiving the distribution fee, if any, that may be
applicable to the payment of such commissions and expenses. W&R recognizes that
such payments are at its risk and that this Agreement may be terminated or not
continued as hereinafter provided without the payment to it of any further
distribution fees or service fees whatsoever and without the payment of any
penalty. The contingent deferred sales charges, if any, shall, however, be
payable to W&R with respect to all subject sales made prior to the termination
of this Agreement.
E. W&R shall at least quarterly provide to the Company's board of
directors a written report with respect to each Fund or Class, as applicable, of
the amounts of the distribution and/or service fees expended and the purposes
for which these expenditures were made. W&R shall in addition furnish to the
board of directors of the Company such information as may be requested or as may
be necessary to an informed determination by the directors of whether or not the
directors should continue the Company's Plan(s) and continue this Agreement and
to determine whether there is reasonable likelihood that the Plan(s) and this
Agreement will benefit the Company and its shareholders affected by such
Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and each
person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold harmless
W&R and any such controlling person from and against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, under any other statute, at common law
or otherwise, and to reimburse the underwriter and such controlling persons, if
any, for any legal or other expenses (including the cost of any investigation
and preparation) reasonably incurred by them or any of them in connection with
any litigation whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any prospectus or any amendment
thereof or supplement thereto or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that this indemnity agreement shall not apply to amounts paid in settlement of
any such litigation if such settlement is effected without the consent of the
Company or to any such losses, claims, damages, liabilities or litigation
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or prospectus or any
amendment thereof or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon information furnished in writing
to the Company by W&R for inclusion in any registration statement or any
prospectus or any amendment thereof or supplement thereto. W&R and each such
controlling person shall promptly, after the complaint shall have been served
upon W&R or such controlling person in any litigation against W&R or such
controlling person in respect of which indemnity may be sought from the Company
on account of its agreement contained in this paragraph, notify the Company in
writing of the commencement thereof. The omission of W&R or such controlling
person so to notify the Company of any such litigation shall relieve the Company
from any liability which it may have to W&R or such controlling person on
account of the indemnity agreement contained in this paragraph but shall not
relieve the Company from any liability which it may have to W&R or controlling
person otherwise than on account of the indemnity agreement contained in this
paragraph. In case any such litigation shall be brought against W&R or any such
controlling person and the underwriter or such controlling person shall notify
the Company of the commencement thereof, the Company shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense but such defense shall be conducted by counsel of
good standing and satisfactory to W&R or such controlling person or persons,
defendant or defendants in the litigation. The indemnity agreement of the
Company contained in this paragraph shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of W&R or any such
controlling person and shall survive any delivery of shares of the Company. The
Company agrees to notify W&R promptly of the commencement of any litigation or
proceeding against it or any of its officers or directors of which it may be
advised in connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the agreement in
Section A of this article, insofar as it constitutes a basis for reimbursement
by the Company for liabilities (other than payment by the Company of expenses
incurred or paid in the successful defense of any action, suit or proceeding)
arising under the Securities Act, shall not extend to the extent of any interest
therein of any person who is an underwriter or a partner or controlling person
of an underwriter within the meaning of Section 15 of the Securities Act or who,
at the date of this Agreement, is a director of the Company, except to the
extent that an interest of such character shall have been determined by a court
of appropriate jurisdiction the question of whether or not such interest is
against public policy as expressed in the Securities Act.
C. W&R agrees to indemnify and hold harmless the Company and its
directors and such officers as shall have signed any registration statement from
and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such directors or officers may become subject
under the Securities Act, under any other statute, at common law or otherwise,
and will reimburse the Company or such directors or officers for any legal or
other expenses (including the cost of any investigation and preparation)
reasonably incurred by it or them or any of them in connection with any
litigation, whether or not resulting in any liability insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
which statement or omission was made in reliance upon information furnished in
writing to the Company by W&R for inclusion in any registration statement or any
prospectus, or any amendment thereof or supplement thereto, or which statement
was made in, or the alleged omission was from, any advertising or sales
literature (including any reports to shareholders used as such) which relate to
the Company.
W&R shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. The Company and
its directors and such officers, defendant or defendants, in any such litigation
shall, promptly after the complaint shall have been served upon the Company or
any such director or officer in any litigation against the Company or any such
director or officer in respect of which indemnity may be sought from W&R on
account of its agreement contained in this paragraph, notify W&R in writing of
the commencement thereof. The omission of the Company or such director or
officer so to notify the underwriter of any such litigation shall relieve W&R
from any liability which it may have to the Company or such director or officer
on account of the indemnity agreement contained in this paragraph, but shall not
relieve W&R from any liability which it may have to the Company or such director
or officer otherwise than on account of the indemnity agreement contained in
this paragraph. In case any such litigation shall be brought against the
Company or any such officer or director and notice of the commencement thereof
shall have been so given to W&R, W&R shall be entitled to participate in (and,
to the extent that it shall wish, to direct) the defense thereof at its own
expense, but such defense shall be conducted by counsel of good standing and
satisfactory to the Company. The indemnity agreement of W&R contained in this
paragraph shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company and shall survive any delivery
of shares of the Company. W&R agrees to notify the Company promptly of the
commencement of any litigation or proceeding against it or any of its officers
or directors or against any such controlling person of which it may be advised,
in connection with the issue and sale of the Company's shares.
D. Notwithstanding any provision contained in this Agreement, no
party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Company or its security holders to which
they would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of their duties or by reason of their
reckless disregard of their obligations and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from acting as
underwriter and/or dealer for any other mutual fund, from engaging in any other
aspects of the securities business, whether or not such may be deemed in
competition with the sale of shares of the Company, and to carry on any other
lawful business whatsoever.
B. Except as expressly provided in Article V and hereinabove, the
agreements herein set forth have been made and are made solely for the benefit
of the Company and W&R, and the persons expressly provided for in Article V,
their respective heirs and successors, personal representatives and assigns, and
except as so provided, nothing expressed or mentioned herein is intended or
shall be construed to give any person, firm or corporation other than the
Company, W&R and the persons expressly provided for in Article V any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
representation, warranty or agreement herein contained. Except as so provided,
the term "heirs, successors, personal representatives and assigns" shall not
include any purchaser of shares merely because of such purchase.
C. This Agreement shall continue in effect, unless terminated as
hereinafter provided, for a period of one (1) year and thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to the Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) or any such party and who have no direct or indirect financial
interest in the operation of any Plan or any agreement relating to that Plan
(hereafter the "Plan directors"), cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by W&R at
any time without penalty upon giving the Company sixty (60) days' written notice
(which notice may be waived by the Company) and may be terminated by the Company
at any time without penalty upon giving W&R sixty (60) days' written notice
(which notice may be waived by W&R), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Plan
directors, or by the vote of a majority (as defined in the Investment Company
Act of 1940) of the outstanding voting securities of a Fund with respect to that
Fund. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940.
D. This Agreement shall be governed and construed in accordance with
the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers and their corporate seals to be
affixed as of the day and year first above written.
United High Income Fund II, Inc.
By:_____________________________
Sharon K. Pappas, Vice President
and Secretary
ATTEST:
By:_____________________
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By:____________________________
Robert L. Hechler, President
ATTEST:
By:_____________________
Sharon K. Pappas, Secretary
<PAGE>
EX-99.B8-h2ca
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Between
UNITED MISSOURI BANK, n.a.
and
UNITED HIGH INCOME FUND II, INC.
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposit
2.13 Foreign Exchange Transactions
2.14 Securities Loan
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality
Appendices
Appendix "A"
Appendix "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 26th day of November, 1991 between United High
Income Fund II, Inc. (the "Fund") and United Missouri Bank, n.a. (the
"Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and 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 , a "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however, the
Custodian shall promptly notify the Fund in writing of any intent to exercise a
right of set-off against Assets hereunder and shall not exercise any such right
of set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice of intent to
exercise a right of set-off), any Overdraft, together with all accrued interest
thereon. Notwithstanding the provisions of any applicable law, including,
without limitation, the Uniform Commercial Code, the only rights or remedies
which the Custodian is entitled to with respect to Overdrafts is the right of
set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined) in
accordance with this Article IV. For purposes of this Agreement, all Domestic
Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and Interim Sub-
Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United States
of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
and qualifications of any proposed Foreign Sub-Subcustodian, and (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of the
Fund shall be listed on the Subcustodian List. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a proposed investment
which is to be held in a country in which no Foreign Sub-Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian or any Domestic Subcustodian to effect the appropriate arrangements
with a proposed Foreign Sub-Subcustodian, including obtaining approval as
provided in this Section 4.02(a). In connection with the appointment of any
Foreign Sub-Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a sub-subcustodian agreement with the Foreign Sub-
Subcustodian in form and substance approved by the Fund, provided that the
agreement shall, in all events, comply with the provisions of the 1940 Act and
the rules and regulations thereunder, and the terms and provisions of this
Agreement. The Custodian shall not and shall cause any Domestic Subcustodian
not to consent to the amendment of any sub-subcustodian agreement entered into
with a Foreign Sub-Subcustodian, or agree to any changes thereunder, or waive
any rights under such agreement, except upon prior approval pursuant to Special
Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which no Foreign Sub-Subcustodian is authorized to act, the Custodian
shall, or shall cause the Domestic Subcustodian to, promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing of the unavailability of an approved Foreign
Sub-Subcustodian in such country; and upon the receipt of Special Instructions,
the Custodian shall, or shall cause the Domestic Subcustodian to, appoint or
approve any Person (as hereinafter defined) designated by the Fund in such
Special Instructions, to hold such security or other Asset. (Any Person
appointed or approved as a sub-subcustodian pursuant to this Section 4.02(b) is
hereinafter referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its use
of such entities with respect to the Fund, in accordance with the termination
provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to open-
end management investment companies under the provisions of the 1940 Act; and
(ii) the execution, delivery and performance by the Custodian of this Agreement
are (w) within its power (x) have been duly authorized by all necessary action,
and (y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The Custodian acknowledges receipt of a copy of the
Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought;
provided, however, the Subcustodian List may be amended from time to time by the
Fund's execution and delivery to the Custodian of an amended Subcustodian List,
in which case such amendment shall take effect immediately upon execution by the
Custodian.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
United High Income Fund II, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
United Missouri Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
UNITED HIGH INCOME FUND II, UNITED MISSOURI BANK, n.a.
INC.
By: /s/Rodney O. McWhinney By: /s/David F. Larrabee
Name: Rodney O. McWhinney Name: David F. Larrabee
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
UNITED HIGH INCOME FUND II, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of September 5, 1995
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, Brazil BOVESPA, CLC
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De France
Germany Berliner Handels Und Frankfurter Bank KASSENVEREIN
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing
Company
India Citibank, N.A., Bombay None
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking Corp. 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. None
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
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED HIGH INCOME FUND II, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of January 1, 1995
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depositary
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
CEDEL. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(c)For each futures/options contract written 25.00
(d)For each principal/interest paydown 6.00
(e)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note:Fee Schedule eliminates sub-custodian asset and transaction-based out-of-
pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at
the annual rate of:
.0004 on all short-term dollar denominated assets of the United
Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of Euroclear issues), at the annual rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-h2ssa
SHAREHOLDER SERVICING AGREEMENT
(as Amended and Restated)
THIS AGREEMENT, made as of the 1st day of November, 1992, by and between
UNITED HIGH INCOME FUND II, INC., and Waddell & Reed Services Company (the
"Agent"), as amended and restated as of January 9, 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.
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder and includes
shares subject to instructions by the shareholder with respect to periodic
redemptions and/or reinvestment in additional shares of any dividends payable on
said shares. An account does not include shares held under a plan or program
issued by a unit investment trust for which Waddell & Reed, Inc. was or is the
depositor or sponsor;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement;
(iv) costs for special reports or information furnished on request pursuant to
this Agreement and not specifically required by the Agent by Paragraph 3 of this
Agreement; and (v) reasonable costs and expenses incurred by the Agent in
connection with the duties of the Agent described in Paragraph (3)(1)(i). In
addition, the Company agrees to promptly pay over to the Agent any fees or
payment of charges it may receive from a shareholder for services furnished to
the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's facilities in accordance with reasonable procedures at the
frequency necessary to assure proper administration of the Agreement. The Agent
will cooperate with the Company's auditors or representatives of appropriate
regulatory agencies and furnish all reasonably requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED HIGH INCOME FUND II, 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
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.0208 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015195B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $17,500,000
Audit Expense 500,000
On Premises 17,500,000
In Transit 17,500,000
Forgery or Alteration 17,500,000
Securities 17,500,000
Counterfeit Currency 17,500,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 17,500,000
Total Limit 17,500,000
Directors and Officers/ 87015195D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
Probate Waiver 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-h2asa
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the 1st day of October, 1990, by and between
United High Income Fund II, Inc. (the "Fund"), a Maryland corporation and
Waddell & Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting Services
Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting Services
Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services Agent
for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this Paragraph B
as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of the
Fund's attorneys and independent accountants, to prepare or assist the Fund's
attorneys and independent accountants to prepare, as may be applicable, reports
required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be required by rules and regulations of the Securities and
Exchange Commission adopted under Section 31(a) of the Investment Company Act of
1940 as amended (the "Act").
(3) Agent shall cause the subject records of the Fund to be
maintained and preserved pursuant to the requirements under the Act.
(4) In pricing daily the value of shares of the Fund, Agent may make
arrangements to and obtain the value of portfolio securities from pricing
services or quotation services that are compensated by the Fund directly or
indirectly through the placement of portfolio transactions with broker-dealers
who provide such valuation or quotation services to the Agent.
(5) The Agent shall maintain duplicate copies of, or information from
which copies of, the records necessary to the preparation of the Fund's
financial statements and valuations of its assets may be reconstructed. Such
duplicate copies or information shall be maintained at a location other than
where the Agent performs its normal duties hereunder so that in the event the
records established and maintained pursuant to the foregoing provisions of this
Section B are damaged or destroyed, the Agent shall be able to provide the
bookkeeping and accounting services and assistance specified in this Section B.
(6) In the event any of the Agent's facilities or equipment necessary
for the performance of its duties hereunder is damaged, destroyed or rendered
inoperable by reason of fire, vandalism, riot, natural disaster or otherwise,
Agent will use its best efforts to restore all services hereunder to the Fund
and will not seek from the Fund additional compensation to repair or replace
damaged or destroyed facilities or equipment. The Agent shall also make and
maintain arrangements for emergency use of alternative facilities for use in the
event of the aforesaid destruction of or damage to its facilities.
C. Compensation of the Agent.
The Fund agrees to pay to the Agent for its services under this
Agreement, an amount payable on the first day of the month as shown on the
following table pertinent to the average daily net assets of the Fund during the
prior month:
Fund's Average Daily Net Asset for Monthly Fee
the Month
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,333
$200 - $ 350 million $ 4,167
$350 - $ 550 million $ 5,000
$550 - $ 750 million $ 5,833
$750 - $ 1.0 billion $ 7,083
$1.0 billion and over $ 8,333
D. Right of Fund to Inspect, and Ownership of Records.
The Fund will have the right under this Agreement to perform on-site
inspection of records and accounts, and audits directly pertaining to the Fund's
accounting and portfolio records maintained by the Agent hereunder at the
Agent's facilities. The Agent will cooperate with the Fund's independent
accountants or representatives of appropriate regulatory agencies and furnish
all reasonably requested records and data. Agent acknowledges that these
records are the property of the Fund, and that it will surrender to the Fund all
such records promptly on request.
E. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel, facilities and equipment as well as the accurate performance of all
services to be performed by it hereunder within, at a minimum, the time
requirements of any applicable statutes, rules or regulations and in conformity
with the Fund's Articles of Incorporation, Bylaws and representations made in
the Fund's current registration statement as filed with the Securities and
Exchange Commission.
The Agent shall not be responsible for, and the Fund agrees to
indemnify the Agent for, any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Fund hereunder; (ii) for any delay, error or omission by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties (except with respect to the Agent's employees),
fire, mechanical breakdown beyond its control, flood catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply; or (iii) for any action taken or omitted to be
taken by the Agent in good faith in reliance on the accuracy of any information
provided to it by the Fund or its directors or in reliance on any advice of
counsel who may be internally employed counsel or outside counsel for the Fund
or advice of any independent accountant or expert employed by the Fund with
respect to the preparation and filing of any document with a governmental agency
or authority.
In order for the rights to indemnification to apply, it is understood
that if in any case the Fund may be asked to indemnify or hold the Agent
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend the
Agent against any claim which may be the subject of this indemnification and, in
the event that the Fund so elects, it will so notify the Agent, and thereupon
the Fund shall take over complete defense of the claim, and the Agent shall
sustain no further legal or other expenses in such situation for which the Agent
shall seek indemnification under this paragraph. The Agent will in no case
confess any claim or make any compromise in any case in which the Fund will be
asked to indemnify the Agent except with the Fund's prior written consent.
F. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one (1) year and from year-to-year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended, or a new agreement covering the same topics between the Fund and the
Agent may be entered into only if the terms of this Agreement, such continuance,
the terms of such amendment or the terms of such new agreement have been
approved by the Board of Directors of the Fund, including the vote of a majority
of the directors who are not "interested persons," as defined in the Act, of
either party to this Agreement, the agreement to be continued, amendment or new
agreement, cast in person at a meeting called for the purpose of voting on such
approval. Such a vote is hereinafter referred to as a "disinterested director
vote."
Any disinterested director's vote shall, in favor of continuance,
amendment or execution of a new agreement, include a determination that (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund and its shareholders; (ii) the services to be performed
under the Agreement, the Agreement as amended, new agreement or agreement to be
continued, are services required for the operation of the Fund; (iii) the Agent
can provide services, the nature and quality of which are at least equal to
those provided by others offering the same or similar services; and (iv) the
fees for such services are fair and reasonable in the light of the usual and
customary charges made by others for services of the same nature and quality.
Nothing herein contained shall prevent any disinterested director vote
from being conditioned on the favorable vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Fund.
G. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Fund at least one hundred twenty (120) days' written
notice (which notice may be waived by the Fund) and may be terminated by the
Fund at any time without penalty upon giving the Agent at least sixty (60) days'
written notice (which notice may be waived by the Agent), provided that such
termination by the Fund shall be directed or approved by the vote of a majority
of the Board of Directors of the Fund in office at the time or by the vote of
the holders of a majority (as defined in or under the Act) of the outstanding
shares of the Fund.
(2) On termination, the Agent will deliver to the Fund or its
designee all files, documents and records of the Fund used, kept or maintained
by the Agent in the performance of its services hereunder, including such of the
Fund's records in machine readable form as may be maintained by the Agent, as
well as such summary and/or control data relating thereto used by or available
to the Agent.
(3) In addition, on such termination or in preparation therefore at
the request of the Fund and at the Fund's expense, the Agent shall provide, to
the extent that its capabilities then permit, such documentation, personnel and
equipment as may be reasonably necessary in order for a new agent or the Fund to
fully assume and commence to perform the agency functions described in this
Agreement with a minimum disruption to the Fund's activities.
(4) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940 and the rules and
regulations thereunder of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date and year first above written.
United High Income Fund II, Inc.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
ATTEST:
By:/s/Sharon K. Pappas
- ----------------------
Sharon K. Pappas, Secretary
WADDELL & REED SERVICES COMPANY
By: /s/Robert L. Hechler
------------------------
Robert L. Hechler
ATTEST:
By:/s/Rodney O. McWhinney
- -------------------------
Rodney O. McWhinney, Secretary
EX-99.B9-h2saa
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 9th day of January, 1996, by
and between United High Income Fund II, Inc. (the "Company") and Waddell & Reed,
Inc. ("W&R").
WHEREAS, the Company and W&R have entered into a certain Service Agreement dated
October 1, 1993, as amended September 1, 1994, which the parties now desire to
amend to clarify that the Service Agreement, as amended, relates solely to the
Class A shares of the Company, as such shares may now or in the future exist;
AND WHEREAS, the Company has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan applicable to Class A shares.
NOW THEREFORE, it is mutually agreed as follows:
1. It is understood that the Service Agreement, as previously amended, is
applicable only with respect to the Class A shares of the Company, as such
shares may now or in the future exist.
2. The Company represents that this Amendment has been approved by vote of the
Board of Directors of the Company and of the directors of the Company who
are not interested persons of the Company and who have no direct financial
interest in the operation of the Service Plan or this Agreement
("independent directors"), which was cast in person by such directors at a
meeting called for the purpose of voting on approval of this Amendment.
3. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in
the Service Agreement and to the other provisions set forth therein.
UNITED HIGH INCOME FUND II, INC.
By:
------------------------
Sharon K. Pappas
Waddell & Reed, Inc.
By:
-----------------------
Robert L. Hechler
EX-99.B9-h2appca
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office Stamp
Shawnee Mission, KS 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: ________
Date Transmitted: _____
________________________________________________________________________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other:___________________________
(Use this section for
Retirement Plans with
Custodians other than
Fiduciary Trust Co.)
________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new, Plan tear out
page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457 ____________________________________________
(If billing is required, Employer's Name (Do not Abbreviate)
attach form #CUF1417) _____________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________ Amt $______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: _____________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
________________________________________________________________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT:
(Must have same ownership) [][][][][][][]-[]
Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
_________________________
_______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
_________________________ _____________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
____________________________ ______________ ________ ____/_______-______
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS Make check payable to Waddell & Reed
Code Code
621-Income 626-Gold & Government
622-Science and Technology 627-Continental Income
623-Accumulative 628-High Income
624-Bond 629-Vanguard
625-International Growth 630-New Concepts
Code Code
634-High Income II 760-Municipal Bond (not available
680-Retirement Shares for Ret. Plans)
684-Asset Strategy 762-Municipal High Income (not
750-Cash Management available for Reg. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
Fund Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
Total $_________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
$_________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[][][] $__________ $__________ 19_____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
______ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This Purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671) [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___,___,___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time: _______________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_______________________________________________
Name & Address of Bank/Broker/Savings & Loan
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_______________________________________________
Name of Its Commercial Bank
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
___________________________________________________________________________
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents ___
4. Occupation: _________________________ 5. Employer Name: _____________________
6. Employer Address: ___________________________________________________________
7. Savings and Liquid Assets: $___ 11. Investment Objectives (mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $___ [] Retirement Savings
9. Net Worth (Assets minus liabilities): $___ [] Children's College []Income
10. Are you associated with an NASD Member? Yes ___ No ___ [] Other
needs/goals
(specify in
Special
Remarks)
12. Special Remarks/Considerations: _______________________________________
___________________________________________________________________________
13. Residence Address: ____________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus of the Funds selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct and
(strike the following if not true) that I am not subject to tax withholding
because I have not been notified by the IRS that I am subject to withholding
as a result of a failure to report all interest and dividends or I was
subject to withholding and the IRS has notified me that I am no longer
subject to withholding.
* Since a major portion of the sales charge for Variable Investment Programs
is deducted from payments made in the first year, I understand that a loss
will undoubtedly result if I withdraw or discontinue payments during the
early years of the program.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ______________________________
Date Representative Signature
[OSJ: (H.O.USE) ] [][][][][]
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the
Custody Agreement:
By:____________________________________________
Fiduciary Trust Company Authorized Signature
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Partnership Confidential Questionnaire (CRP1186)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications _______________________________________
[] Check enclosed # _________________________________
[] Other: ___________________________________________
CAP0001(11/94)
EX-99.B9-h2appcy
UNITED FUND GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
INSTRUCTIONS You can open an account by calling 1-800-366-2520 or by mailing
an application and check to Waddell & Reed, Inc., 6300 Lamar, Shawnee Mission,
Kansas 66202 Date:
Fill in where applicable 6300 Lamar, Shawnee Mission, Kansas 66202.
Account Name ___________________________________________________________________
Tax I.D. No. _________________________________
Registration
Name _______________________________________________________________or
______________________________________________________________________
Number and Street _____________________________________________________
Soc. Sec. No. _________________________________
FULL ADDRESS
Please fill in completely, including telephone number.
City______________State _________Zip Code _________
Telephone _________________________________________________ Citizen of: []
U.S. [] Other (specify) ___________________________
[] Please establish an account(s) as follows:
INITIAL Dividends and capital
INVESTMENT(S): gains to be paid in:*
Account No. Assigned _________________Amount Shares Cash
FUND(S) TO BE PURCHASED
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
Total amount $________________ *If no election is checked,
all payments will be made in shares.
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions
received by telephone to have amounts withdrawn from my organization's
account(s) in the Portfolio(s) and wired or mailed to the bank account designed
below.
I (We) hereby ratify any such instructions and agree that none of the Fund(s),
Waddell & Reed, Inc. nor Waddell & Reed Services will be liable for any loss,
liability, cost or expense for acting upon such instructions in accordance with
the procedures set forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank should be a member of the Federal
Reserve System.
SERVICE
Please fill in completely.
Name of Bank
_____________________________________________________________________
Bank A.B.A. No. _________________________
Number and Street
____________________________________________________________________________
City ___________________________________________________ State
_________________________________ Zip Code ___________________
Account Name __________________________________________________________ Account
No. ________________________________________
TELEPHONE This account will be established with a telephone exchange
EXCHANGE privilege which will authorize Waddell & Reed Services Co. to act upon
PRIVILEGE instructions by telephone to exchange Fund shares held in my (our)
account for shares of other Funds eligible under the Exchange Privilege to be
held in an identically registered account(s) (see Prospectus for details),
unless you check the box on the left to indicate your rejection of this service.
Check box at the right
if this service is NOT requsted. I (We) hereby ratify any instructions given
pursuant to this authorization and agree that none of the funds, Waddell & Reed,
Inc. nor Waddell & Reed Serices Company will be liable for any loss, liability,
cost or expense for acting upon instructions believed to be genuine.[]
Under penalties of perjury, I (we) certify that the number shown on this
application is the correct Tax Identification Number of my organization (or my
correct Social Security Number if the account is for my personal use) and that
the organization is not (I am not) subject to backup withholding either because
if it has not (I have not) been notified that it is (I am) subject to backup
withholding as a result of a failure to report all interest, dividends or
capital gains, or the Internal Revenue Service has notified it (me) that it is
no (I am no) longer subject to backup withholding. The undersigned certify that
I (we) have full authority and legal capacity to purchase shares of the Fund and
affirm that I (we) have received a current Prospectus and agree to be bound by
its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate resolution on
reverse side.
1.___________________ 2. ___________________________
Authorized Signature Authorized Signature
_____________________ ____________________________
Title Title
3. _________________ 4. ___________________________
Authorized Signature Authorized Signature
____________________ ____________________________
Title Title
.
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. AFFILIATES AND ITS CUSTODIAN
BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY WRITTEN
NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he is duly elected (title)
__________________________________________ of (corporate name)
_________________________ a corporation organized under the laws of (the State
of) __________________________ and that the following is a true and correct copy
of a resolution adopted by the corporation's Board of Directors at a meeting
duly called and held on (date) ________________________________.
RESOLVED, that any (enter number required to act) _________ of the corporation's
following identified officers (enter titles only)
____________________________________
____________________________________________________________________ are
authorized to execute investment applications with the United Fund Group/W&R
Funds and any Fund investment accounts in the name of the corporation; to invest
such funds of the corporation in shares issued by one or more United Fund/W&R
Funds ("Fund Shares"), as they deem appropriate; and to issue instructions
(including the execution of money fund drafts, if applicable) pertaining to the
redemption, exchange or transfer of Fund Shares.
FURTHER RESOLVED, that each shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals occupy the
offices designated. (Attach additional list if necessary.)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
___________________________________________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes: _______________________________________________
Name and Title
CONFIDENTAL DATA (Must be completed on New Accounts/New Products)
1. Annual Income: $_______________________________ 2. Taxable Income:
$________
3. Total Investment Assets: ________________________________________________
4. Other Assets: _______________________________________
5. Net Worth (Assets minus Liabilities):
________________________________________________________________________________
________________
6. Investment Objectives (mark all that apply)6. [] Retirement Needs h
Reserves6. [] Other needs/goals (specify in Special Remarks)
7. Special Remarks/Considerations:
________________________________________________________________________________
________________________________
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
Obtain account number from the Fund. Complete Purchase Application
Telephone toll free: 1-800-366-2520 Make check payable to Waddell & Reed, Inc.
Instruct bank to transmit investment by Federal funds wire to: u
Mail application and check to:
United Missouri Bank Waddell & Reed Services
Co.,Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _____________________________________
Fund Acct # _______________________________
FUND CODES
737 - United Accumulative - Class Y 763 - United Municipal High
Income - Class Y
785 - United Asset Strategy - Class Y 748 - United New Concepts -
Class Y
738 - United Bond - Class Y 783 - United Retirement Shares
- - Class Y
745 - United Continental Income - Class Y 736 - United Science and
Technology - Class Y
744 - United Gold & Government - Class Y 747 - United Vanguard -Class Y
754 - United Government Securities - Class Y 716 - W&R Asset Strategy -
Class Y
746 - United High Income - Class Y 715 - W&R International Growth
- - Class Y
749 - United High Income II - Class Y 712 - W&R Growth - Class Y
735 - United Income - Class Y 713 - W&R Limited-Term Bond -
Class Y
739 - United International Growth - Class Y 714 - W&R Municipal Bond -
Class Y
761 - United Municipal Bond - Class Y 711 - W&R Total Return Class Y
EX-99.B9-h2navapp
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P.O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
________________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
________________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
________________________________________________________________________________
RETIREMENT PLAN
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant* (Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant* (Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name _____________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
________________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
________________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction Authorization
(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain CR=Cash Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vice
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service from Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at net
asset value will be permitted provided the new registration maintains owner-
ship by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
________________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
________________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement Plan
and Custody Agreement and agree to the terms and conditions set forth therein,
and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am wait-
ing for a number to be issued to me) and (strike the following if not true)
that I am not subject to backup withholding because (a) I am exempt fro backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to back-
up withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________ _______________________________________
Name of Waddell & Reed Employee or Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment as
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
EX-99.B11-consent
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
November 3, 1995, relating to the financial statements and financial highlights
of United High Income Fund II, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Class A Shares Prospectus and the Class Y Shares Prospectus which constitute
part of this Registration Statement. We also consent to the reference to us
under the heading "Custodial and Auditing Services" in such Statement of
Additional Information, to the reference to us under the heading "Financial
Highlights" in the Class A Shares Prospectus and to the references to us under
the heading "Independent Accountants" in the Class A Shares Prospectus and the
Class Y Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
November 13, 1995
Ex-99.B13-h2inital
AGREEMENT
Waddell & Reed, Inc., in consideration of the issuance and sale to it by UNITED
HIGH INCOME FUND II, INC. (Fund) of 20,000 shares of the Fund's common stock for
the payment of $100,000, the receipt of which is acknowledged by the Fund,
hereby recognizes that said amount was paid to the Fund in order for the Fund to
comply with Section 14 of the Investment Company Act of 1940, and agrees that it
shall hold said shares for investment and not with a view toward resale or
requesting their redemption.
In the event that all or any part of this investment in Fund shares is redeemed
prior to the full reimbursement by the Fund to Waddell & Reed, Inc. of certain
organization expenses advanced by Waddell & Reed, Inc. to the Fund, the Fund's
obligation to make further reimbursement will cease.
Dated this 8th day of May, 1986.
WADDELL & REED, INC.
By/s/Rodney O. McWhinney
Rodney O. McWhinney
Senior Vice President
Accepted:
UNITED HIGH INCOME FUND II, INC.
By/s/Robert L. Hechler
Robert L. Hechler
Vice President
EX-99.B15-h2spca
SERVICE PLAN
FOR CLASS A SHARES
(Adopted on October 1, 1993
and Restated on January 9, 1996)
This Plan is adopted by United High Income Fund II, Inc. (the "Company"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") to provide for payment by the Company of certain expenses in connection
with the provision of personal services to the Company's Class A shareholders
and/or maintenance of its Class A shareholder accounts. Payments under the Plan
are to be made to Waddell & Reed, Inc. ("W&R") which serves as the principal
underwriter for the Company under the terms of a written Service Agreement
("Agreement") separate and apart from the Underwriting Agreement pursuant to
which W&R offers and sells the shares of the Company.
Service Fee
The Company is authorized to pay to W&R an amount not to exceed .25 of 1% of the
average net assets of the Class A shares as a "service fee" to finance
shareholder servicing by W&R, its affiliated companies and broker-dealers who
may sell Class A shares and to encourage and foster the maintenance of Class A
shareholder accounts. The amounts shall be payable to W&R monthly or at such
other intervals as the board of directors may determine to reimburse W&R for
costs and expenses incurred.
NASD Definition
For purposes of this Plan the "service fee" shall be considered a payment made
by the Company for personal service and/or maintenance of Class A shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, Inc. ("NASD"), provided, however, if the NASD adopts a definition of
"service fee" for purposes of Article III, Section 26(b) of its Rules of Fair
Practice that differs from the definition of "service fee" as presently used, or
if the NASD adopts a related definition intended to define the same concept, the
definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the service fee paid or payable to it under this Plan and the
purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective when it has been approved by a vote of at least
a majority of the outstanding Class A voting securities of the Company (as
defined in the Act) and by a vote of the board of directors of the Company and
of the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purpose of voting on such Plan. The initial Agreement shall become effective
the effective date of this Plan, provided, however, that it has been approved in
accordance with the requirements of Rule 12b-1 under the Act.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year-to-year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of a Plan by the directors and independent directors.
Director Consideration
In considering whether to adopt, implement or continue this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to furnish,
such information as may be reasonably necessary to an informed determination of
whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Company or by a vote of the majority of the
outstanding Class A voting securities of the Company without penalty. On
termination, the payment of all service fees shall cease, and the Company shall
have no obligation to W&R to reimburse it for any cost or expenditure it has
made or may make to service Class A shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
personal service and/or maintenance of shareholder accounts without approval of
the Class A shareholders, and all material amendments of this Plan must be
approved in the manner prescribed for the adoption of the Plan as provided
hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
Records
Copies of this Plan, the Agreement and reports made pursuant to this Plan shall
be preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B18-h2mcp
UNITED HIGH INCOME FUND II, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for United High Income Fund II, Inc. ("Fund"). This multiple
class structure was approved by the Board of Directors of the Fund on February
8, 1995, under an order of exemption issued by the Securities and Exchange
Commission on January 11, 1995. Subsequent to such approval, Rule 18f-3 under
the 1940 Act was adopted. It was determined that the Fund operate under Rule
18f-3, and this Plan was adopted pursuant to Rule 18f-3. This Plan describes
the classes of shares of stock of the Fund -- Class A shares and Class Y shares
- -- offered to the public on or after January 12, 1996 ("Implementation Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 5.75% of the amount
invested and declines to 0% based on discounts for volume purchases. The
initial sales charge is waived for certain eligible purchasers.
Class A shares also will be subject to a service fee charged pursuant to a
Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1")
that provides for a maximum fee of .25% of the average annual net assets of the
Class A shares of the Fund. All of the shares of the Fund issued pursuant to a
Fund prospectus effective prior to the Implementation Date and that are
outstanding on the Implementation Date will be designated as Class A shares.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and without a Rule 12b-1 fee. Class Y shares are designed for
institutional investors and will be available for purchase by: (i) participants
of employee benefit plans established under section 403(b) or section 457, or
qualified under section 401, including 401(k) plans, of the Internal Revenue
Code of 1986 ("Code"), when the plan has 100 or more eligible employees and
holds the shares in an omnibus account on the Fund's records; (ii) banks, trust
institutions and investment fund administrators investing for their own accounts
or for the accounts of their customers where such investments for customer
accounts are held in an omnibus account on the Fund's records; (iii) government
entities or authorities and corporations whose investment within the first
twelve months after initial investment is $10 million or more; and (iv) certain
retirement plans and trusts for employees and sales representatives of Waddell &
Reed, Inc. and its affiliates.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class A shares
and Class Y shares of the Fund differ with respect to the applicable shareholder
servicing fees. Class A shares pay a monthly shareholder servicing fee of
$1.0208 for each Class A shareholder account which was in existence during the
prior month, plus $0.30 for each Class A account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
For any Fund, these expenses may, but are not required to, be directly
attributed and charged to a particular Class. The shareholder servicing fees
and other expenses listed above that are attributed and charged to a particular
Class are borne on a pro rata basis by the outstanding shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class A shares of a Fund may be exchanged for corresponding shares of any
other fund in the United Group of Mutual Funds.
Class Y shares may be exchanged for Class Y shares of any other fund in the
United Group of Mutual Funds.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the Fund's multiple class structure.
November 13, 1995
Effective: January 12, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000793300
<NAME> UNITED HIGH INCOME FUND II, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 360,495,574
<INVESTMENTS-AT-VALUE> 357,246,415
<RECEIVABLES> 15,178,045
<ASSETS-OTHER> 17,925
<OTHER-ITEMS-ASSETS> 6,654
<TOTAL-ASSETS> 372,449,039
<PAYABLE-FOR-SECURITIES> 3,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,667,394
<TOTAL-LIABILITIES> 4,667,394
<SENIOR-EQUITY> 91,160,325
<PAID-IN-CAPITAL-COMMON> 329,390,006
<SHARES-COMMON-STOCK> 91,160,325
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49,519,527)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,249,159)
<NET-ASSETS> 367,781,645
<DIVIDEND-INCOME> 208,003
<INTEREST-INCOME> 35,000,614
<OTHER-INCOME> 0
<EXPENSES-NET> (3,204,396)
<NET-INVESTMENT-INCOME> 32,004,221
<REALIZED-GAINS-CURRENT> (9,062,829)
<APPREC-INCREASE-CURRENT> 15,236,840
<NET-CHANGE-FROM-OPS> 38,181,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (32,004,221)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,993,791
<NUMBER-OF-SHARES-REDEEMED> (15,495,006)
<SHARES-REINVESTED> 7,199,082
<NET-CHANGE-IN-ASSETS> 5,139,027
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,021,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,204,396
<AVERAGE-NET-ASSETS> 358,225,184
<PER-SHARE-NAV-BEGIN> 3.96
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> .07
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.03
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
