<PAGE> 1
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. ____
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. __
UNITED ASSET STRATEGY FUND, INC.
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(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
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Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering
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As soon as practical after effective date of Registration Statement
===========================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The Registrant requests registration of an indefinite number of shares of
its capital stock, $.01 per share, by this Registration Statement. Fee $500.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, action pursuant to said Section 8(a),
may determine.
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UNITED ASSET STRATEGY FUND, 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) ..................... *
(b) ..................... *
(c) ..................... Performance
(d)...................... *
4(a) ..................... About the Fund
(b) ..................... About the Fund
(c) ..................... About the Fund
5(a) ..................... About the Fund
(b)...................... About the Fund; Inside Back Cover
(c) ..................... About the Fund
(d) ..................... About the Fund; Inside Back Cover
(e) ..................... About the Fund; Inside Back Cover
(f) ..................... About the Fund
(g)(i)................... *
(g)(ii).................. About the Fund
5A........................ *
6(a) ..................... About the Fund
(b) ..................... About the Fund
(c) ..................... *
(d) ..................... *
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
7(a) ..................... About the Fund; Inside Back Cover
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About 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
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10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Policies and Limitations
(b) ..................... Investment Policies and Limitations
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(c) ..................... Investment Policies and Limitations
(d) ..................... Investment Policies and Limitations
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... Organization of the Fund
(b) ..................... Organization of the Fund
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers; Investment Management and
Other Services
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... Investment Management and Other Services
(d) ..................... *
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Organization of the Fund
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ 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 ........................ *
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*Not Applicable or Negative Answer
<PAGE> 4
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 law 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
dated _______________, 199_. The
Statement of Additional Information
is available free upon request to the
fund or Waddell & Reed, Inc., its
underwriter, at the address or
telephone number below. The
Statement of Additional Information
is incorporated by reference into
this Prospectus and you will not be
aware of important facts unless you
read both this Prospectus and the
Statement of Additional Information.
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 Asset Strategy Fund, Inc.
This asset allocation fund seeks high
total return with reduced risk over
the long term through investments in
stocks, bonds, and short-term
instruments.
Prospectus
_______________, 199_
UNITED ASSET STRATEGY FUND, INC.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
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Table of Contents
An Overview of the Fund ................ 3
Expenses ............................... 5
Performance ............................ 6
Explanation of Terms .............. 6
About Waddell & Reed ................... 8
About Your Account ..................... 9
Buying Shares ..................... 11
Minimum Investments ............... 13
Adding to Your Account ............ 14
Selling Shares .................... 14
Shareholder Services .............. 17
Personal Service ............. 17
Reports ...................... 17
Exchanges .................... 18
Automatic Transactions ....... 18
Dividends, Distributions, and Taxes 19
Distributions ................ 19
Taxes ........................ 19
About the Fund ......................... 22
WRIMCO and Its Affiliates ......... 23
Breakdown of Expenses ............. 24
Management Fee ............... 24
Other Expenses ............... 25
Investment Principles ............. 26
Securities and Investment
Practices .................... 28
Fundamental Investment Policies
and Restrictions ............. 32
<PAGE> 6
An Overview of the Fund
description of redemption and
Goal: United Asset Strategy Fund, reinvestment procedures.
Inc. seeks high total return with
reduced risk over the long term. As Who May Want to Invest:
with any mutual fund, there is no Asset allocation funds are designed
assurance that the fund will achieve for investors who want to diversify
its goal. among stocks, bonds, and short-term
instruments, in one fund. If you are
Strategy: The fund diversifies among looking for an investment that uses
stocks, bonds, and short-term this technique in pursuit of high
instruments, both in the United total return with reduced risk, this
States and abroad, to pursue its fund may be appropriate for you.
specific goal. The fund designates a
neutral mix which represents the way Because the fund owns different types
the fund's investments will generally of investments, its performance will
be allocated over the long term. be affected by a variety of factors.
This mix will vary over short-term The value of the fund's investments
periods as fund management adjusts and the income it generates will vary
the fund's holdings - within defined from day to day, generally reflecting
ranges - based on the current outlook changes in interest rates, market
for the different markets. conditions, and other company and
economic news. Performance will also
Neutral Mix depend on WRIMCO's skill in
_ Stocks 40% _ Bonds 40% allocating assets.
(can range (can range
from from 10-60%)
20-60%)
_ Short-term 20%
(can range from
0-70%)
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.
Purchases: You may buy shares of the
fund through Waddell & Reed, Inc. and
its sales representatives. The price
to buy a share of the fund is the net
asset value of a share plus a sales
charge. See "About Your Account" for
information on how to purchase
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
<PAGE> 7
Expenses
redemption at the end of each time
Shareholder transaction expenses are period:
charges you pay when you buy or sell
shares of a fund. 1 year $
3 years $
Maximum sales load
on purchases 5.75% The purpose of this example is to
assist you in understanding the
Maximum sales load various costs and expenses that an
on reinvested investor in the fund will bear
dividends None directly or indirectly. The example
should not be considered a
Deferred representation of past or future
sales load None expenses; actual expenses may be
greater or lesser than those shown.
Redemption feesNone
Exchange fee None
Annual fund operating expenses. The
fund pays a management fee to WRIMCO.
It also incurs other expenses for
services such as maintaining
shareholder accounts, handling
shareholder inquiries and maintaining
fund records. The fund's expenses
are paid out of fund assets and are
not charged directly to shareholder
accounts. See "Breakdown of
Expenses".
The following are estimates of
expenses and fees a shareholder of
the fund would bear directly or
indirectly. The expenses are pro
forma and estimated for the first
year of operations because the fund
has not yet commenced operations.
Management fees %
12b-1 fees .25% 1
Other expenses % 2
Total fund
operating expenses %
Example: You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return and (2)
Expense information reflects the1
maximum 12b-1 service fee. See
"Breakdown of Expenses" for further
information about the 12b-1 service
fee.
2Estimated expenses for the first
fiscal year of operation. Actual
expenses may be greater or lesser
than those shown.
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Performance
recognized independent mutual fund
Mutual fund performance is commonly statistical services or by
measured as total return. The fund publications of general interest. In
may also advertise its performance by connection with a ranking, the fund
showing yield and performance may provide additional information,
rankings. such as the particular category to
which it relates, the number of funds
in the category, the criteria upon
Explanation of Terms which the ranking is based, and the
effect of sales charges, fee waivers
Total Return is the overall change in and/or expense reimbursements.
value of an investment in the fund
over a given period, assuming All performance information that the
reinvestment of any dividends and fund advertises or includes in
distributions. A cumulative total information provided to present or
return reflects actual performance prospective shareholders is
over a stated period of time. An historical in nature and is not
average annual total return is a intended to represent or guarantee
hypothetical rate of return that, if future results. The value of the
achieved annually, would have fund's shares when redeemed may be
produced the same cumulative total more or less than their original
return if performance had been cost.
constant over the entire period.
Average annual total returns smooth The fund's recent performance and
out variations in performance; they holdings will be detailed twice a
are not the same as actual year-by- year in the fund's annual and
year results. Standardized total semiannual reports, which are sent to
return figures reflect payment of the all shareholders.
maximum sales charge. The fund may
also provide non-standardized
performance information which does
not reflect deduction of the sales
charge or which is for periods other
than those required to be presented
or which differs otherwise from
standardized performance information.
Yield refers to the income generated
by an investment in the fund over a
given period of time, expressed as an
annual percentage rate. A 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
<PAGE> 9
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 sales representatives
located throughout the United States.
Your primary contact in your dealings
with Waddell & Reed will be your
local sales 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 sales representative.
You may speak with a customer service
representative by calling 913-236-
2000.
<PAGE> 10
About Your Account
The different ways to set up
(register) your account are listed
below.
Ways to Set Up Your Account
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Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
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Business or Organization
For investment needs of corporations, associations, partnerships, institutions,
or other groups
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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/
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.
_ 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
<PAGE> 11
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Gifts or transfers to a Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
- -----------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed sales
representative for the form.
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<PAGE> 12
Buying Shares
Sales
You may buy shares of the fund Sales Charge
through Waddell & Reed, Inc. and its Charge as
sales representatives. To open your as Approx.
account you must complete and sign an Percent Percent
application. Your Waddell & Reed of of
sales representative can help you Size of Offering Amount
with any questions you might have. Purchase Price Invested
-------- -------- --------
The price to buy a share of the fund, Under
called the offering price, is $100,000 5.75% 6.10%
calculated every business day.
$100,000
The offering price (price to buy one to less
share) is the fund's net asset value than
(NAV) plus the sales charge shown in $200,000 4.75 4.99
the table to the right.
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
The fund's NAV is the value of a
single share. The NAV is computed by
adding up the value of the fund's
investments, cash, and other assets,
subtracting its liabilities, and then
dividing the result by the number of
shares outstanding.
The fund's portfolio securities
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 the Board of Directors.
Bonds are generally valued using a
pricing system provided by a major
dealer in bonds. Debt securities
with remaining maturities of sixty
days or less are valued at amortized
<PAGE> 13
cost, which approximates market accumulation") and by grouping all
value. Other assets are valued at purchases made during a thirteen-
their fair value. month period ("Statement of
Intention"). Shares of another fund
The fund is open for business each purchased through a "contractual
day the New York Stock Exchange plan" may not be included unless the
(NYSE) is open. The fund normally plan has been completed. Purchases
calculates its net asset value as of by certain related persons may be
the latter of the close of business grouped. Additional information and
of the NYSE, normally 4 p.m. Eastern applicable forms are available from
time, or the close of the regular Waddell & Reed sales representatives.
session of any domestic securities
exchange or commodities exchange on Fund shares may be purchased at net
which an option or future held by the asset value by the Directors and
fund is traded. officers of the fund, employees of
Waddell & Reed, Inc., employees of
When you place an order to buy their affiliates, sales
shares, your order will be processed representatives of Waddell & Reed,
at the next offering price calculated Inc. and the spouse, children,
after your order is received and parents, children's spouses and
accepted. Note the following: spouse's parents of each such
Director, officer, employee and sales
Orders are accepted only at the representative. Purchases in certain
home office of Waddell & Reed, Inc. retirement plans and certain trusts
All of your purchases must be made for these persons may also be made at
in U.S. dollars. net asset value. Purchases in a
If you buy shares by check, and 401(k) plan having 100 or more
then sell those shares by any eligible employees and purchases in a
method other than by exchange to 457 plan having 100 or more eligible
another fund in the United Group, employees may be made at net asset
the payment may be delayed for up value. Shares may also be issued at
to ten days to ensure that your net asset value in a merger,
previous investment has cleared. acquisition or exchange offer made
The fund does not issue pursuant to a plan of reorganization
certificates representing shares of to which the fund is a party.
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 that you are not 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 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 shares already held ("rights of
<PAGE> 14
Minimum Investments
To Open an Account $500
For certain
exchanges $100
For certain
retirement
accounts and
accounts opened
through 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
<PAGE> 15
Adding to Your Account The rememption price (price to sell
one share) is the fund's NAV.
Subject to the minimums described
under "Minimum Investments," you can To sell shares, your request must be
make additional investments of any made in writing.
amount at any time.
Complete an Account Service Request
To add to your account, make your form, available from your Waddell &
check payable to Waddell & Reed, Inc. Reed sales representative, or write a
Mail the check along with: "letter of instruction" with:
the detachable form that the name on the account
accompanies the confirmation of a registration,
prior purchase by you or your year- the fund's name,
to-date statement, or the fund account number,
the dollar amount or number of
a letter showing your account shares to be redeemed, and
number, the account registration, any other applicable requirements
and stating that you wish to listed in the table on the next
purchase shares of United Asset page.
Strategy Fund, Inc.
Deliver the form or your letter to
Mail to Waddell & Reed, Inc. at the your Waddell & Reed sales
address printed on your confirmation representative, or mail it to:
or year-to-date statement.
Waddell & Reed, Inc.
P.O. Box 29217
Selling Shares Shawnee Mission, Kansas 66201-9217
You can arrange to take money out of Unless otherwise instructed, Waddell
your fund account at any time by & Reed will send a check to the
selling (redeeming) some or all of address on the account.
your shares.
<PAGE> 16
Account Type Special Requirements
- ------------------ -------------------------------
Individual or Joint The written instructions must be
Tenant signed by all persons required to sign
for transactions, exactly as their
names appear on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of the
business.
UGMA, UTMA The custodian must sign the written
instructions indicating capacity as
custodian.
Retirement account The written instructions must be
signed by a properly authorized
person.
Trust The trustee must sign the written
instructions indicating capacity as
trustee. If the trustee's name is not
in the account registration, provide a
currently certified copy of the trust
document.
Business or At least one person authorized by
Organization corporate resolution to act on the
account must sign the written
instructions.
Conservator, Guardian The written instructions must be
or other fiduciary signed by the person properly
authorized by court order to act in
the particular fiduciary capacity.
<PAGE> 17
or a member firm of a national stock
When you place an order to sell exchange or other eligible guarantor
shares, your shares will be sold at in accordance with procedures of the
the next NAV calculated after your fund's transfer agent. A notary
request is received and accepted. public cannot provide a signature
Note the following: guarantee.
Written requests for redemption The fund reserves the right to redeem
must be in good order which at NAV all shares of the fund owned
requires that if more than one or held by you having an aggregate
person owns the shares, each owner NAV of less than $500. The fund will
must sign the written request. give you notice of its intention to
If you recently purchased the redeem your shares and a 60-day
shares by check, the fund may delay opportunity to purchase a sufficient
payment of redemption proceeds. number of additional shares to bring
You may arrange for the bank upon the aggregate NAV of your shares to
which the purchase check was drawn $500.
to provide to the fund telephone or
written assurance, satisfactory to You may reinvest in the fund without
the fund, that the check has charge all or part of the amount you
cleared and been honored. If no redeemed by sending to the fund the
such assurance is given, payment of amount you want to reinvest. The
the redemption proceeds on these reinvested amounts must be received
shares will be delayed until the by the fund within thirty days after
earlier of 10 days or the date the the date of your redemption. You may
fund is able to verify that your do this only once as to shares of the
purchase check has cleared and been fund.
honored.
Redemptions may be suspended or Under the terms of the 401(k)
payment dates postponed on days prototype plan which Waddell & Reed,
when the NYSE is closed (other than Inc. has available, the plan may have
weekends or holidays), when trading the right to make a loan to a plan
on the NYSE is restricted, or as participant by redeeming fund shares
permitted by the Securities and held by the plan. Principal and
Exchange Commission. interest payments on the loan made in
Payment is normally made in cash, accordance with the terms of the plan
although under extraordinary may be reinvested by the plan,
conditions redemptions may be made without payment of a sales charge, in
in portfolio securities. shares of any of the funds in the
United Group in which the plan may
The fund reserves the right to invest.
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
<PAGE> 18
Shareholder Services additional sales charge. Subject to
certain conditions, exchanges of
Waddell & Reed provides a variety of shares of certain other funds in the
services to help you manage your United Group and automatic monthly
account. exchanges of shares of United Cash
Management, Inc. may be made into the
Personal Service fund.
Your local Waddell & Reed sales Note that exchanges out of the fund
representative is available to may have tax consequences for you.
provide personal service. Before exchanging into a fund, read
Additionally, the Waddell & Reed its prospectus.
Customer Services staff is available
to respond promptly to your inquiries The fund reserves the right to
and requests. terminate or modify these exchange
privileges at any time, upon notice
Reports in certain instances.
Statements and reports sent to you Automatic Transactions
include the following:
Flexible withdrawal service lets you
confirmation statements (after set up monthly, quarterly, semiannual
every purchase, exchange, transfer or annual redemptions from your
or redemption) account.
year-to-date statements (quarterly)
annual and semiannual reports Regular Investment Plans
(every six months) allow you to transfer money into your
fund account, or between fund
To reduce expenses, only one copy of accounts, automatically. While
most annual and semiannual reports regular investment plans do not
will be mailed to your household, guarantee a profit and will not
even if you have more than one protect you against loss in a
account with the fund. Call 913-236- declining market, they can be an
2000 if you need copies of annual or excellent way to invest for
semiannual reports or historical retirement, a home, educational
account information. expenses, and other long-term
financial goals. Certain
Exchanges restrictions apply for retirement
accounts. Speak with your Waddell &
You may sell your fund shares and buy Reed sales representative for more
shares of other funds in the United information.
Group without payment of an
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an
existing account with the United Group
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc.
to another fund in the United Group, whether in
the same or a different account
Minimum Frequency
$100 Monthly
<PAGE> 19
term capital gains and net gains from
Dividends, Distributions, and Taxes certain foreign currency
transactions) and net capital gains
Distributions (the excess of net long-term capital
gain over net short term capital
The fund distributes substantially loss) that are distributed to its
all of its net income and capital shareholders.
gains to shareholders each year.
Ordinarily, dividends are distributed There are tax requirements that all
in March, June, September and funds must follow in order to avoid
December from the fund's net federal taxation. In its effort to
investment income, which includes adhere to these requirements, the
accrued interest, earned discount, fund may have to limit its investment
dividends and other income earned on activity in some types of
portfolio assets less expenses. instruments.
Capital gains (and any net realized
gains from foreign currency As with any investment, you should
transactions) ordinarily are consider how your investment in the
distributed in December. The fund fund will be taxed. If your account
may make additional distributions if is not a tax-deferred retirement
necessary to avoid federal income or account, you should be aware of the
excise taxes on its undistributed following tax implications:
income and capital gains.
Taxes on distributions. Dividends
Distribution Options. from the fund's investment company
When you open an account, specify on taxable income are taxable to you as
your application how you want to ordinary income whether received in
receive your distributions. The fund cash or paid in additional fund
offers three options: shares. Distributions of the fund's
realized net capital gains, when
1. Share Payment Option. Your designated as such, are taxable to
dividend and capital gains you as long-term capital gains,
distributions will be automatically whether received in cash or
paid in additional shares of the reinvested in additional fund shares
fund. If you do not indicate a and regardless of the length of time
choice on your application, you will you have owned your shares. The fund
be assigned this option. notifies you after each calendar
year-end as to the amounts of
2. Income-Earned Option. Your dividends and distributions paid (or
capital gains distributions will be deemed paid) to you for that year.
automatically paid in shares, but you
will be sent a check for each A portion of the dividends paid by
dividend distribution. the fund, whether received in cash or
paid in additional fund shares, may
3. Cash Option. You will be sent a be eligible for the dividends-
check for your dividends and capital received deduction allowed to
gains distributions. corporations. The eligible portion
may not exceed the aggregate
For retirement accounts, all dividends received by the fund from
distributions are automatically paid U.S. corporations. However,
in shares. dividends received by a corporate
shareholder and deducted by it
Taxes pursuant to the dividends-received
deduction are subject indirectly to
The fund intends to qualify for the alternative minimum tax.
treatment as a regulated investment
company under the Internal Revenue Withholding. The fund is required to
Code of 1986 so that it will be withhold 31% of all dividends,
relieved of Federal income tax on distributions and redemption proceeds
that part of its investment company payable to individuals and certain
taxable income (consisting generally other noncorporate shareholders who
of net investment income, net short- do not furnish the fund with a
<PAGE> 20
correct taxpayer identification
number. Withholding at that rate
from dividends and distributions also
is required for such shareholders who
otherwise are subject to backup
withholding.
Taxes on transactions. Your
redemption of fund shares will result
in taxable gain or loss to you,
depending on whether the redemption
proceeds are more or less than your
adjusted basis for the redeemed
shares (which normally includes any
sales charge paid). An exchange of
fund shares for shares of any other
fund in the United Group generally
will have similar tax consequences.
However, special rules apply when you
dispose of fund shares through a
redemption or exchange within ninety
days after your purchase thereof and
subsequently reacquire fund shares or
acquire shares of another fund in the
United Group without paying a sales
charge due to the thirty-day
reinvestment privilege or exchange
privilege. See "About Your Account."
In these cases, any gain on the
disposition of the fund shares would
be increased, or loss decreased, by
the amount of the sales charge you
paid when those shares were acquired,
and that amount will increase the
adjusted basis of the shares
subsequently acquired. In addition,
if you purchase fund shares within
thirty days before or after redeeming
other fund shares 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> 21
About the Fund
The fund only has one class of
United Asset Strategy Fund, Inc. is a shares. Each share has the same
mutual fund: an investment that pools rights to dividends and to vote.
shareholders' money and invests it Shares are fully paid and
toward a specified goal. In nonassessable when bought.
technical terms, the fund is an open-
end diversified management investment As of ____________, 199_,
company organized as a corporation _____________ owned of record and
under Maryland law on August 25, beneficially ____ of the fund's
1994. outstanding shares.
The fund is governed by a Board of
Directors, which has overall
responsibility for the management of WRIMCO and Its Affiliates
the fund's affairs. The majority of
directors are not affiliated with The fund is managed by WRIMCO,
Waddell & Reed, Inc. subject to the authority of the
fund's Board of Directors. WRIMCO
The fund does not hold annual provides investment advice to the
meetings of shareholders; however, fund and supervises the fund's
certain significant corporate investments. Waddell & Reed, Inc.
matters, such as the approval of a and its predecessors served as
new investment advisory agreement or investment manager to each of the
a change in a fundamental investment registered investment companies in
policy, which require shareholder the United Group of Mutual Funds
approval will be presented to since 1940 or the inception of the
shareholders at a meeting called by company, whichever was later, and to
the Board of Directors for such TMK/United Funds, Inc. since that
purpose. fund's inception, until January 8,
1992, when it assigned its duties as
Special meetings of shareholders may investment manager and assigned its
be called for any purpose upon professional staff for investment
receipt by the fund of a request in management services to WRIMCO.
writing signed by shareholders WRIMCO has also served as investment
holding not less than 25% of all manager for Waddell & Reed Funds,
shares entitled to vote at such Inc. since its inception in September
meeting, provided certain conditions 1992 and Torchmark Government
stated in the Bylaws of the fund are Securities Fund, Inc. and Torchmark
met. There will normally be no Insured Tax-Free Fund, Inc. since
meeting of the shareholders for the each commenced operations in February
purpose of electing directors until 1993.
such time as less than a majority of
directors holding office have been James D. Wineland is primarily
elected by shareholders, at which responsible for the day-to-day
time the directors then in office management of the portfolio of the
will call a shareholders' meeting for fund. Mr. Wineland is Vice President
the election of directors. To the of WRIMCO and Vice President of the
extent that Section 16(c) of the fund. He is also Vice President of
Investment Company Act of 1940, as other investment companies for which
amended, ("1940 Act") applies to the WRIMCO serves as investment manager.
fund, the directors are required to Mr. Wineland has held his fund
call a meeting of shareholders for responsibilities since the inception
the purpose of voting upon the of the fund. He has been an employee
question of removal of any director of WRIMCO since January 8, 1992 and,
when requested in writing to do so by prior to that, was an employee of
the shareholders of record of not Waddell & Reed, Inc. since November
less than 10% of the fund's 19, 1984. Mr. Wineland has served as
outstanding shares. the portfolio manager of investment
companies managed by Waddell & Reed,
Inc. and WRIMCO since January 1988.
<PAGE> 22
Other members of WRIMCO's investment Breakdown of Expenses
management department provide input
on market outlook, economic Like all mutual funds, the fund pays
conditions, investment research and fees related to its daily operations.
other considerations relating to the Expenses paid out of the fund's
fund's investments. assets are reflected in its share
price or dividends; they are neither
Waddell & Reed, Inc. serves as the billed directly to shareholders nor
fund's underwriter and as underwriter deducted from shareholder accounts.
for each of the other funds in the
United Group of Mutual Funds, Waddell The fund pays a management fee to
& Reed Funds, Inc., and TMK/United WRIMCO for providing investment
Funds, Inc. Waddell & Reed Services advice and supervising its
Company acts as transfer agent investments. The fund also pays
("Shareholder Servicing Agent") for other expenses, which are explained
the fund and processes the payments on the next page.
of dividends. Waddell & Reed
Services Company also acts as agent Management Fee
("Accounting Services Agent") in
providing bookkeeping and accounting The management fee is accrued and
services and assistance to the fund paid to WRIMCO daily. The fee is
and pricing daily the value of shares calculated by adding a group fee to a
of the fund. specific fee.
WRIMCO and Waddell & Reed Services The specific fee is computed on the
Company are subsidiaries of Waddell & fund's net assets as of the close of
Reed, Inc. Waddell & Reed, Inc. is a business each day at the annual rate
direct subsidiary of Waddell & Reed of .30 of 1% of net assets. The
Financial Services, Inc., a holding group fee is a pro rata participation
company and an indirect subsidiary of based on the relative net asset size
United Investors Management Company, of the fund in a group fee computed
a holding company, and Torchmark each day on the combined net asset
Corporation, a holding company. values of all the funds in the United
Group at the annual rates shown in
WRIMCO places transactions for the the following table. Growth in
fund's portfolio and in doing so may assets of the United Group assures a
consider sales of shares of the fund lower group fee rate.
and other funds it manages as a
factor in the selection of brokers to Group Fee Rate
execute portfolio transactions.
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%
<PAGE> 23
located at field sales offices;
Other Expenses engaging in other activities useful
in providing personal services to
While the management fee is a fund shareholders and/or the
significant component of the fund's maintenance of shareholder accounts;
annual operating costs, the fund has and in compensating broker-dealers
other expenses as well. who may regularly sell fund shares,
and other third parties, for
The fund pays the Accounting Services providing shareholder services and/or
Agent a monthly fee based on the maintaining shareholder accounts.
average net assets of the fund for
accounting services. The fund pays The fund cannot precisely predict
the Shareholder Servicing Agent a what its portfolio turnover rate will
monthly fee for each account that was be, but it is anticipated that the
in existence at any time during the annual turnover rate for the common
month and a fee for each account on stock portion of its portfolio will
which a dividend or distribution had not exceed 200% and that the annual
a record date during the month. turnover rate for the other potion of
its portfolio will not exceed 200%.
The fund also pays other expenses, A higher turnover will increase
such as fees and expenses of certain transaction and commission costs and
directors, audit and outside legal could generate taxable income or
fees, costs of materials sent to loss.
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 has adopted a Service Plan
pursuant to Rule 12b-1 of the 1940
Act. The Plan became effective as of
the date of this prospectus. 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.
The fee is to be paid to reimburse
Waddell & Reed, Inc. for amounts it
expends in connection with the
provision of personal services to
fund shareholders and/or maintenance
of 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
sales representatives, sales managers
and/or other appropriate personnel in
providing personal services to fund
shareholders and/or maintaining
shareholder accounts; increasing
services provided to fund
shareholders by office personnel
<PAGE> 24
Investment Principles types of investments, such as indexed
securities, can fall into more than
The fund seeks high total return with one asset class. The fund may also
reduced risk over the long term by make other investments that do not
allocating its assets among stocks, fall within these classes if WRIMCO
bonds, and short-term instruments. believes that doing so will help the
fund achieve its goal.
Allocating assets among different
types of investments allows the fund Neutral
to take advantage of opportunities mix Range
wherever they may occur, but also -------- -----
subjects the fund to the risks of a Stock
given investment type. Stock values class 10-60%
generally fluctuate in response to 40%
the activities of individual Bond
companies and general market and class 20-60%
economic conditions. The value of 40%
bonds and short-term instruments Short-term
generally fluctuates based on changes class 0-70%
in interest rates and in the credit 20%
quality of the issuer.
The fund's approach spreads the
WRIMCO regularly reviews the fund's fund's assets among all three
allocation of assets and makes classes, attempting to moderate both
changes to favor investments that it the risk and return potential of
believes provide the most favorable stocks, bonds, and short-term
outlook for achieving the fund's instruments.
goal. Although WRIMCO uses its
expertise and resources in choosing In pursuit of the fund's goal, WRIMCO
investments and in allocating assets, will not try to pinpoint the precise
WRIMCO's decisions may not always be moment when a major reallocation
advantageous to the fund. When you should be made. Asset shifts among
sell your shares, they may be worth classes may be made gradually over
more or less than what you paid for time. Under normal circumstances, a
them. single reallocation will not involve
more than 10% of the fund's total
The fund allocates its assets among assets.
the following classes, or types, of
investments. The stock class WRIMCO normally invests the fund's
includes equity securities of all assets according to its investment
types. The bond class includes all strategy; however, as a temporary
varieties of fixed-income instruments defensive measure at times when
with maturities of more than three WRIMCO believes that stocks, bonds
years (including adjustable rate and certain short-term instruments do
preferred stocks). The short-term not offer a good investment
class includes all types of short- opportunity, it may temporarily
term instruments with remaining invest up to all of the fund's assets
maturities of three years or less. in money market instruments.
Within each of these classes, the
fund may aggressively invest in both The fund diversifies across
domestic and foreign securities. investment types more than most
mutual funds. No one mutual fund,
WRIMCO has the ability to allocate however, can provide an appropriate
the fund's assets within specified balanced investment plan for all
ranges. The fund's neutral mix investors.
indicates the benchmark for its
combination of investments in each Securities and Investment Practices
class over time. WRIMCO may change
the neutral mix within the specified The following pages contain more
ranges from time to time. The range detailed information about types of
and approximate neutral mix for each instruments in which the fund may
asset class are shown below. Some invest, and strategies WRIMCO may
<PAGE> 25
employ in pursuit of the fund's categories, are considered to be of
investment goal. A summary of risks investment grade quality. Debt
and restrictions associated with securities rated in the lower rating
these instrument types and investment categories of the established rating
practices is included as well. services (BB or lower by S&P or Ba or
Policies and limitations are lower by MIS), or comparable unrated
typically considered at the time of securities, have speculative
purchase; the sale of instruments is characteristics with respect to
usually not required in the event of capacity to pay interest and repay
a subsequent change in circumstances. principal in accordance with the
terms of the obligation. Debt
WRIMCO might not buy all of these securities rated in the lowest
instruments or use all of these investment grade category (BBB by S&P
techniques to the full extent or Baa by MIS), or comparable unrated
permitted unless it believes that securities, may have speculative
doing so will help the fund achieve characteristics.
its goal. As a shareholder, you will
receive annual and semiannual reports U.S. government securities are high-
detailing the fund's holdings. quality instruments issued or
guaranteed as to principal or
Equity Securities. Equity securities interest by the U.S. Treasury or by
represent an ownership interest in an an agency or instrumentality of the
issuer. This ownership interest U.S. government. Not all U.S.
often gives the fund the right to government securities are backed by
vote on measures affecting the the full faith and credit of the
issuer's organization and operations. Untied States. Some are supported
Although common stocks and other only by the credit of the agency that
equity securities have a history of issued them.
long-term growth in value, their
prices tend to fluctuate in the short Lower-quality debt securities
term, particularly those of smaller (commonly called "junk bonds") are
companies. often considered to be speculative
and involve greater risk of default
Restrictions: With respect to 75% of or price changes due to changes in
total assets, the fund may not own the issuer's creditworthiness. The
more than 10% of the outstanding market prices of these securities may
voting securities of a single issuer. fluctuate more than high-quality
securities and may decline
Debt Securities. Bonds and other significantly in periods of general
debt instruments are used by issuers economic difficulty.
to borrow money from investors. The
issuer pays the investor a fixed or Restrictions: The fund may not
variable rate of interest, and must invest more than 35% of its assets in
repay the amount borrowed at lower-quality debt securities (those
maturity. Some debt securities, such rated below Baa by MIS or BBB by S&P
as zero coupon bonds, do not pay and unrated securities judged by
current interest, but are purchased WRIMCO to be of equivalent quality).
at a discount from their face values. However, the fund does not currently
intend to invest more than 20% of its
Debt securities have varying degrees total assets in securities rated
of quality and varying levels of below investment-grade or judged by
sensitivity to changes in interest WRIMCO to be of equivalent quality.
rates. Longer-term bonds are
generally more sensitive to interest Money Market Instruments are high-
rate changes than shorter-term bonds. quality instruments that present
Debt securities rated AAA, AA, A and minimal credit risk. They may
BBB by Standard & Poor's Ratings include U.S. government obligations,
Group ("S&P") or Aaa, Aa, A and Baa commercial paper and other short-term
by Moody's Investors Service ("MIS"), corporate obligations, and
or unrated securities which are, in certificates of deposit, bankers'
WRIMCO's opinion, of equivalent acceptances, bank deposits, and other
quality to rated securities in these financial institution obligations.
<PAGE> 26
These instruments may carry fixed or collateralized mortgage obligations
variable interest rates. and stripped mortgage-backed
securities. The value of these
Foreign Securities and foreign securities may be significantly
currencies may involve additional affected by changes in interest
risks. These include currency rates, the market's perception of the
fluctuations, risks relating to issuers, and the creditworthiness of
political or economic conditions in a the parties involved. These
foreign country, and the potentially securities may also be subject to
less stringent investor protection prepayment risk.
and disclosure standards of foreign
markets. These factors could make Stripped Securities are the separate
foreign investments, especially those income or principal components of a
in developing countries, more debt instrument. These involve risks
volatile. that are similar to those of other
debt securities, although they may be
Restrictions: Under normal more volatile.
conditions, the fund intends to limit
its investments in foreign securities Direct Debt. Loans and other direct
to no more than 50% of total assets. debt instruments are interests in
amounts owed to another party by a
Adjusting Investment Exposure. The company, government, or other
fund can use various techniques to borrower. They have additional risks
increase or decrease its exposure to beyond conventional debt securities
changing security prices, interest because they may entail less legal
rates, currency exchange rates, protection for the fund, or there may
commodity prices, or other factors be a requirement that the fund supply
that affect security values. These additional cash to a borrower on
techniques may involve derivative demand.
transactions such as buying and
selling options and futures When-Issued and Delayed-Delivery
contracts, entering into currency Transactions are trading practices in
exchange contracts or swap which payment and delivery for the
agreements, and purchasing indexed securities take place at a future
securities. date. The market value of a security
could change during this period,
WRIMCO can use these practices to which could affect the fund's yield.
adjust the risk and return
characteristics of the fund's Repurchase Agreements. In a
portfolio of investments. If WRIMCO repurchase agreement, the fund buys a
judges market conditions incorrectly security at one price and
or employs a strategy that does not simultaneously agrees to sell it back
correlate well with the fund's at a higher price. Delays or losses
investments, these techniques could could result if the other party to
result in a loss, regardless of the agreement defaults or becomes
whether the intent was to reduce risk insolvent.
or increase return. These techniques
may increase the volatility of the Restricted and Illiquid Securities.
fund and may involve a small The fund may invest in restricted
investment of cash relative to the securities which are securities that
magnitude of the risk assumed. In are subject to legal or contractual
addition, these techniques could restrictions on resale. The fund may
result in a loss if the counterparty also invest in illiquid investments.
to the transaction does not perform Illiquid investments may be difficult
as promised or if there is not a to sell promptly at an acceptable
liquid secondary market to close out price. Difficulty in selling
a position that the fund has entered securities may result in a loss or
into. may be costly to the fund.
Asset-Backed and Mortgage-Backed Restrictions: The fund may not
Securities may include pools of purchase a security if, as a result,
consumer loans or mortgages, such as
<PAGE> 27
more than 15% of its assets would be prospectus, other than those
invested in illiquid investments. identified in the following
paragraph, can be changed by the
Other Instruments may include fund's Board of Directors without
convertible bonds, depositary shareholder approval.
receipts, preferred stocks, rights,
securities of closed-end investment The fund seeks high total return with
companies, and warrants. reduced risk over the long term by
allocating its assets among stocks,
Diversification. Diversifying a bonds, and short-term instruments.
fund's investment portfolio can With respect to 75% of total assets,
reduce the risks of investing. This the fund may not invest more than 5%
may include limiting the amount of of its total assets in any one issuer
money invested in any one issuer or, and may not own more than 10% of the
on a broader scale, in any one outstanding voting securities of a
industry. single issuer. The fund may not
invest more that 25% of its total
Restrictions: With respect to 75% of assets in any one industry. The fund
total assets, the fund may not invest may borrow only for temporary or
more than 5% of its total assets in emergency purposes, but not in an
any one issuer. The fund also may amount exceeding 33 1/3% of its total
not invest more than 25% of its total assets. Securities loans, in the
assets in any one industry. These aggregate, will be limited to 10% of
limitations do not apply to U.S. total assets.
government securities.
Borrowing. The fund may borrow from
banks. 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.
Restrictions: The fund may borrow
only for temporary or emergency
purposes, but not in an amount
exceeding 33 1/3% of its total
assets.
Lending. The fund may lend
securities to broker-dealers and
institutions as a means of earning
income. This practice could result
in a loss or a delay in recovering
the fund's securities.
Restrictions: Securities loans, in
the aggregate, may not exceed 10% of
the fund's total assets.
Fundamental Investment Policies and
Restrictions
Some of the policies and restrictions
discussed on the preceding pages are
fundamental, that is, subject to
change only by shareholder approval.
The following paragraph restates all
those that are fundamental. All
policies stated throughout this
<PAGE> 28
United Asset Strategy Fund, Inc.
Custodian Underwriter
United Missouri Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P.O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart 66201-9217
1800 M Street, N.W. (913) 236-2000
Washington, D.C.
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P.O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
Shawnee Mission, Kansas
66201-9217 Accounting Services
(913) 236-2000 Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE> 29
United Asset Strategy Fund, Inc.
PROSPECTUS
____________, 199_
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.
printed on recycled paper
<PAGE> 30
UNITED ASSET STRATEGY FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
_______, 1994
STATEMENT OF ADDITIONAL INFORMATION
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. These securities may not be sold nor any
offers to buy be accepted prior to the time the registration statement becomes
effective.
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus (the
"Prospectus") of United Asset Strategy Fund, Inc. (the "fund") dated ______,
1994, which may be obtained from the fund or its underwriter, Waddell & Reed,
Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Investment Policies and Limitations ................ _
Portfolio Transactions and Brokerage ............... _
Purchase, Redemption and Pricing of Shares ......... __
Performance Information ............................ _
Payments to Shareholders ........................... __
Taxes .............................................. __
Investment Management and Other Services ........... __
Directors and Officers ............................. __
Organization of the Fund ........................... __
Appendix A ......................................... __
<PAGE> 31
INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the fund's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
fund's investment policies and limitations.
The fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940) of the fund. However, except
for the fundamental investment limitations set forth below, the investment
policies and limitations of the fund are not fundamental and may be changed by
the Board of Directors without shareholder approval.
The following are the fund's fundamental investment limitations set forth
in their entirety. The fund may not:
(1) with respect to 75% of the fund's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
United States government, or any of its agencies or instrumentalities) if, as a
result thereof, (a) more than 5% of the fund's total assets would be invested in
the securities of such issuer, or (b) the fund would hold more than 10% of the
outstanding voting securities of such issuer;
(2) issue bonds or any other class of securities preferred over shares of
the fund in respect of the fund's assets or earnings, provided that the fund may
issue additional series and classes of shares in accordance with its Articles of
Incorporation;
(3) purchase securities on margin, except that the fund may obtain such
short-term credits as are necessary for the clearance of transactions, and
provided that the fund may make initial and variation margin payments in
connection with transactions in futures contracts, options and other financial
instruments;
(4) borrow money, except that the fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of the value of its total assets (less liabilities other than
borrowings). Any borrowings that come to exceed 33 1/3% of the value of the
fund's total assets by reason of a decline in net assets will be reduced within
three days to the extent necessary to comply with the 33 1/3% limitation. For
purposes of this limitation, "three days" means three days, exclusive of
Saturdays, Sundays and holidays;
(5) underwrite securities issued by others, except to the extent that the
fund may be deemed to be an underwriter within the meaning of the Securities Act
of 1933 in the disposition of restricted securities;
(6) purchase the securities of any issuer (other than obligations issued
or guaranteed by the United States government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total assets
(taken at current value) would be invested in the securities of issuers having
their principal business activities in the same industry;
(7) purchase or sell real estate unless acquired as a result of ownership
of securities (but this shall not prevent the fund from purchasing and selling
<PAGE> 32
securities issued by companies or other entities or investment vehicles that
deal in real estate or interests therein, nor shall this prevent the fund from
purchasing interests in pools of real estate mortgage loans);
(8) purchase or sell physical commodities unless acquired as a result of
ownership of securities (but this shall not prevent the fund from purchasing and
selling futures contracts, options, forward currency contracts or other
financial instruments); or
(9) make loans, except (a) by lending portfolio securities provided that
no securities loan will be made if, as a result thereof, more than 10% of the
fund's total assets (taken at current value) would be lent to another party; (b)
through the purchase of a portion of an issue of debt securities in accordance
with its investment objective, policies, and limitations; and (c) by engaging in
repurchase agreements with respect to portfolio securities.
The following investment limitations are not fundamental and may be changed
by the Board of Directors without shareholder approval.
(i) The fund may borrow money only from a bank. The fund will not
purchase any security while borrowings representing more than 5% of its total
assets are outstanding.
(ii) The fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in illiquid assets.
(iii) The fund does not currently intend to lend assets other than
securities to other parties, except by acquiring loans, loan participations, or
other forms of direct debt instruments. (This limitation does not apply to
purchases of debt securities or to repurchase agreements.)
(iv) The fund does not currently intend to (a) purchase securities of
other investment companies, except in the open market where no commission except
the ordinary broker's commission is paid, or (b) purchase or retain securities
issued by other open-end investment companies. Limitations (a) and (b) do not
apply to securities received as dividends, through offers of exchange, or as a
result of a reorganization, consolidation, or merger.
(v) The fund does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivision thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.
(vi) The fund does not currently intend to purchase warrants, valued at
the lower of cost or market, in excess of 5% of the fund's net assets. Included
in that amount, but not to exceed 2% of the fund's net assets, may be warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by the fund in units or attached to securities are
not subject to these restrictions.
(vii) The fund does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.
For the fund's limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions."
Asset Allocation. The short-term class includes all types of domestic and
foreign securities and money market instruments with remaining maturities of
three years or less. Waddell & Reed Investment Management Company, the fund's
investment manager, ("WRIMCO") will seek to maximize total return within the
<PAGE> 33
short-term asset class by taking advantage of yield differentials between
different instruments, issuers, and currencies. Short-term instruments may
include corporate debt securities, such as commercial paper and notes;
government securities issued by U.S. or foreign governments or their agencies or
instrumentalities; bank deposits and other financial institution obligations;
repurchase agreements involving any type of security; and other similar short-
term instruments. These instruments may be denominated in U.S. dollars or
foreign currency.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. WRIMCO seeks to maximize
total return within the bond class by adjusting the fund's investments in
securities with different credit qualities, maturities, and coupon or dividend
rates, and by seeking to take advantage of yield differentials between
securities. Securities in this class may include bonds, notes, adjustable-rate
preferred stocks, convertible bonds, mortgage-related and asset-backed
securities, domestic and foreign government and government agency securities,
zero coupon bonds, and other intermediate and long-term securities. As with the
short-term class, these securities may be denominated in U.S. dollars or foreign
currency. The fund may also invest in lower quality, high-yielding debt
securities (commonly referred to as "junk bonds"). The fund currently intends
to limit its investments in these securities to 20% of its assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks which are included in the
bond class). WRIMCO seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that WRIMCO believes to have superior growth
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Illiquid Investments are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Investments currently considered by the fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days, over-the-counter options, non-
government stripped fixed-rate mortgage-backed securities, restricted securities
and swap agreements. However, certain restricted securities, such as securities
eligible for resale under Rule 144A of the Securities Act of 1933 and commercial
paper which is exempt from registration under Section 4(2) of the Securities Act
of 1933, will not be considered by the fund to be illiquid if WRIMCO has made a
determination of liquidity pursuant to procedures adopted by the fund's Board of
Directors. With respect to over-the-counter options the fund writes, all or a
portion of the value of the underlying instrument may be illiquid depending on
the assets held to cover the option and the nature and terms of any agreement
the fund may have to close out the option before expiration. In the absence of
market quotations, illiquid investments are priced at fair value as determined
in good faith by a committee appointed by the Board of Directors. If through a
change in values, net assets, or other circumstances, the fund were in a
position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
Restricted Securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
<PAGE> 34
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.
Securities Lending. The fund may lend securities to parties such as
broker-dealers or institutional investors.
Securities lending allows the fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by WRIMCO to be creditworthy. Furthermore, securities
loans will only be made if, in WRIMCO's judgment, the consideration to be earned
from such loans would justify the risk.
WRIMCO understands that it is the current view of the Securities and
Exchange Commission ("SEC") Staff that the fund may engage in loan transactions
only under the following conditions: (1) the fund must receive 100% collateral
in the form of cash or cash equivalents (e.g., U.S. Treasury bills or notes)
from the borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis) rises above
the value of the collateral; (3) after giving notice, the fund must be able to
terminate the loan at any time; (4) the fund must receive reasonable interest on
the loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to any
increase in market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Directors must be able to vote
proxies on the securities loaned, either by terminating the loan or by entering
into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in any security in
which the fund is authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
Repurchase Agreements. In a repurchase agreement, the fund purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date. The resale price reflects the
purchase price plus an agreed upon incremental amount which is unrelated to the
coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed upon resale price and marked to market daily) of the underlying
security. The fund may engage in a repurchase agreement with respect to any
security in which it is authorized to invest. While it does not presently
appear possible to eliminate all risks from these transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delays and costs to the fund in connection with bankruptcy proceedings),
it is the fund's current policy to limit repurchase agreement transactions to
those parties whose creditworthiness has been reviewed and found satisfactory by
WRIMCO.
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
<PAGE> 35
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value.
Delayed-Delivery Transactions. The fund may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
by the fund to purchase or sell specific securities at a predetermined price or
yield, with payment and delivery taking place after the customary settlement
period for that type of security (and more than seven days in the future).
Typically, no interest accrues to the purchaser until the security is delivered.
The fund may receive fees for entering into delayed-delivery transactions.
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. Because the fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with the
fund's other investments. If the fund remains substantially fully invested at a
time when delayed delivery purchases are outstanding, the delayed-delivery
purchases may result in a form of leverage. When delayed-delivery purchases are
outstanding, the fund will set aside appropriate liquid assets in a segregated
custodial account to cover its purchase obligations. When the fund has sold a
security on a delayed-delivery basis, the fund does not participate in further
gains or losses with respect to the security. If the other party to a delayed-
delivery transaction fails to deliver or pay for the securities, the fund could
miss a favorable price or yield opportunity, or could suffer a loss.
The fund may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.
Mortgage-Backed Securities. The fund may purchase mortgage-backed
securities issued by government and non-government entities such as banks,
mortgage lenders, or other financial institutions. 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. Some mortgage-backed
securities, such as collateralized mortgage obligations ("CMOs"), 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). Mortgage-backed securities are based on different types of
mortgages including those on commercial real estate or residential properties.
Other types of mortgage-backed securities will likely be developed in the
future, and the fund may invest in them if WRIMCO determines they are consistent
with the fund's investment objective and policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Stripped Mortgage-Backed Securities 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.
<PAGE> 36
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.
Asset-Backed Securities. Asset-backed securities represent interest in
pools of consumer loans (generally unrelated to mortgage loans) and most often
are structured as pass-through securities. Interest and principal payments
ultimately depend upon payment of the underlying loans by individuals, although
the securities may be supported by letters of credit or other credit
enhancements. The value of asset-backed securities may also depend on the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans, or the financial institution providing the credit enhancement.
Zero Coupon Bonds. 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.
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
government, a government agency, or a corporation in zero coupon form.
Lower-Rated Debt Securities. 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 has 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. In fact, from 1989 to 1991, the percentage of
lower-rated debt securities that defaulted rose significantly above prior
levels, although the default rate decreased in 1992.
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. If market quotations are not available,
lower-rated debt securities will be valued in accordance with procedures
established by the Board of Directors, including the use of outside pricing
services. Judgment plays a greater role in valuing high-yield, high-risk
corporate debt securities than is the case for securities for which more
external sources for quotations and last-sale information are available.
Adverse publicity and changing investor perceptions may affect the ability of
outside pricing services to value lower-rated debt securities, and the fund's
ability to dispose of these securities.
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. In considering investments
for the fund, WRIMCO will attempt to identify those issuers of high-yield, high-
risk debt securities whose financial condition is adequate to meet future
<PAGE> 37
obligations, has improved, or is expected to improve in the future. WRIMCO's
analysis focuses on relative values based on such factors as interest or
dividend coverage, asset coverage, earnings prospects, and the experience and
managerial strength of the issuer.
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.
Swap Agreements. Swap agreements can be individually negotiated and
structured to include exposure to a variety of different types of investments or
market factors. Depending on their structure, swap agreements may increase or
decrease the fund's exposure to long- or short-term interest rates (in the U.S.
or abroad), foreign currency values, mortgage-backed security values, corporate
borrowing rates, or other factors such as security prices or inflation rates.
Swap agreements can take many different forms and are known by a variety of
names. The fund is not limited to any particular form of swap agreement if
WRIMCO determines it is consistent with the fund's investment objective and
policies.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
Swap agreements will tend to shift the fund's investment exposure from one
type of investment to another. For example, if the fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of the fund's
investments and its share price and yield.
The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that determine
the amounts of payments due to and from the fund. If a swap agreement calls for
payments by the fund, the fund must be prepared to make such payments when due.
In addition, if the counterparty's creditworthiness declined, the value of a
swap agreement would be likely to decline, potentially resulting in losses. The
fund expects to be able to limit its exposure under swap agreements either by
assignment or other disposition, or by entering into an offsetting swap
agreement with the same party or a similarly creditworthy party.
The creditworthiness of firms with which the fund enters into interest rate
swaps, caps or floors will be monitored by WRIMCO in accordance with procedures
adopted by the fund's Board of Directors. If a default occurs by the other
party to such transaction, the fund will have contractual remedies pursuant to
the agreements related to the transaction.
The fund will maintain appropriate liquid assets in a segregated custodial
account to cover its current obligations under swap agreements. If the fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the fund's accrued
obligations under the swap agreement over the accrued amount the fund is
entitled to receive under the agreement. If the fund enters into a swap
<PAGE> 38
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the fund's accrued obligations under the agreement.
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.
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. Recent issuers of
indexed securities have included banks, corporations, and certain U.S.
government agencies. WRIMCO will use its judgment in determining whether
indexed securities should be treated as short-term instruments, bonds, stocks,
or as a separate asset class for purposes of the fund's investment allocations,
depending on the individual characteristics of the securities. Indexed
securities may be more volatile than the underlying instruments. Certain
indexed securities which are not traded on an established market may be deemed
illiquid.
Loans and Other Direct Debt Instruments. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other borrower to
lenders or lending syndicates (loans and loan participations), to suppliers of
goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments are subject to the fund's policies regarding the quality
of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If the fund does not receive scheduled interest or principal payments
on such indebtedness, the fund's share price and yield could be adversely
affected. Loans that are fully secured offer the fund more protections than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities responsible for
the repayment of the debt may be unable, or unwilling, to pay interest and
principal when due.
<PAGE> 39
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the fund. For
example, if a loan is foreclosed, the fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, the fund could be held liable as a co-
lender. Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary. Direct debt instruments that are not in the
form of securities may offer less legal protection to the fund in the event of
fraud or misrepresentation. In the absence of definitive regulatory guidance,
the fund relies on WRIMCO's research in an attempt to avoid situations where
fraud or misrepresentation could adversely affect the fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, the fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of the fund were determined to be
subject to the claims of the agent's general creditors, the fund might incur
certain costs and delays in realizing payment on the loan or loan participation
and could suffer a loss of principal or interest.
Direct indebtedness purchased by the fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating
the fund to pay additional cash on demand. These commitments may have the
effect of requiring the fund to increase its investment in a borrower at a time
when it would not otherwise have done so, even if the borrower's condition makes
it unlikely that the amount will ever be repaid. The fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments.
The fund limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see limitations (1) and (7)).
For purposes of these limitations, the fund generally will treat the borrower as
the "issuer" of indebtedness held by the fund. In the case of loan
participations where a bank or other lending institution serves as financial
intermediary between the fund and the borrower, if the participation does not
shift to the fund the direct debtor-creditor relationship with the borrower, SEC
interpretations require the fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict the fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Foreign Investments. Under normal conditions, the fund intends to limit
its investments in foreign securities to no more than 50% of total assets.
Foreign investments 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.
<PAGE> 40
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 or counter these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.
The fund may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.
American Depositary Receipts and European Depositary Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based issuer
held in trust by a bank or similar financial institution. Designed for use in
U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies and are not subject to the currency risk as in the case
of foreign denominated securities.
Foreign Currency Transactions. The fund may hold foreign currency deposits
from time to time, and may convert dollars and foreign currencies in the foreign
exchange markets. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged. Currencies may be exchanged on a
spot (i.e., cash) basis, or by entering into forward contracts to purchase or
sell foreign currencies at a future date, at a price set when the contract is
entered into. Forward contracts generally are traded in an interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. The parties to a forward contract may agree to offset or
terminate the contract before its maturity, or may hold the contract to maturity
and complete the contemplated currency exchange.
The fund may use forward currency contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the fund.
In connection with purchases and sales of securities denominated in foreign
currencies, the fund may enter into forward currency contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." WRIMCO expects to enter into settlement hedges in the normal course of
managing the fund's foreign investments. The fund could also enter into forward
<PAGE> 41
contracts to hedge an anticipated dividend or interest payment denominated in a
foreign currency or in anticipation of future purchases or sales of securities
denominated in foreign currency, even if the specific investments have not yet
been selected by WRIMCO.
The fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutschemarks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
At the maturity of a forward contract that the fund has sold, the fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate the obligation to deliver the foreign
currency by purchasing an "offsetting" forward contract with the same currency
trader obligating the fund to purchase, on the same maturity date, the same
amount of the foreign currency. However, the currency trader is not obligated
to enter into such an offsetting forward contract. It is impossible to forecast
with absolute precision the market value of portfolio securities at the
expiration of the forward contract. Accordingly, if the fund determines to sell
the portfolio security and make delivery of the underlying foreign currency, it
may be necessary for the fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the fund is obligated
to deliver.
If the fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or loss to the extent that there has been
movement in forward contract prices. Should forward prices decline during the
period between the fund's entering into a forward contract for the sale of a
foreign currency and the date it enters into the offsetting forward contract,
the fund will realize a gain to the extent the price at which it has agreed to
sell the foreign currency exceeds the price at which it has agreed to purchase
the foreign currency. Should forward prices increase, it will suffer a loss to
the extent the price at which it has agreed to purchase the foreign currency
exceeds the price at which it has agreed to sell the foreign currency.
Successful use of forward currency contracts will depend on WRIMCO's skill
in analyzing and predicting currency values. Forward contracts may
substantially change the fund's investment exposure to changes in currency
exchange rates, and could result in losses to the fund if currencies do not
perform as WRIMCO anticipates. For example, if a currency's value rose at a
time when WRIMCO had hedged the fund by selling that currency in exchange for
dollars, the fund would be unable to participate in the currency's appreciation.
If WRIMCO hedges currency exposure through proxy hedges, the fund could realize
currency losses from the hedge and the security position at the same time if the
two currencies do not move in tandem. Similarly, if WRIMCO increases the fund's
exposure to a foreign currency, and that currency's value declines, the fund
will realize a loss. There is no assurance that WRIMCO's use of forward
currency contracts will be advantageous to the fund or that it will hedge at an
<PAGE> 42
appropriate time. The policies described in this section are non-fundamental
policies of the fund.
Limitations of Futures and Options Transactions. The fund must operate
within certain restrictions as to positions in futures contracts, options on
futures contracts and options on a foreign currency traded on an exchange
regulated by the Commodity Futures Trading Commission ("CFTC") under a rule
("CFTC Rule") adopted by the CFTC under the Commodity Exchange Act ("CEA") to be
eligible for the exclusion provided by the CFTC Rule from regulation by the fund
with the CFTC as a "commodity pool operator" (as defined under the CEA), and
must represent to the CFTC that it will operate within such restrictions. Under
these restrictions, to the extent that the fund enters into futures contracts,
options on futures contracts and options on foreign currencies traded on a CFTC-
regulated exchange, in each case that are not for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish these positions (excluding the amount by which options are "in-the-
money") may not exceed 5% of the liquidation value of the fund's portfolio. (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.)
In addition, the fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the fund's
total assets would be hedged with futures and options under normal conditions;
(b) purchase futures contracts or write put options if, as a result, the fund's
total obligations upon settlement or exercise of purchased futures contracts and
written put options would exceed 25% of its total assets; or (c) purchase call
options if, as a result, the current value of option premiums for call options
purchased by the fund would exceed 5% of the fund's total assets. These
limitations do not apply to options attached to or acquired or traded together
with their underlying securities, and do not apply to securities that
incorporate features similar to options.
The above limitations on the fund's investments in futures contracts and
options, and the fund's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information, may be changed
as regulatory agencies permit.
Futures Contracts. When the fund purchases a futures contract, it agrees
to purchase a specified underlying instrument or commodity at a specified future
date. When the fund sells a futures contract, it agrees to sell the underlying
instrument or commodity at a specified future date. The price at which the
purchase and sale will take place is fixed when the fund enters into the
contract. Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on indices
of securities prices, such as the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). Futures contracts are also traded on commodities, such as
precious metals, foreign currencies, and other financial instruments. Futures
can be held until their delivery dates, or can be closed out before then if a
liquid secondary market is available.
The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument or commodity. Therefore, purchasing
futures contracts will tend to increase the fund's exposure to positive and
negative price fluctuations in the underlying instrument or commodity, much as
if it had purchased the underlying instrument or commodity directly. When the
fund sells a futures contract, in contrast, the value of its futures position
will tend to move in a direction contrary to the market. Selling futures
contracts, therefore, will tend to offset both positive and negative market
price changes, much as if the underlying instrument or commodity had been sold.
<PAGE> 43
Purchasing Put and Call Options. By purchasing a put option, the fund
obtains the right (but not the obligation) to sell the underlying instrument at
a fixed strike price. In return for this right, the fund pays the current
market price for the option (known as the option premium). Options have various
types of underlying instruments, including specific securities, indices of
securities prices, currencies, and futures contracts. The fund may terminate
its position in a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the fund will lose
the entire premium it paid. If the fund exercises the option, it completes the
sale of the underlying instrument at the strike price. The fund may also
terminate a put option position by closing it out in the secondary market at its
current price, if a liquid secondary market exists.
The buyer of a typical put option can expect to realize a gain if the
underlying instrument's price falls substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing the
option, a put buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call buyer typically attempts to participate in a potential price
increase in the underlying instrument with risk limited to the cost of the
option if the instrument's price falls. At the same time, the buyer can expect
to suffer a loss if the instrument's price does not rise sufficiently to offset
the cost of the option.
Writing Put and Call Options. When the fund writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the fund assumes the obligation to pay the strike price
for the option's underlying instrument if the other party to the option chooses
to exercise it. The fund may seek to terminate its position in a put option it
writes before exercise by closing out the option in the secondary market at its
current price. If the secondary market is not liquid, however, the fund must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to set aside assets to cover its
position.
If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This
loss should be less than the loss from purchasing the underlying instrument
directly, however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When the fund
<PAGE> 44
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
the fund buys a call on an index, it pays a premium and has the same rights as
to such call as are indicated above. When the fund buys a put on an index, it
pays a premium and has the right, prior to the expiration date, to require the
seller of the put, upon the fund's exercise of the put, to deliver to the fund
an amount of cash if the closing level of the index upon which the put is based
is less than the exercise price of the put, which amount of cash is determined
by the multiplier, as described above for calls. When the fund writes a put on
an index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the fund to deliver to it an amount of cash equal to
the difference between the closing level of the index and the exercise price
times the multiplier if the closing level is less than the exercise price.
The risks of investment in options on indices may be greater than options
on securities. Because index options are settled in cash, when the fund writes
a call on an index it cannot provide in advance for its potential settlement
obligations by acquiring and holding the underlying securities. The fund can
offset some of the risk of writing a call index option by holding a diversified
portfolio of securities similar to those on which the underlying index is based.
However, the fund cannot, as a practical matter, acquire and hold a portfolio
containing exactly the same securities as underlie the index and, as a result,
bears a risk that the value of the securities held will vary from the value of
the index.
Even if the fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the fund as the call writer will not learn that it has
been assigned until the next business day at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a covered call
on a specific underlying security, such as common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
<PAGE> 45
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.
Options on Futures Contracts. When the fund writes an option on a futures
contract, it becomes obligated, in return for the premium paid, to assume a
position in the futures contract at a specified exercise price at any time
during the term of the option. If the fund has written a call, it becomes
obligated to assume a "short" position in the futures contract, which means that
it is required to deliver the underlying securities. If it has written a put,
it becomes obligated to assume a "long" position in the futures contract, which
means that it is required to take delivery of the underlying securities. When
the fund purchases an option on a futures contract, it acquires the right, in
return for the premium it paid, to assume a position in the futures contract, a
"long" position if the option is a call and a "short" position if the option is
a put.
Combined Positions. The fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to adjust
the risk and return characteristics of the 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.
Correlation of Price Changes. Because there are 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.
The risk of imperfect correlation between movements in the price of an
index future and movements in the price of the securities that are the subject
of the hedge increases as the composition of the fund's portfolio diverges from
<PAGE> 46
the securities included in the applicable index. The price of the index futures
may move more than or less than the price of the securities being hedged. If
the price of the index future moves less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable direction, the
fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the futures contract. If the price of the
futures contract moves more than the price of the security, the fund will
experience either a loss or a gain on the futures contract that will not be
completely offset by movements in the price of the securities that are the
subject of the hedge. To compensate for the imperfect correlation of movements
in the price of the securities being hedged and movements in the price of the
index futures, the fund may buy or sell index futures in a greater dollar amount
than the dollar amount of the securities being hedged if the historical
volatility of the prices of such securities being hedged is more than the
historical volatility of the prices of the securities included in the index. It
is also possible that, where the fund has sold futures contracts to hedge its
portfolio against decline in the market, the market may advance and the value of
the securities held in the portfolio may decline. If this occurred, the fund
would lose money on the futures contract and also experience a decline in value
of its portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified portfolio
of securities will tend to move in the same direction as the market indices on
which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before the fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
Margin Requirements and Daily Limits. Unlike when the fund purchases or
sells securities, no price is paid or received by it when it purchases or sells
a futures contract. Initially, the fund will be required to deposit an amount
of cash or U.S. Treasury Bills equal to a varying specified percentage of the
contract amount. This amount is known as initial margin. Cash held in the
margin account is not income producing. Subsequent payments, called variation
margin, to and from the futures commission merchant ("FCM") will be made on a
daily basis as the price of the underlying instrument fluctuates making the
futures contract more or less valuable, a process known as "marking-to-market."
If the fund writes an option on a futures contract, it will be required to
deposit initial and variation margin pursuant to the requirements similar to
those applicable to futures contracts. Premiums received from the writing of an
option on a futures contract are included in the initial margin deposit.
Changes in variation margin are recorded by the fund as unrealized gains or
losses. If required by the SEC, initial margin payments will be deposited with
the fund's custodian bank in an account registered in the FCM's name; access to
the assets in that account may be made by the FCM only under specified
conditions. At any time prior to expiration of a futures contract or option
thereon, the fund may elect to close the position by taking an opposite
position, which will operate to terminate its position in the futures contract
or option. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the fund and the fund realizes a
loss or a gain. Although futures contracts by their terms call for the actual
delivery or acquisition of the underlying obligation, in most cases the
contractual obligation is fulfilled without having to make or take delivery.
The fund does not generally intend to make or take delivery of the underlying
<PAGE> 47
obligation. All transactions in futures contracts and options thereon are made,
offset or fulfilled through a clearing house associated with the exchange on
which the contracts are traded. Although the fund intends to buy and sell
futures contracts and options thereon only on exchanges where there appears to
be an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular futures contract or option thereon at any
particular time. In such event, it may not be possible to close a futures
contract or options position.
Liquidity of Options and Futures Contracts. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a futures contract or option
thereon 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 the liquidation of unfavorable positions.
If the fund were unable to liquidate a futures contract or option thereon
due to 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, the fund would be required to make daily variation margin payments
and might be required to maintain the position being hedged by the futures
contract or option or to maintain cash or securities in a segregated account.
OTC Options. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter ("OTC") options (options not traded on
exchanges) generally are established through negotiation with the other party to
the option contract. While this type of arrangement allows the fund great
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.
Options and Futures Relating to Foreign Currencies. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The fund may
purchase and sell currency futures and may purchase and write currency options
to increase or decrease its exposure to different foreign currencies. The fund
may also purchase and write currency options in conjunction with each other or
with currency futures or forward contracts. Currency futures and options values
can be expected to correlate with exchange rates, but may not reflect other
factors that affect the value of the fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in the Yen,
but will not protect the fund against a price decline resulting from
deterioration in the issuer's creditworthiness. Because the value of the fund's
foreign-denominated investments changes in response to many factors other than
exchange rates, it may not be possible to match the amount of currency options
and futures to the value of the fund's investments exactly over time.
<PAGE> 48
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.
Asset Coverage for Forward Contract, Futures and Options Positions.
Transactions using forward contracts, futures contracts and options (other than
options that the fund has purchased) expose the fund to an obligation to another
party. The fund will not enter into any such transactions unless it owns either
(1) an offsetting ("covered") position in securities, currencies, or other
options, futures contracts or forward contracts, or (2) cash, receivables and
short-term debt securities with a value sufficient at all times to cover its
potential obligations not covered as provided in (1) above. The fund will
comply with SEC guidelines regarding cover for these instruments and, 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.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding forward contract, futures contract or option
is open, unless they are replaced with similar 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.
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 cannot precisely predict what its portfolio turnover rate will be,
but it is anticipated that its annual turnover rate for the common stock portion
of its portfolio will not exceed 200% and that the annual turnover rate for the
other portion of its portfolio will not exceed 200%. A high turnover rate will
increase transaction costs and commission costs that will be borne by the fund
and could generate taxable income or loss.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Investment
Management Agreement between the fund and WRIMCO 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
<PAGE> 49
obtained. The individual who manages the fund may manage other funds or
advisory accounts with similar investment objectives. It can be anticipated
that the manager will frequently place concurrent orders for all or most
accounts for which the manager has responsibility. Transactions effected
pursuant to such combined orders are averaged as to price and allocated in
accordance with the purchase or sale orders actually placed for each fund or
advisory account.
To effect the portfolio transactions of the fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the fund and/or the other funds and accounts over which WRIMCO or its affiliates
have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the fund and other funds managed by WRIMCO
and its affiliates as a factor in their selection. No allocation of brokerage
or principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the fund's portfolio or being considered for purchase.
In placing transactions for the fund's portfolio, WRIMCO may consider sales
of shares of the fund and other funds managed by WRIMCO and its affiliates as a
<PAGE> 50
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.
Buying and Selling with Other Funds
The fund and one or more of the other funds in the United Group, Waddell &
Reed Funds, Inc., TMK/United 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 will
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
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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each of the shares of the fund is the value of the
fund's assets, less what it owes, divided by the total number of shares
outstanding. For example, if on a particular day the fund owned securities
worth $100 and had cash of $15, the total value of the assets would be $115. If
it owed $5, the net asset value would be $110 ($115 minus $5). If it had 11
shares outstanding, the net asset value of one share would be $10 ($110 divided
by 11).
The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge described in the
Prospectus.
The number of shares you receive for your purchase depends on the next
offering price after Waddell & Reed, Inc., the fund's underwriter, 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.
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 ordinarily computed
daily on each day that The New York Stock Exchange, Inc. (the "Exchange") is
open for trading as of the close of the regular session of the Exchange or the
close of the regular session of any domestic securities or commodities exchange
on which an option or future held by the fund is traded. The Exchange annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that it will not be open on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. However, it is possible that the
Exchange may close on other days. The net asset value will change every
business day, since the value of the fund's assets and the number of shares
outstanding changes every day.
<PAGE> 51
The fund's portfolio securities, except as otherwise noted, listed or
traded on a stock exchange, are valued on the basis of the last sale on that day
or, lacking any sales, at a price which is the mean between the closing bid and
asked prices. In cases where securities or other instruments are traded on more
than one exchange, such securities or other instruments generally are valued on
the exchange designated by WRIMCO (under procedures established by and under the
general supervision and responsibility of the fund's Board of Directors) as the
primary market. Securities traded in the OTC market and listed on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") are
valued at the last available sale price on Nasdaq prior to the time of
valuation; other OTC securities and instruments are valued at the mean of the
closing 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. Debt securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market. When market quotations for
options and futures positions held by the fund are readily available, those
positions will be valued based upon such quotations. Market quotations
generally will not be available for options traded in the OTC market. When
market quotations are not readily available, securities, options, futures and
other assets are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the fund's Board of Directors.
When the fund writes a put or call, an amount equal to the premium received
is included in the fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is marked-to-market to reflect the current market value of the
put or call. If a call the fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
the fund received. If the fund exercised a call it purchased, the amount paid
to purchase the related investment is increased by the amount of the premium
paid. If a put written by the fund is exercised, the amount that the fund pays
to purchase the related investment is decreased by the amount of the premium it
received. If the fund exercises a put it purchased, the amount the fund
receives from the sale of the related investment is reduced by the amount of the
premium it paid. If a put or call written by the fund expires, it has a gain in
the amount of the premium; if it enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less than
the cost of the closing transaction.
All securities and other assets quoted in foreign currency and forward
contracts are valued weekly in U.S. dollars on the basis of the foreign currency
exchange rate prevailing at the time such valuation is determined by the fund's
custodian. Foreign currency exchange rates are generally determined prior to the
close of the Exchange. Occasionally, events affecting the value of foreign
securities and such exchange rates occur between the time at which they are
determined and the close of the Exchange, which events will not be reflected in
a computation of the fund's net asset value. If events materially affecting the
value of such securities or assets or currency exchange rates occurred during
such time period, the securities or assets would be valued at their fair value
as determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Directors. The foreign
currency exchange transactions of the fund conducted on a spot basis are valued
at the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. Under normal market conditions this rate differs from the
prevailing exchange rate by 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.
<PAGE> 52
Minimum Initial and Subsequent Investments
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 sales to certain retirement plan accounts and to accounts
for which an investor has arranged, at the time of initial investment, to make
subsequent purchases for the account by having regular monthly withdrawals of
$25 or more made from a bank account. A 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."
Reduced Sales Charges
Account Grouping
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 purchases under the 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. Purchases 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 Code salary reduction plan
account provided that such purchases are subject to a sales charge (see
"Net Asset Value Purchases"), tax sheltered annuity account ("TSA") or
Keogh plan account, provided that the individual and spouse are the only
participants in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
All purchases 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.
All purchases 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
<PAGE> 53
affiliate is defined as an employer that directly, or indirectly, controls or is
controlled by or is under control with another employer.
All purchases 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.
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase 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.
Rights of Accumulation
If 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.
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 an investment
program ("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 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 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 made under the terms of
the Statement will be the sales charge in effect on the beginning date of the
13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's rights of accumulation (see above) will be taken into account; that
is, 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.
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
<PAGE> 54
the dollar amount 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 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 will be held "in escrow." If a
purchaser does not, during the period covered by the Statement, invest the
amount required to qualify for the reduced sales charge under the terms of the
Statement, 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 made under a Statement which is not completed will be collected by
redeeming part of the shares purchased under the Statement and held "in escrow"
unless the purchaser makes payment of this amount to Waddell & Reed, Inc. within
20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement will be deducted in computing the aggregate purchases under the
Statement.
Statements of Intention are not available for purchases made under a SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases 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 are subject to a maximum 5.75% ("full") sales charge as
described in the prospectus of each fund: United Funds, Inc., United
International Growth Fund, Inc., United Continental Income Fund, Inc., United
Vanguard Fund, Inc., United Retirement Shares, Inc., United High Income Fund,
Inc., United New Concepts Fund, Inc., United Gold & Government Fund, Inc.,
United High Income Fund II, Inc., and United Asset Strategy Fund, Inc. The
following funds in the United Group 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 which is subject to a
full sales charge may not be grouped with purchases in a fund in the United
Group which is subject to a reduced sales charge; conversely, purchases made in
a fund with a reduced sales charge may not be grouped or combined with purchases
of a fund which is 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.
<PAGE> 55
Net Asset Value Purchases
As stated in the Prospectus, fund 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, sales representatives of Waddell & Reed,
Inc. and the spouse, children, parents, children's spouses and spouse's parents
of each such Director, officer, employee and sales representative. "Child"
includes stepchild; "parent" includes stepparent. Purchases 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.
"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. "Sales representatives" includes retired sales
representatives. A "retired sales representative" is any sales representative
who was, at the time of separation from service from Waddell & Reed, Inc., a
Senior Account Representative. A custodian under the Uniform Gifts (or
Transfers) to Minors Act purchasing for the child or grandchild of any employee
or sales representative may purchase at net asset value whether or not the
custodian himself is an eligible purchaser.
Purchases in a 401(k) plan having 100 or more eligible employees and
purchases in a 457 plan having 100 or more eligible employees may be made at net
asset value.
Reinvestment Privilege
The fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount you redeem from the fund by
sending to the fund the amount you wish to reinvest. The amount you return will
be reinvested at the net asset value next determined after the fund receives the
returned amount. Your written request to reinvest and the amount to be
reinvested must be received within 30 days after your redemption request was
received and the fund must be offering shares of the fund at the time your
reinvestment request is received. You can do this only once as to shares of the
fund; however, you do not use up this privilege by redeeming shares to invest
the proceeds at net asset value in a Keogh plan or an IRA.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number of instances
in which the fund's 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, 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
<PAGE> 56
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 are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares exchanged.
Sales 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 at no sales charge are
permitted to attempt to protect against mistaken or not fully informed
redemption decisions. 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 Investment Company Act of 1940 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.
Retirement Plans
As described in the prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers 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.
<PAGE> 57
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 $22,500.
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.
Exchanges for Shares of Other Funds in the United Group
You may exchange shares of a fund in the United Group and any shares
acquired through payment of dividends or distributions from those shares for
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 shares you own in another fund in the United Group for
shares of the fund without charge if (i) the shares of the fund you are
exchanging from are subject to a full sales charge and a sales charge was paid
on these shares, or (ii) the shares were received in exchange for shares of a
fund that are subject to a full sales charge and for which a sales charge was
paid, or (iii) the shares were acquired from payment of dividends and
distributions. The shares you are exchanging may have been involved 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.
Shares of funds subject to a reduced sales charge (United Municipal Bond
Fund, Inc., United Government Securities Fund, Inc. and United Municipal High
Income Fund, Inc.) may be exchanged for 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 shares of United Cash Management, Inc. automatically exchanged
<PAGE> 58
each month into 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 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 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.
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your written exchange request is received in good
order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Redemptions
Redemption payments are made within seven days, unless delayed because of
emergency conditions determined by the SEC, when the New York Stock Exchange is
closed (other than on weekends and holidays) or when trading on the Exchange is
restricted. Payment is made in cash, although under extraordinary conditions,
redemptions may be made in portfolio securities. Redemptions may be made in
portfolio securities if the fund's Board of Directors decides that conditions
exist making cash payments undesirable. The securities would be valued at the
value used in determining 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 Investment Company Act, pursuant
to which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder.
Flexible Withdrawal Service
If you qualify, you may arrange to receive through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming on a regular basis shares that you own of the fund or any
of the funds in the United Group. It would be a disadvantage to an investor to
make additional purchases of shares while a withdrawal program is in effect
because it would result in duplication of sales charges. Applicable forms are
available from Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
shares which you still own of any of the funds in the United Group; or, you must
own shares having a value of at least $10,000. The value for this purpose is
the value at the offering price.
You can choose to have your shares redeemed to receive:
(1) a monthly, quarterly, semiannual or annual payment of $50 or more;
(2) a monthly payment, which will change each month, equal to one-twelfth
of a percentage of the value of the shares in the Account (you select the
percentage); or
(3) a monthly or quarterly payment, which will change each month or
quarter, by redeeming a fixed number of shares (at least five shares).
<PAGE> 59
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
The fund, not Waddell & Reed, Inc., pays the costs of this Service. Having
the Service costs you nothing extra individually. There is a $2.00 fee for each
withdrawal from a Retirement Plan Account.
The dividends and distributions on shares you have made available for the
Service are paid in additional shares. All payments under the Service are made
by redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments exceed dividends and distributions, the number of shares
you own will decrease. When all of the shares in your account are redeemed, you
will not receive any more 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. 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.
Mandatory Redemption of Certain Small Accounts
The fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before the redemption is processed.
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the fund's underwriter, or the fund may from time to
time publish the fund's total return, yield and/or performance information in
advertisements and sales materials.
Total Return
The fund's average annual total return quotation is computed according to a
standardized method prescribed by SEC rules. The average annual total return
for the fund for a specific period is found by taking a hypothetical $1,000
investment in fund shares on the first day of the period and computing the
"redeemable value" of that investment at the end of the period. The redeemable
value is then divided by the initial investment, and this quotient is taken to
the Nth root (N representing the number of years in the period) and 1 is
subtracted from the result, which is then expressed as a percentage. The
calculation assumes that all income and capital gains distributions have been
reinvested at net asset value on the reinvestment dates during the period.
Calculation of cumulative total return is not subject to a prescribed
formula. The fund's cumulative total return for a specific period is calculated
by first taking a hypothetical initial investment in fund shares on the first
day of the period and computing the "redeemable value" of that investment at the
end of the period. The cumulative total return percentage is then determined by
<PAGE> 60
subtracting the initial investment from the redeemable value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The calculation assumes that all income and capital gains distributions of the
fund have been reinvested at net asset value on the reinvestment dates during
the period. Cumulative total return may also be shown as the increased dollar
value of the hypothetical investment over the period.
Yield
The fund's yield is computed according to a standardized method prescribed
by SEC rules. The fund's yield is computed by dividing the net investment
income per share earned during the period for which the yield is shown by the
maximum offering price per share on the last day of that period according to the
following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
In computing its yield, the fund follows certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the fund uses to prepare its annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus the fund's yield may not equal the income paid to shareholders
or the income reported in the fund's financial statements.
Changes 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.
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. 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 which the fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the fund's shares when redeemed may be more or
less than their original cost.
PAYMENTS TO SHAREHOLDERS
General
<PAGE> 61
There are three sources for the payments the fund makes to you as a
shareholder, 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 its expenses. 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 gain (the excess of
net long-term capital gains over net short-term capital losses). It may or may
not have such gains, depending on whether securities are sold and at what price.
If the fund has net capital gains, it will pay distributions once each year, in
the latter part of the fourth calendar quarter. Even if it has net capital
gains for a year, the fund does not pay out the gains if it has applicable prior
year losses to offset the gains.
Choices you Have on your Dividends and Distributions
In 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 fund shares or (iii) you want cash for your dividends and
want your distributions paid in fund shares. You can change your instructions
at any time. If you give no instructions, your dividends and distributions will
be paid in fund shares. All payments in fund shares are at net asset value
without any sales charge. The net asset value used for this purpose is that
computed as of the record date for the dividend or distribution, although this
could be changed by the Board of Directors.
Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in fund shares at net asset value next
determined after receipt by Waddell & Reed, Inc. of the amount clearly
identified as a reinvestment. The reinvestment must be within 45 days after the
payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986 (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 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 -
<PAGE> 62
- - (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 options and futures contracts with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government Securities, securities of 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 one of
those months are deemed to have been paid by the fund and received by the
shareholders on December 31 of that year if they are paid by the fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors 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 gains 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 debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each 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.
<PAGE> 63
Income from Options, Futures Contracts and Currencies
The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses the fund realizes in connection
therewith. Income from foreign currencies (except certain gains therefrom that
may be excluded by future regulations), and income from transactions in options,
futures contracts and forward contracts derived by the fund with respect to its
business of investing in securities will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
will be subject to the Short-Short Limitation if they are held for less than
three months. Income from the disposition of foreign currencies and forward
contracts thereon 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 gains (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the fund's hedging transactions. To the
extent this treatment is not available, the fund may be forced to defer the
closing out of options, futures and certain forward contracts beyond the time
when it otherwise would be advantageous to do so, in order for the fund to
continue to qualify as a RIC.
Any income the fund earns from writing options is taxed as short-term
capital gains. If the fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by the fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and thus the fund sells the securities subject to the
option, the premium the fund receives will be added to the exercise price to
determine the gains or losses 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 in which the fund may invest will 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 gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance is
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) may also 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
<PAGE> 64
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 satisfy the distribution requirement described above 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 options or
futures, held for less than three months that it might wish to sell in the
ordinary course of its portfolio management.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The fund has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the fund and provide investment advice to the fund.
The address of WRIMCO is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
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
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 the Management Agreement for these funds and all related investment
management duties (and the related professional staff) to WRIMCO, subject to the
authority of the fund's Board of Directors. WRIMCO has also served as
<PAGE> 65
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. since they each commenced operations in February
1993. Waddell & Reed, Inc. serves as principal underwriter for the fund and the
investment companies in the United Group of Mutual Funds, TMK/United Funds, Inc.
and Waddell & Reed Funds, Inc.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to enter
into a separate agreement for transfer agency services ("Shareholder Servicing
Agreement") and a separate agreement for accounting services ("Accounting
Services Agreement") with the fund. The Management Agreement contains detailed
provisions as to the matters to be considered by the fund's Directors prior to
approving any Shareholder Servicing Agreement or Accounting Services Agreement.
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 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 Directors without
shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, as compensation for WRIMCO's management
services, the fund pays WRIMCO a fee as described in the Prospectus. The fund
accrues and pays this fee daily. For purposes of calculating the daily fee the
fund does not include money owed to it by Waddell & Reed, Inc. for shares which
it has sold but not yet paid to the fund.
Under the Shareholder Servicing Agreement, the fund pays the Agent a
monthly fee 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 pays certain out-of-pocket expenses of the Agent, including long distance
telephone communication costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and legal and special services not
provided by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
<PAGE> 66
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 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 the 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 its 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 Underwriting Agreement separate from the
Management Agreement, Shareholder Servicing Agreement and Accounting Services
Agreement, acts as the fund's underwriter. Waddell & Reed, Inc. offers and
sells the fund's shares on a continuous basis. It is not required to sell any
particular number of shares and thus sells shares only for purchase orders
received. Under this Underwriting Agreement, Waddell & Reed, Inc. pays the
costs of sales literature, including the costs of shareholder reports used as
sales literature, and the costs of printing the prospectuses furnished to it by
the fund.
A major portion of the sales charge is paid to sales representatives and
managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its sales
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 (the "Plan") adopted by the fund pursuant to Rule 12b-
1 under the Investment Company Act of 1940, the fund may pay Waddell & Reed,
Inc., a fee not to exceed .25% of the fund's average annual net assets, paid
monthly, to reimburse Waddell & Reed, Inc. for its costs and expenses in
connection with the provision of personal services to fund shareholders and/or
maintenance of shareholder accounts.
<PAGE> 67
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 sales
representatives, sales managers and/or other appropriate personnel in providing
personal services to fund shareholders and/or maintaining shareholder accounts;
increasing services provided to fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
service to fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers who may regularly sell fund shares, and other third
parties, for providing shareholder services and/or maintaining shareholder
accounts.
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 __________________ as the sole shareholder of the
shares of the fund at the time.
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 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 custodian for the fund is United Missouri 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 under the Investment Company Act of 1940. Price
Waterhouse, Kansas City, Missouri, the fund's independent accountants, audits
the fund's financial statements.
DIRECTORS AND OFFICERS
The day-to-day affairs of the fund are handled by outside organizations
selected by the Board of Directors. The Board has responsibility for
establishing broad corporate policies for the fund and for overseeing overall
performance of those organizations. The Board has the benefit of advice and
reports from independent counsel and independent auditors.
Each of the fund's Directors is also a Director of each 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. and each of its officers is also an officer of one or more of these funds.
The principal occupation of each Director and officer during at least the past
five years 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 Board members.
<PAGE> 68
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the fund; 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;
formerly, Chairman of the Board of Directors of Waddell & Reed, Inc.
KEITH A. TUCKER*
President of the fund; 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; formerly, partner in Trivest, a
private investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company.
HENRY L. BELLMON
Route 1
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
University of Colorado
Campus Box 419
Boulder, Colorado 80309
Professor of Marketing, College of Business, University of Colorado;
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.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Partner in Dillingham Farms, a farming operation; formerly, President and
Director of Kansas City Stock Yards Company.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
President of Gilliland & Hayes, P.A., a law firm; Director of Central Bank
and Trust.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Life Insurance Company.
<PAGE> 69
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of each
fund in the United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc.,
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. (Mr. Morgan retired as Chairman of the Board of Directors and President of
these funds 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.
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
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President of the fund; 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; 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 and Treasurer of the fund; Vice President of Waddell & Reed
Services Company.
<PAGE> 70
Sharon K. Pappas
Vice President, Secretary and General Counsel of the fund; Vice President,
Secretary and General Counsel of Waddell & Reed Financial Services, Inc.; Senior
Vice President, Secretary and General Counsel of the Manager 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 Waddell & Reed, Inc.,
the Manager, Waddell & Reed Financial Services, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
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, four of the fund's Directors may be deemed to
be "interested persons" as defined in the Investment Company Act of 1940 of its
underwriter, Waddell & Reed, Inc. or of its manager, WRIMCO. The Directors who
may be deemed to be "interested persons" are indicated as such by an asterisk.
The Board 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 a Director Emeritus.
The fund will pay annual fees to each Director, other than Directors who
are affiliates of Waddell & Reed, Inc., and to each Director Emeritus in an
amount to be determined by the Board of Directors after the public sale of
shares of the fund commences. No fees are currently paid to Directors or
Directors Emeritus. The Director's fees will be allocated among the funds in
the United Group, Waddell & Reed Funds, Inc. and TMK/United Funds, Inc. based on
their relative size. The officers will be paid by Waddell & Reed, Inc. or its
affiliates.
Shareholdings
As of ______________, 199_, 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, ________ owned of record and beneficially 100% of the fund's outstanding
shares. See "Organization of the Fund."
ORGANIZATION OF THE FUND
The fund was organized on August 25, 1994, and has no prior history.
The Shares of the Fund
The fund presently has only one class of shares. Each full and fractional
share has the same rights to dividends, to vote and to receive assets if the
fund liquidates (winds up). Shares are fully paid and nonassessable when
bought.
Those shares held by ___________ (as described below) will be voted in
proportion to the voting instructions which are received on any matter. Voting
<PAGE> 71
instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by ______________.
Initial Investment and Organizational Expenses
On ____________, __________ purchased for investment _____ shares of the
fund at a net asset value of $____ per share. As of the date of this SAI, it
was the sole shareholder of the fund.
The fund's organizational expenses in the amount of $ _____ have been
advanced by ____________ and are an obligation to be paid by the fund. These
expenses are being amortized over the 60-month period following the date of the
initial public offering of the fund's shares. In the event that all or part of
_______'s initial investment in the fund's shares is redeemed prior to the full
reimbursement of the organizational expenses, the fund's obligation to make
reimbursement will cease.
<PAGE> 72
APPENDIX A
DESCRIPTION OF BOND RATINGS
The following are descriptions of some of the ratings of securities which
the fund may use. The fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
Standard & Poor's Ratings Group. A Standard & Poor's 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 Standard & Poor's
by the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
<PAGE> 73
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
<PAGE> 74
Moody's Investors Service. A brief description of the applicable Moody's
Investors Service rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Dollar-Weighted Average Maturity is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding these
calculations, and then dividing the total by the value of the fund's portfolio.
An obligation's maturity is typically determined on a stated final maturity
basis, although there are some exceptions to this rule.
<PAGE> 75
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be called,
refunded, or redeemed may be considered to be its maturity date. Also, the
maturities of mortgage-backed securities and some asset-backed securities, such
as collateralized mortgage obligations, are determined on a weighted average
life basis, which is the average time for principal to be repaid. For a
mortgage security, this average time is calculated by assuming a constant
prepayment rate for the life of the mortgage. The weighted average life of
these securities is likely to be substantially shorter than their stated final
maturity.
<PAGE> 76
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
Included in Part C:
-------------------
Articles of Incorporation attached hereto as EX-99.B1-ASArticles
Bylaws attached hereto as EX-99.B2-ASBylaws
Investment Management Agreement attached hereto as EX-99.B5-ASIMA
Underwriting Agreement attached hereto as EX-99.B6-ASUA
Custodian Agreement attached hereto as EX-99.B8-ASCA
Shareholder Servicing Agreement attached hereto as EX-99.B9-ASSSA
Accounting Services Agreement attached hereto as EX-99.B9-ASASA
Services Agreement attached hereto as EX-99.B9-ASSA
Opinion and Consent of Counsel attached hereto as EX-99.B10-ASOPIN
Service Plan attached hereto as EX-99.B15-ASSP
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE> 77
(b) Exhibits:
(1) Articles of Incorporation
(2) By-Laws
(3) Not applicable
(4) Article FIFTH, Article SEVENTH and Article TENTH of the Articles of
Incorporation of the Registrant, attached hereto as EX-99.B1-
ASArticles; Article II, Article VIII and Article XI of the Bylaws of
the Registrant, attached hereto as EX-99.B2-ASBylaws.
(5) Investment Management Agreement
(6) Underwriting Agreement
(7) Not applicable
(8) Custodian Agreement including Schedule of Remuneration
(9) Shareholder Servicing Agreement
Accounting Services Agreement
Service Agreement
Fund application to be filed with the first amendment to this initial
Registration Statement
(10) Opinion and Consent of Counsel
(11) Not applicable
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc., to be filed
with the first amendment to this initial Registration Statement
(14) Prototype retirement plans to be filed with the first amendment to
this initial Registration Statement
(15) Service Plan
(16) Not applicable
(17) Not applicable
25. Persons Controlled by or under common control with Registrant
------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
To be disclosed with the first amendment to this Registration Statement
27. Indemnification
---------------
<PAGE> 78
Reference is made to Article X of the Articles of Incorporation of
Registrant attached hereto as EX-99.B1-ASArticles to the initial
Registration Statement on Form N-1A*, Article IX of the By-Laws attached
hereto as EX-99.B2-ASBylaws to the initial Registration Statement on Form
N-1A*; and to Article II of the Underwriting Agreement attached hereto as
EX-99.B6-ASUA to the initial Registration Statement on Form N-1A*, each of
which provides indemnification. Also refer to Section 2-418 of the
Maryland General Corporation Law regarding indemnification of directors,
officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the proposed Investment
Manager of the Company under the terms of an Investment Management
Agreement whereby it provides investment management services to the
Registrant. Waddell & Reed Investment Management Company is not engaged in
any business other than the provision of investment management services to
those registered investment companies as described in Part A and Part B of
this Registration Statement.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to Part A and Part B of this Registration
Statement.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Retirement Shares, 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 Technology 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
<PAGE> 79
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.
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 Registration Statement and listed in response to Items (b)(9) and
(b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Registrant undertakes to file a post-effective amendment, using
financial statements which may or may not be certified, within four to
six months of the effective date of Registrant's Registration
Statement under the Securities Act of 1933.
(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.
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Overland Park, and State of Kansas, on the 3rd day of
October, 1994.
UNITED ASSET STRATEGY FUND, 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 Registration Statement 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 October 3, 1994
- ---------------------- ---------------------
Ronald K. Richey
/s/Keith A. Tucker President and Director October 3, 1994
- ---------------------- (Principal Executive ---------------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, TreasurerOctober 3, 1994
- ---------------------- and Principal Accounting ----------------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and October 3, 1994
- ---------------------- Principal Financial ----------------------
Robert L. Hechler Officer
/s/ Henry L. Bellmon Director October 3, 1994
- ---------------------- ----------------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director October 3, 1994
- --------------------- ----------------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director October 3, 1994
- -------------------- ----------------------
Jay B. Dillingham
/s/John F. Hayes Director October 3, 1994
- ------------------- ----------------------
John F. Hayes
/s/Glendon E. Johnson Director October 3, 1994
- ------------------- ----------------------
Glendon E. Johnson
/s/William T. Morgan Director October 3, 1994
- ------------------- ----------------------
William T. Morgan
/s/Doyle Patterson Director October 3, 1994
- ------------------- ----------------------
Doyle Patterson
/s/Frederick Vogel, III Director October 3, 1994
- ------------------- ----------------------
Frederick Vogel, III
/s/Paul S. Wise Director October 3, 1994
- ------------------- ----------------------
Paul S. Wise
/s/Leslie S. Wright Director October 3, 1994
- ------------------- ----------------------
Leslie S. Wright
By
/s/Sharon K. Pappas
- --------------------
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
/s/Amy D. Eisenbeis
- --------------------
Amy D. Eisenbeis
Assistant Secretary
EX-99.B1-ASArticles
ARTICLES OF INCORPORATION
OF
UNITED ASSET STRATEGY FUND, INC.
FIRST: The undersigned, SHARON K. PAPPAS, whose post office address is
6300 Lamar Avenue, Overland Park, Kansas 66202-4200, being at least eighteen
years of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is UNITED ASSET STRATEGY FUND, INC.
(the "Corporation").
THIRD: The purposes for which the Corporation is formed are to act as an
open-end investment management company under the Investment Company Act of 1940,
as amended ("1940 Act"), and to exercise and enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations of a similar character by
the General Laws of the State of Maryland now or hereafter in force, including,
but not limited to, the following:
(a) To hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase, subscribe for
or otherwise acquire, hold for investment or otherwise, to trade and
deal in, write, sell, assign, negotiate, transfer, exchange, lend,
pledge or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall, for the purposes of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any stocks, shares, bonds, debentures, bills, notes,
mortgages or other obligations or evidences of indebtedness, and any
options, certificates, receipts, warrants or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or
in any property or assets; and any negotiable or non-negotiable
instruments and money market instruments, including bank certificates
of deposit, finance paper, commercial paper, bankers' acceptances and
all kinds of repurchase or reverse repurchase agreements) created or
issued by any United States or foreign issuer (which term "issuer"
shall, for the purpose of these Articles of Incorporation, without
limiting the generality thereof, be deemed to include any persons,
firms, associations, partnerships, corporations, syndicates,
combinations, organizations, governments or subdivisions, agencies or
instrumentalities of any government); and to exercise, as owner or
holder of any securities, all rights, powers and privileges in respect
thereof including the right to vote thereon; to aid by further
investment any issuer, any obligation of or interest in which is held
by the Corporation or in the affairs of which the Corporation has any
direct or indirect interest; to guarantee or become surety on any or
all of the contracts, stocks, bonds, notes, debentures and other
obligations of any corporation, company, trust, association or firm;
and to do any and all acts and things for the preservation,
protection, improvement and enhancement in value of any and all such
securities.
(b) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore or
hereafter engaged in any business similar to any business which the
Corporation has the power to conduct, and to hold, utilize, enjoy and
in any manner dispose of the whole or any part of the rights, property
and business so acquired, and to assume in connection therewith any
liabilities of any such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may
be capable of being used for any of the purposes of the Corporation;
and to use, exercise, develop, grant licenses in respect of, sell and
otherwise turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms
and conditions, for such purposes and for such amount or kind of
consideration (including without limitation thereto, securities) now
or hereafter permitted by the laws of the State of Maryland, by the
1940 Act and by these Articles of Incorporation, as its Board of
Directors may determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the stockholders
of the Corporation) shares of its capital stock in any manner and to
the extent now or hereafter permitted by the laws of the State of
Maryland, by the 1940 Act and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more offices in
Maryland and elsewhere in any part of the world, without restriction
or limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in foreign
countries, all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of
Maryland now or hereafter in force.
(h) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary,
suitable or proper for the accomplishment of such purposes or for the
attainment of any object or the furtherance of any power hereinbefore
set forth, either alone or in association with others, to do every
other act or thing incidental or appurtenant to or growing out of or
connected with its business or purposes, objects or powers, and,
subject to the foregoing, to have and exercise all the powers, rights
and privileges conferred upon corporations by the laws of the State of
Maryland as in force from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property,
real or personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other evidence
of indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange, including
the purchase and sale of futures contracts and options on futures
contracts related thereto, subject to any applicable provisions of
law.
FOURTH: The address of the principal office of the Corporation in the
state of Maryland is 32 South Street, Baltimore, Maryland 21202. The name of
the resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, whose post office address is 32 South Street,
Baltimore, Maryland 21202. The resident agent is incorporated in the State of
Maryland.
FIFTH: Section 5.1. Capital Stock. The total number of shares of capital
stock of all classes which the Corporation shall have authority to issue is one
billion (1,000,000,000) shares, of the par value of one cent ($.01) ("Shares"),
and of the aggregate par value of ten million dollars ($10,000,000). The Shares
may be issued by the Board of Directors in such separate and distinct series
("Series") and classes of Series ("Classes") as the Board of Directors shall
from time to time create and establish. The Board of Directors shall have full
power and authority, in its sole discretion, to create and establish Series and
Classes having such preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by resolution or
resolutions providing for the issuance of such Shares adopted by the Board of
Directors. In addition, the Board of Directors is hereby expressly granted
authority to increase or decrease the number of Shares of any Series or Class,
but the number of Shares of any Series or Class shall not be decreased by the
Board of Directors below the number of Shares thereof then outstanding. The
Board of Directors is also hereby expressly granted authority to change the
name(s) of any Class(es) or Serie(s) by resolution or resolutions of the Board
of Directors without any action on the part of the Stockholders.
The Board of Directors of the Corporation is authorized, from time to time,
to classify or to reclassify, as the case may be, any unissued Shares of the
Corporation in separate Series or Classes. The Shares of said Series or Class
of stock shall have such preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by the Board of
Directors. The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 5.2. Establishment of Series or Class. The establishment of any
Series or Class shall be effective upon the adoption of a resolution by a
majority of the then Directors setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class.
At any time that there are no Shares outstanding of any particular Series or
Class previously established and designated, the Directors may by a majority
vote abolish that Series or Class and the establishment and designation thereof.
Section 5.3. Dividends. Dividends and distributions on Shares with
respect to each Series or Class may be declared and paid with such frequency, in
such form and in such amount as the Board of Directors may from time to time
determine. Dividends or distributions on Shares of any Class or Series, whether
payable in cash or stock, shall be paid out of earnings, surplus or other assets
belonging to such Class or Series. Dividends may be declared daily or otherwise
pursuant to a standing resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to avoid
liability of the Corporation, or each Series of the Corporation, for Federal
income tax in respect of that year. However, nothing in the foregoing shall
limit the authority of the Board of Directors to make distributions greater than
or less than the amount necessary to qualify as a regulated investment company
and to avoid liability of the Corporation, or any Series of the Corporation, for
such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 5.7.
Section 5.4. Assets and Liabilities of Series or Class. All consideration
received by the Corporation for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be referred to as "assets belonging to" that Series.
In addition, any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
Series shall be allocated by the Board of Directors between and among one or
more of the Series in such manner as the Board of Directors, in its sole
discretion, deems fair and equitable. Each such allocation shall be conclusive
and binding upon the Stockholders of all Series for all purposes, and shall be
referred to as assets belonging to that Series. The assets belonging to a
particular Series shall be so recorded upon the books of the Corporation. The
assets belonging to each particular Series or Class shall be charged with the
liabilities of that Series or Class and all expenses, costs, charges and
reserves attributable to that Series or Class. Any general liabilities,
expenses, costs, charges or reserves of the Corporation which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Board of Directors between or among any one or more of the Series
or Classes in such a manner as the Board of Directors in its sole discretion
deems fair and equitable. Each such allocation shall be conclusive and binding
upon the Stockholders of all Series or Class for all purposes.
Section 5.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his or her name on
the books of the Corporation; provided, however, that when required by the 1940
Act or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of a particular Series or Class, and
each holder of Shares thereof shall be entitled to votes equal to the full and
fractional Shares of the Series or Class standing in his or her name on the
books of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business at a Stockholders' meeting,
except that where any provision of law or of these Articles of Incorporation
permit or require that holders of any Series or Class shall vote as a Series or
Class, then one-third of the aggregate number of Shares of that Series or Class
outstanding and entitled to vote thereat, in person or by proxy, shall
constitute a quorum for the transaction of business by that Series or Class.
Section 5.6. Redemption by Stockholders. Each holder of Shares shall have
the right at such times as may be permitted by the Corporation to require the
Corporation to redeem all or any part of his or her Shares at a redemption price
per Share equal to the net asset value per Share as of such time as the Board of
Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price per Share shall be the net asset value next
determined (in accordance with Section 5.7) after receipt by the Corporation of
a request for redemption in proper form less such charges as are determined by
the Board of Directors and described in the Corporation's registration statement
under the Securities Act of 1933. The Board of Directors may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment
of the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of net asset
value, or may be in cash. Notwithstanding the foregoing, the Board of Directors
may postpone payment of the redemption price and may suspend the right of the
holders of Shares to require the Corporation to redeem Shares during any period
or at any time when and to the extent permissible under the 1940 Act.
Section 5.7. Net Asset Value per Share. The net asset value of each Share
of the Corporation, or each Series or Class, shall be the quotient obtained by
dividing the value of the net assets of the Corporation, or if applicable of the
Series or Class (being the value of the assets of the Corporation or of the
particular Series or Class less its actual and accrued liabilities exclusive of
Capital Stock and Surplus) by the total number of outstanding Shares of the
Corporation, or of the Series or Class. The Board of Directors shall have the
power and duty to determine from time to time the net asset value per Share at
such times and by such methods as it shall determine subject to any restrictions
or requirements under the 1940 Act and the rules, regulations and
interpretations thereof promulgated or issued by the Securities and Exchange
Commission or insofar as permitted by any order of the Securities and Exchange
Commission applicable to the Corporation. The Board of Directors may delegate
such power and duty to any one or more of the directors and officers of the
Corporation, to the Corporation's manager or investment adviser, to the
custodian or depository of the Corporation's assets, or to another agent of the
Corporation.
Section 5.8. Redemption by the Corporation. The Board of Directors may
cause the Corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than five hundred dollars ($500). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his or her Shares to five hundred dollars ($500). Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of the
full redemption price to be made to the holder of Shares so redeemed.
SIXTH: Section 6.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 6.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
SEVENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all Shares of the Corporation or of
all Series or Classes (or of any Series or Class entitled to vote thereon as a
separate Series or Class) to take or authorize any action, in accordance with
the authority granted by Section 2-lO4(b)(5) of the Maryland General Corporation
Law, the Corporation is hereby authorized to take such action upon the
concurrence of a majority of the aggregate number of Shares entitled to vote
thereon (or of a majority of the aggregate number of Shares of a Series or Class
entitled to vote thereon as a separate Series or Class). The right to cumulate
votes in the election of directors is expressly prohibited.
EIGHTH: Section 8.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the By-Laws of the Corporation) shall be vested
in and exercised by the Board of Directors. The number of directors
constituting the Board of Directors shall be such number as may from time to
time be fixed in or in accordance with the By-Laws of the Corporation, provided
that after stock is issued to more than one stockholder, such number shall not
be less than three. Except as provided in the By-Laws, the election of
directors may be conducted in any way approved at the meeting (whether of
stockholders or directors) at which the election is held, provided that such
election shall be by ballot whenever requested by any person entitled to vote.
The name of the person who shall act as initial director until stock is issued
to more than one shareholder or the first meeting of stockholders, which ever
shall occur first, and until her successor(s) have been duly chosen and
qualified is Sharon K. Pappas.
Section 8.2. By-Laws. Except as may otherwise be provided in the By-Laws,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal By-Laws or to adopt new By-Laws of the Corporation,
without any action on the part of the Stockholders; but the By-Laws made by the
Board of Directors and the power so conferred may be altered or repealed by the
Stockholders.
NINTH: Section 9.1. Contracts. The Board of Directors may in its
discretion from time to time enter into an exclusive or nonexclusive
distribution contract or contracts providing for the sale of Shares whereby the
Corporation may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such shares (such other party
being herein sometimes called the "underwriter"), and in either case on such
terms and conditions as may be prescribed in the By-Laws, if any, and such
further terms and conditions as the Board of Directors may in its discretion
determine not inconsistent with the provisions of these Articles of
Incorporation and such contract may also provide for the repurchase of Shares of
the Corporation by such other party or parties as agent of the Corporation. The
Board of Directors may also in its discretion from time to time enter into an
investment advisory or management contract or contracts, and any such other
contracts, whereby the other party(ies) to such contract(s) shall undertake to
furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 9.2. Parties to Contracts. Any contract of the character
described in Section 9.1 and/or for services as administrator, custodian,
transfer agent or disbursing agent or related services may be entered into with
any corporation, firm, trust or association, although any one or more of the
directors or officers of the Corporation may be an officer, director, trustee,
stockholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Corporation under or
by reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article
NINTH. The same person (including a firm, corporation, trust, or association)
may be the other party to contracts entered into pursuant to Section 9.1 above,
and any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this Section
9.2.
TENTH: Section 10.1. Liability. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) as currently in effect
or as may hereafter be amended, no director or officer of the Corporation shall
be liable to the Corporation or its Stockholders for money damages.
Section 10.2. Indemnification. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) currently in effect or
as may hereafter be amended, the Corporation shall indemnify and advance
expenses as provided in the By-Laws to its present and past directors, officers,
employees and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent in similar
capacities for other entities.
Section 10.3. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his
or her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability.
Section 10.4. Modification. Any repeal or modification of this Article
TENTH by the Stockholders of the Corporation, or adoption or modification of any
other provision of the Articles of Incorporation or By-Laws inconsistent with
this Article TENTH, shall be prospective only, to the extent that such repeal or
modification would, if applied retrospectively, adversely affect any limitation
on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
ELEVENTH: The Corporation reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at a meeting of the
Stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon.
IN WITNESS WHEREOF, the undersigned incorporator of UNITED ASSET STRATEGY
FUND, INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be her act and further acknowledges that, to the best
of her knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 29th day of August, 1994.
/s/Sharon K. Pappas
-------------------------
Sharon K. Pappas
<PAGE>
EX-99.B2-ASBylaws
UNITED ASSET STRATEGY FUND, INC.
A Maryland Corporation
BY-LAWS
<PAGE>
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES
AND SEAL
Section 1.01. Name: The name of the Corporation is United Asset Strategy
Fund, Inc.
Section 1.02. Principal Offices: The principal office of the Corporation
in the State of Maryland shall be located in the City of Baltimore. The
Corporation may establish and maintain such other offices and places of business
as the Board of Directors may, from time to time, determine.
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings: There shall be no stockholders' meetings
for the election of directors and the transaction of other proper business
except as required by law or as hereinafter provided.
Section 2.02. Special Meetings: Special meetings of the stockholders may
be called at any time by the chairman of the board, the president or a vice-
president, or by a majority of the Board of Directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than 10% of all the shares entitled
to be voted at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b) the
stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
secretary shall determine and specify to such stockholders. No special meeting
need be called upon the request of the holders of shares entitled to vote less
than a majority of all the shares entitled to be voted at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding twelve months.
Section 2.03. Place of Meetings: All stockholders' meetings shall be held
at such place within the United States as designated by the Board of Directors
in each notice or waiver of notice of the meeting, and the Corporation may keep
the books of the Corporation at any other place within the United States as the
Board of Directors may from time to time determine.
Section 2.04. Notice of Meetings: The secretary shall cause notice of the
place, date and hour, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, to be mailed, not less than ten nor
more than ninety days before the date of the meeting, to each stockholder
entitled to vote at such meeting, at his or her address as it appears on the
records of the Corporation at the time of such mailing. Notice of any
stockholders' meeting need not be given to any stockholder who shall sign a
written waiver of such notice whether before or after the time of such meeting,
which waiver shall be filed with the record of such meeting, or to any
stockholder who shall attend such meeting in person or by proxy. Notice of
adjournment of a stockholders' meeting to another time or place need not be
given, if such time and place are announced at the meeting.
Section 2.05. Voting - In General: At every stockholders' meeting each
stockholder shall be entitled to one vote for each share and a fractional vote
for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time
("1940 Act"), all matters shall be decided by a vote of the majority of the
votes validly cast at a meeting at which a quorum is present. The vote upon any
question shall be by ballot whenever requested by any person entitled to vote,
but, unless such a request is made, voting may be conducted in any way approved
by the meeting.
Section 2.06. Stockholders Entitled to Vote: If, pursuant to Section 8.05
hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock standing in his or her name on the
books of the Corporation on such record date and outstanding at the time of the
meeting. If no record date has been fixed for the determination of
stockholders, the record date for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day 90 days before the meeting, whichever is the closer
date to the meeting; or, (b) if notice is waived by all stockholders, at the
close of business on the tenth day next preceding the day on which the meeting
is held.
Section 2.07. Voting - Proxies: A stockholder may vote the stock he or
she owns of record by written proxy executed by the stockholder himself or
herself or by his or her duly authorized attorney in fact. No proxy shall be
voted after eleven months from its date unless it provides for a longer period.
Each proxy shall be dated, but need not be sealed, witnessed or acknowledged.
Proxies shall be delivered to the secretary before being voted. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the
Corporation receives from any one of them written notice to the contrary and a
copy of the instrument or order which so provides. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Section 2.08. Organization: At every meeting of stockholders, the
president, or in his or her absence, a vice-president, or in the absence of any
of the foregoing officers, a chairman chosen by majority vote of the
stockholders present in person or by proxy and entitled to vote thereat, shall
act as chairman. The secretary, or in his or her absence, an assistant
secretary, shall act as secretary at all meetings of stockholders.
Section 2.09. Quorum: Except as otherwise provided in the Articles of
Incorporation, the presence at any stockholders' meeting, in person or by proxy,
of stockholders entitled to cast one third of the votes thereat shall be
necessary and sufficient to constitute a quorum for the transaction of business.
Section 2.10. Absence of Quorum: In the absence of a quorum, the holders
of a majority of the shares present at the meeting in person or by proxy, or, if
no stockholder entitled to vote is present thereat in person or by proxy, any
officer present thereat entitled to preside or act as secretary of such meeting,
may adjourn the meeting without determining the date of the new meeting or, from
time to time, without further notice to a date not more than 120 days after the
original record date. Any business that might have been transacted at the
meeting originally called may be transacted at any such adjourned meeting at
which a quorum is present.
Section 2.11. Stock Ledger and List of Stockholders: It shall be the duty
of the assistant secretary of the Corporation or such other person or entity
named by the Board of Directors to cause an original or duplicate stock ledger
to be maintained at the office of the Corporation's transfer agent. Such stock
ledger may be in written form or any other form capable of being converted into
written form within a reasonable time for visual inspection. Any one or more
persons, each of whom has been a stockholder of record of the Corporation for
more than six months next preceding such request, who owns in the aggregate 5%
or more of the outstanding capital stock of the Corporation, may submit (unless
the Corporation at the time of the request maintains a duplicate stock ledger at
its principal office in Maryland) a written request to any officer of the
Corporation or its resident agent in Maryland for a list of the stockholders of
the Corporation. Within 20 days after such a request, there shall be prepared
and filed at the Corporation's principal office in Maryland a list containing
the names and addresses of all stockholders of the Corporation and the number of
shares of each class held by each stockholder, certified as correct by an
officer of the Corporation, by its stock transfer agent, or by its registrar.
Section 2.12. Action Without Meeting: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The Board of Directors shall
consist of sixteen directors, which number may be increased or decreased by a
resolution of a majority of the entire Board of Directors; provided that the
number of directors shall not be less than three nor more than seventeen; and
further provided that if there is no stock outstanding the number of directors
may be less than three but not less than one, and if there is stock outstanding
and so long as there are less than three stockholders, the number of directors
may be less than three but not less than the number of stockholders. Each
director (whenever selected) shall hold office until his or her successor is
elected and qualified or until his or her earlier death, resignation or removal.
Section 3.02. Qualification of Directors: Except for the initial Board of
Directors, at least one of the members of the Board of Directors shall be a
person who is not an interested person of the Corporation, as defined in the
1940 Act.
Section 3.03. Election of Directors: Initially the director or directors
of the Corporation shall be that person or those persons named as such in the
Articles of Incorporation. Thereafter, except as otherwise provided in Section
3.04 and 3.05 hereof, the directors shall be elected by the stockholders as
required by the General Corporation Law of the State of Maryland, the 1940 Act
and other governing laws. A plurality of all the votes cast at a meeting at
which a quorum is present in person or by proxy is sufficient to elect a
director.
Section 3.04. Removal of Directors: At any stockholders' meeting duly
called, provided a quorum is present, any director may be removed (either with
or without cause) by the vote of the holders of a majority of the shares
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his or her stead by a majority of the votes validly cast.
Section 3.05. Vacancies and Newly Created Directorships: If any vacancies
shall occur in the Board of Directors by reason of death, resignation, removal
or otherwise, or if the authorized number of directors shall be increased, the
directors then in office shall continue to act, and such vacancies (if not
previously filled by the stockholders) may be filled by a majority of the
directors then in office, although less than a quorum, except that a newly
created directorship may be filled only by a majority vote of the entire Board
of Directors, provided that in either case immediately after filling such
vacancy, at least two-thirds of the directors then holding office shall have
been elected to such office by the stockholders of the Corporation. In the
event that at any time, other than the time preceding the first stockholders'
meeting, less than a majority of the directors of the Corporation holding office
at that time were so elected by the stockholders, a meeting of the stockholders
shall be held promptly and in any event within 60 days for the purpose of
electing directors to fill any existing vacancies in the Board of Directors
unless the Securities and Exchange Commission shall by order extend such period.
Section 3.06. General Powers:
(a) The property, affairs and business of the Corporation shall be managed
by or under the direction of the Board of Directors, which may exercise all the
powers of the Corporation except those powers vested solely in the stockholders
of the Corporation by statute, by the Articles of Incorporation, or by these By-
Laws.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his or her successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The Board of Directors may
from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the Board of Directors shall deem advisable, subject to the provisions of
Article Sixth of the Articles of Incorporation.
Section 3.08. Power to Declare Dividends and/or Distributions:
(a) The Board of Directors, from time to time as it may deem advisable,
may declare and pay dividends and/or distributions in shares of the Corporation,
cash or other property of the Corporation, as determined by resolution of the
Board of Directors out of any source available for dividends and/or
distributions, to the stockholders according to their respective rights and
interests in accordance with the provisions of the Articles of Incorporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income (determined in
accordance with good accounting practice and the rules and regulations
of the Securities and Exchange Commission then in effect) and not
including profits or losses realized upon the sale of securities or
other properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year. Such statement shall adequately disclose the
source or sources of such payment and the basis of calculation, and
shall be in such form as the Securities and Exchange Commission may
prescribe.
Section 3.09. Annual and Regular Meetings: The annual meeting of the
Board of Directors for choosing officers and transacting other proper business
shall be held at such time and place as the Board may determine. The Board of
Directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place within or outside the State of Maryland.
Except as otherwise provided under the 1940 Act, notice of such annual and
regular meetings need not be given, provided that notice of any change in the
time or place of such meetings shall be sent promptly to each director not
present at the meeting at which such change was made in the manner provided for
notice of special meetings. Except as otherwise provided under the 1940 Act,
members of the Board of Directors or any committee designated thereby may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
Section 3.10. Special Meetings: Special meetings of the Board of
Directors shall be held whenever called by the chairman of the board, the
president or a vice-president or by any two directors, at the time and place
within or outside the State of Maryland specified in the respective notices or
waivers of notice of such meetings.
Section 3.11. Notice: Except as otherwise provided, notice of any special
meeting shall be given by the secretary to each director, by mailing to him or
her, postage prepaid, addressed to him or her at his or her address as
registered on the books of the Corporation or, if not so registered, at his or
her last known address, a written or printed notification of such meeting at
least two days before the meeting, or by delivering such notice to him or her at
least two days before the meeting, or by sending such notice by facsimile
transmission to him or her at least two days before the meeting, or by sending
to him or her at least 24 hours before the meeting, by prepaid telegram,
addressed to him or her at his or her said registered address, if any, or if he
or she has no such registered address, at his or her last known address, notice
of such meeting.
Section 3.12. Waiver of Notice: No notice of any meeting need be given to
any director who attends such meeting in person or to any director who waives
notice of such meeting in writing (which waiver shall be filed with the records
of such meeting), whether before or after the time of the meeting.
Section 3.13. Quorum and Voting: At all meetings of the Board of
Directors the presence of a majority or more of the number of directors then in
office shall constitute a quorum for the transaction of business, provided that
there shall be present no fewer than two directors except when there is no stock
outstanding, at which time the initial director will constitute a quorum. In
the absence of a quorum, a majority of the directors present may adjourn the
meeting, from time to time, until a quorum shall be present. The action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors unless the concurrence of a
greater proportion is required for such action by law, by the Articles of
Incorporation or by these By-Laws.
Section 3.14. Compensation: Each director may receive such remuneration
for his or her services as shall be fixed from time to time by resolution of the
Board of Directors.
Section 3.15. Action Without a Meeting: Except as otherwise provided
under the 1940 Act, any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting if written consents
thereto are signed by all members of the Board and such written consents are
filed with the records of the meetings of the Board.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the Board of
Directors, the Board may designate an executive committee, consisting of not
less than two directors.
Section 4.02. Powers of the Executive Committee: Except as further
limited by the Board of Directors, when the Board of Directors is not in session
the executive committee shall have and may exercise all powers of the Board of
Directors in the management of the business and affairs of the Corporation that
may lawfully be exercised by an executive committee, except the power to declare
a dividend, to authorize the issuance of stock, to recommend to stockholders any
matter requiring stockholders' approval, to amend the By-Laws, or to approve any
merger or share exchange which does not require shareholder approval.
Section 4.03. Proceedings, Quorum and Manner of Acting: In the absence of
an appropriate resolution of the Board of Directors, the executive committee and
any committee appointed under section 4.04 may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable, provided that the quorum shall not be less than two directors.
In the absence of any member of any such committee, the members thereof present
at any meeting, whether or not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such absent member. All action by
any committee shall be reported to the Board of Directors at its next meeting
following such action.
Section 4.04. Other Committees: The Board of Directors may appoint other
committees, each consisting of one or more persons, who need not be directors.
Each such committee shall have such powers and perform such duties as may be
assigned to it from time to time by the Board of Directors, but shall not
exercise any power which may lawfully be exercised only by the Board of
Directors or a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation shall be a
president, one or more vice-presidents, a secretary and a treasurer. The Board
of Directors may elect, but shall not be required to elect, a chairman of the
board and a comptroller.
Section 5.02. Election, Term of Office and Qualifications: The officers of the
Corporation (except those appointed pursuant to Section 5.07 hereof) shall be
chosen by the Board of Directors at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting, and thereafter
annually at its annual meeting. If any officers are not chosen at any annual
meeting, such officers may be chosen at any subsequent regular or special
meeting of the Board. Except as provided in Sections 5.03, 5.04 and 5.05
hereof, each officer chosen by the Board of Directors shall hold office until
the next annual meeting of the Board of Directors and until his or her successor
shall have been chosen and qualified. The chairman of the board and the
president shall be chosen from among the directors of the Corporation and may
each hold such office only so long as he or she continues to be a director. No
other officer need be a director. Any person may hold one or more offices of
the Corporation except that the president may not hold the office of vice
president, the secretary may not hold the office of assistant secretary, and the
treasurer may not hold the office of assistant treasurer; provided further that
a person who holds more than one office may not act in more than one capacity to
execute, acknowledge or verify an instrument required by law to be executed,
verified or acknowledged by more than one officer.
Section 5.03. Resignation: Any officer may resign his or her office at
any time by delivering a written resignation to the Board of Directors, the
chairman of the board, the president, the secretary, or any assistant secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 5.04. Removal: Any officer may be removed from office whenever in
the Board's judgment the best interest of the Corporation will be served
thereby, by the vote of a majority of the Board of Directors given at the
regular meeting or any special meeting called for such purpose. In addition,
any officer or agent appointed in accordance with the provisions of Section 5.07
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Board of Directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy shall
occur in any office by reason of death, resignation, removal, disqualification
or other cause, or if any new office shall be created, such vacancies or newly
created offices may be filled by the Board of Directors at any regular or
special meeting or, in the case of any office created pursuant to Section 5.07
hereof, by any officer upon whom such power shall have been conferred by the
Board of Directors.
Section 5.06. Powers: The officers of the Corporation shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may be assigned to them from time to time by the Board
of Directors or the executive committee.
Section 5.07. Subordinate Officers: The Board of Directors from time to
time may appoint such other officers or agents as it may deem advisable,
including one or more assistant treasurers and one or more assistant
secretaries, each of whom shall have such title, hold office for such period,
have such authority and perform such duties as the Board of Directors may
determine. The Board of Directors from time to time may delegate to one or more
officers or agents the power to appoint any such subordinate officers or agents
and to prescribe their respective rights, terms of office, authorities and
duties.
Section 5.08. Remuneration: The salaries or other compensation of the
officers of the Corporation shall be fixed from time to time by resolution of
the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any officers or agents.
Section 5.09. Surety Bonds: The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the 1940 Act, and the rules and regulations of
the Securities and Exchange Commission) to the Corporation in such sum and with
such surety or sureties as the Board of Directors may determine, conditioned
upon the faithful performance of his or her duties to the Corporation, including
responsibility for negligence and for the accounting of any of the Corporation's
property, funds or securities that may come into his or her hands.
ARTICLE VI
CUSTODY OF SECURITIES
Section 6.01. Employment of a Custodian: The Corporation shall place and
at all times maintain in the custody of a custodian (including any sub-custodian
for the custodian) all funds, securities and similar investments owned by the
Corporation in accordance with the applicable terms of the 1940 Act. The
custodian (and any sub-custodian) shall be a bank or similar financial
institution having not less than $2,000,000 aggregate capital, surplus and
undivided profits and shall be appointed from time to time by the Board of
Directors, which shall fix its remuneration.
Section 6.02. Action Upon Termination of Custodian Agreement: Upon
termination of a custodian agreement or inability of the custodian to continue
to serve, the Board of Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If
so directed by vote of the holders of a majority of the outstanding shares of
stock of the Corporation, the custodian shall deliver and pay over all property
of the Corporation held by it as specified in such vote.
Section 6.03. Other Arrangements: The Corporation may make such other
arrangements for the custody of its assets (including deposit arrangements) as
may be required by any applicable law, rule or regulation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. General: Subject to the provisions of Sections 5.07, 7.02
and 8.03 hereof, all deeds, documents, transfers, contracts, agreements and
other instruments requiring execution by the Corporation shall be signed by the
president or a vice president and by the treasurer or secretary or an assistant
treasurer or an assistant secretary, or as the Board of Directors may otherwise,
from time to time, authorize. Any such authorization may be general or confined
to specific instances.
Section 7.02. Checks, Notes, Drafts, Etc.: So long as the Corporation
shall employ a custodian to keep custody of the cash and securities of the
Corporation, all checks and drafts for the payment of money by the Corporation
may be signed in the name of the Corporation by the custodian. Except as
otherwise authorized by the Board of Directors, all requisitions or orders for
the assignment of securities standing in the name of the custodian or its
nominee, or for the execution of powers to transfer the same, shall be signed in
the name of the Corporation by the president or a vice president and by the
treasurer or an assistant treasurer. Promissory notes, checks or drafts payable
to the Corporation may be endorsed only to the order of the custodian or its
nominee and only by the treasurer or president or a vice president or by such
other person or persons as shall be authorized by the Board of Directors.
Section 7.03. Voting of Securities: Unless otherwise ordered by the Board
of Directors, the president or any vice president shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any
such meeting such officer shall possess and may exercise (in person or by proxy)
any and all rights, powers and privileges incident to the ownership of such
stock. The Board of Directors may by resolution from time to time confer like
powers upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Share Certificates: Certificates for shares of the capital
stock of the Corporation shall not be issued unless otherwise determined
pursuant to a resolution of the Board of Directors. If issued, certificates
shall be in such form as the Board of Directors shall approve and shall be
numbered and shall be entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name and certify the number of shares
owned by him or her and shall be signed by, or in the name of the Corporation
by, the president or a vice-president and the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation;
provided, however, that where any certificate is signed by a transfer agent or
assistant transfer agent or by a transfer clerk acting on behalf of the
Corporation, the signature of any such president, vice president, treasurer,
assistant treasurer, secretary or assistant secretary may be facsimile, printed
or engraved. If any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates shall nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers of the Corporation.
Section 8.02. Transfer of Capital Stock:
(a) Transfers of shares of the capital stock of the Corporation shall be
made on the books of the Corporation by the holder of record thereof (in person
or by his or her attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) (i) if a
certificate or certificates have been issued, upon the surrender of the
certificate or certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, or (ii) as otherwise
prescribed by the Board of Directors.
(b) The Corporation shall be entitled to treat the holder of record of any
share of stock as the absolute owner thereof for all purposes, and accordingly
shall not be bound to recognize any legal, equitable or other claim or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The Board of Directors may, from
time to time, appoint or remove transfer agents or registrars of shares of the
Corporation. Upon any such appointment being made, all certificates
representing shares of the Corporation thereafter issued shall be countersigned
by one of such transfer agents or registrars or by both and shall not be valid
unless so countersigned.
Section 8.04. Transfer Regulations: Except as provided in the Articles of
Incorporation, the shares of the Corporation may be freely transferred, subject
to the charging of customary transfer fees, and the Board of Directors may, from
time to time, adopt rules and regulations with reference to the method of
transfer of the shares of the Corporation.
Section 8.05. Fixing of Record Date: The Board of Directors may fix in
advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than 90 nor less than 10 days prior to
the date on which the particular action requiring such determination of
stockholders of record will be taken.
Section 8.06. Lost, Stolen or Destroyed Certificates: Before issuing a
new certificate for shares of the Corporation alleged to have been lost, stolen
or destroyed, the Board of Directors or any officer authorized by the Board may,
in its discretion, require the owner of the lost, stolen or destroyed
certificate (or his or her legal representative) to give the Corporation a bond
or other indemnity, in such form and in such amount as the Board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the Board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 9.01. Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted. Notwithstanding the foregoing, the following provisions
shall apply with respect to indemnification of the Corporation's directors,
officers, and investment adviser (as defined in the 1940 Act):
(A) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for
any liability arising by reason of such person's willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office or under any contract or
agreement with the Corporation ("disabling conduct").
(B) The Corporation shall not indemnify any such person unless
(1) the court or other body before which the Proceeding was brought
(a) dismisses the Proceeding for insufficiency of evidence of any
disabling conduct, or (b) reaches a final decision on the merits
that such person was not liable by reason of disabling conduct;
or
(2) absent such a decision, a reasonable determination is made, based
upon a review of the facts, by (a) the vote of a majority of a
quorum of the directors of the Corporation who are neither
interested persons of the Corporation as defined in the 1940 Act,
nor parties to the Proceeding, or (b) if such quorum is not
obtainable, or even if obtainable, if a majority of a quorum of
directors described above so directs, based upon a written
opinion by independent legal counsel, that such person was not
liable by reason of disabling conduct.
(C) The Corporation may advance expenses in connection with the
preparation and presentation of a defense to any Proceeding from time
to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such person that such amount will be
paid over by him or her to the Corporation if it is ultimately
determined that he or she is not entitled to indemnification
hereunder; provided, however, that either
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by reason
of such advance; or
(3) a majority of a quorum of the directors of the Corporation who
are neither interested persons of the Corporation as defined in
the 1940 Act, nor parties to the Proceeding, or independent legal
counsel in a written opinion, shall determine, based on a review
of readily available facts that there is reason to believe that
such person will be found to be entitled to indemnification.
Section 9.02. Insurance of Officers, Directors, Employees and Agents: The
Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in or arising out of his or her position.
Section 9.03. Non-exclusivity: The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, agreement, vote of stockholders or directors, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 9.04. Amendment: No amendment, alteration or repeal of this
Article or the adoption, alteration or amendment of any other provision of the
Articles of Incorporation or By-Laws inconsistent with this Article, shall
adversely affect any right or protection of any person under this Article with
respect to any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
ARTICLE X
MISCELLANEOUS
Section 10.01. Fiscal Year: The fiscal year of the Corporation shall end
on such date as the Board of Directors may by resolution specify, and the Board
of Directors may by resolution change such date for future fiscal years at any
time and from time to time.
Section 10.02. Books and Records:
(a) The books and records of the Corporation may be kept outside the State
of Maryland at such place or places as the Board of Directors may from time to
time determine, except as otherwise required by law.
(b) The Board of Directors shall, subject to the laws of Maryland, have
power to determine, from time to time, whether and to what extent and at what
times and places and under what conditions and regulations any accounts and
books of the Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of
Maryland, unless and until authorized so to do by resolution of the Board of
Directors or of the stockholders.
Section 10.03. Waiver of Notice: Whenever any notice whatever is required
to be given by these By-Laws or the Articles of Incorporation or the laws of the
State of Maryland, a waiver thereof in writing, or by facsimile transmission,
telegraph, cable, radio or wireless by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Section 11.02 hereof, all
By-Laws of the Corporation, whether adopted by the Board of Directors or the
stockholders, shall be subject to amendment, alteration or repeal, and new By-
Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law; or
(b) the directors, at any regular or special meeting the notice or waiver
of notice of which shall have specified or summarized the proposed amendment,
alteration, repeal or new By-Law.
END OF BY-LAWS
EX-99.B5-ASIMA
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this ____ day of ___________, 1994, by and between UNITED ASSET
STRATEGY FUND, INC. (hereinafter called "United"), and WADDELL & REED INVESTMENT
MANAGEMENT COMPANY.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed Investment Management Company agrees to act
as investment adviser to Fund with respect to the investment of its assets and
in general to supervise the investments of Fund, subject at all times to the
direction and control of the Board of Directors of Fund, all as more fully set
forth herein.
II. Duties of Waddell & Reed Investment Management Company with
respect to investment of assets of Fund.
A. Waddell & Reed Investment Management Company shall regularly
provide investment advice to United and shall, subject to the succeeding
provisions of this section, continuously supervise the investment and
reinvestment of cash, securities or other property comprising the assets of the
investment portfolios of United; and in furtherance thereof, Waddell & Reed
Investment Management Company, shall:
1. obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or one or more of
the portfolios of Fund, and whether concerning the individual companies whose
securities are included in Fund's portfolios or the industries in which they
engage, or with respect to securities which Waddell & Reed Investment Management
Company, considers desirable for inclusion in Fund's portfolios;
2. furnish continuously an investment program for each of
the portfolios of Fund;
3. determine what securities shall be purchased or sold by
Fund;
4. take, on behalf of Fund, all actions which appear to
Waddell & Reed Investment Management Company, necessary to carry into effect
such investment programs and supervisory functions as aforesaid, including the
placing of purchase and sale orders.
B. Waddell & Reed Investment Management Company, shall make
appropriate and regular reports to the Board of Directors of Fund on the actions
it takes pursuant to Section II.A. above. Any investment programs furnished by
Waddell & Reed Investment Management Company, under this section, or any
supervisory function taken hereunder by Waddell & Reed Investment Management
Company, shall at all times conform to and be in accordance with any
requirements imposed by:
1. the provisions of the Investment Company Act of 1940 and
any rules or regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of Fund
as amended from time to time;
4. the provisions of the Bylaws of Fund as amended from
time to time;
5. the terms of the registration statements of Fund, 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
Investment Management Company, under this section or any supervisory functions
taken hereunder by Waddell & Reed Investment Management Company, shall at all
times be subject to any directions of the Board of Directors of Fund, its
Executive Committee, or any committee or officer of Fund acting pursuant to
authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of Fund and the expenses of Waddell & Reed
Investment Management Company, in performing its functions under this Agreement
shall be divided into two classes, to wit: (i) those expenses which will be
paid in full by Waddell & Reed Investment Management Company, as set forth in
subparagraph "A" hereof, and (ii) those expenses which will be paid in full by
United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed Investment
Management Company, under Section II above, it shall pay in full, except as to
the brokerage and research services acquired through the allocation of
commissions as provided in Section IV hereinafter, for (a) the salaries and
employment benefits of all employees of Waddell & Reed Investment Management
Company who are engaged in providing these advisory services; (b) adequate
office space and suitable office equipment for such employees; and (c) all
telephone and communications costs relating to such functions. In addition,
Waddell & Reed Investment Management Company, shall pay the fees and expenses of
all directors of Fund who are employees of Waddell & Reed Investment Management
Company, or an affiliated corporation and the salaries and employment benefits
of all officers of Fund who are affiliated persons of Waddell & Reed Investment
Management Company
B. Fund shall pay in full for all of its expenses which are
not listed above (other than those assumed by Waddell & Reed Investment
Management Company, or its affiliates in its capacity as Accounting Services
Agent for Fund), including (a) the costs of preparing and printing prospectuses
and reports to shareholders of Fund including mailing costs; (b) the costs of
printing all proxy statements and all other costs and expenses of meetings of
shareholders of Fund; (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 Investment Management Company; (e) fees and
expenses of its directors; (f) custodian fees and expenses; (g) fees payable by
Fund 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
Fund and any indemnification by Fund of its officers, directors, employees and
agents with respect thereto; (j) the costs and expenses provided for in any
Shareholder Servicing Agreement or Accounting Services Agreement, including
amendments thereto, contemplated by subsection C of this section III. In the
event that any of the foregoing shall, in the first instance, be paid by Waddell
& Reed Investment Management Company, Fund shall pay the same to Waddell & Reed
Investment Management Company, on presentation of a statement with respect
thereto.
C. Waddell & Reed Investment Management Company, or an
affiliate of Waddell & Reed Investment Management Company, may also act as (i)
transfer agent or shareholder servicing agent of Fund and/or as (ii) accounting
services agent of Fund if at the time in question there is a separate agreement,
"Shareholder Servicing Agreement" and/or "Accounting Services Agreement,"
covering such functions between Fund and Waddell & Reed Investment Management
Company, or such affiliate. The corporation, whether Waddell & Reed Investment
Management Company, or its affiliate, which is the party to such Agreement with
Fund 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 Fund 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 Fund, including the vote of a
majority of the directors who are not "interested persons" as defined in the
Investment Company Act of 1940, of either party to the Agreement, such amendment
or such new agreement (considering Waddell & Reed Investment Management Company,
to be such a party even if at the time in question the Agent is an affiliate of
Waddell & Reed Investment Management Company), cast in person at a meeting
called for the purpose of voting on such approval. Such a vote is referred to
as a "disinterested director" vote. Each such Agreement shall also provide in
substance for its continuance, unless terminated, for a specified period which
shall not exceed two years from the date of its execution and from year to year
thereafter only if such continuance is specifically approved at least annually
by a disinterested director vote, and that any disinterested director vote shall
include a determination that (i) the Agreement, amendment, new agreement or
continuance in question is in the best interests of 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 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
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 Fund. Any such Agreement shall
also provide in substance that it may be terminated by the Agent at any time
without penalty upon giving Fund one hundred twenty (120) days' written notice
(which notice may be waived by Fund) and may be terminated by Fund 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 Fund shall
be directed or approved by the vote of a majority of the Board of Directors of
Fund 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 Fund.
IV. Brokerage
(a) Waddell & Reed Investment Management Company, may
select brokers to effect the portfolio transactions of Fund on the basis of its
estimate of their ability to obtain, for reasonable and competitive commissions,
the best execution of particular and related portfolio transactions. For this
purpose, "best execution" means prompt and reliable execution at the most
favorable price obtainable. Such brokers may be selected on the basis of all
relevant factors including the execution capabilities required by the
transaction or transactions, the importance of speed, efficiency, or
confidentiality, and the willingness of the broker to provide useful or
desirable investment research and/or special execution services. Waddell & Reed
Investment Management Company, shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed Investment
Management Company, shall have discretion, in the interest of Fund, 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 Fund and/or other accounts for which
Waddell & Reed Investment Management Company, 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 Investment Management Company, determines, in
good faith, that such commission is reasonable in relation to the value of the
brokerage and/or research services provided by such broker, viewed in terms of
either that particular transaction or the overall responsibilities of Waddell &
Reed Investment Management Company, and its investment advisory affiliates with
respect to the accounts for which they exercise investment discretion. In
reaching such determination, Waddell & Reed Investment Management Company, will
not be required to attempt to place a specified dollar amount on the brokerage
and/or research services provided by such broker; provided that Waddell & Reed
Investment Management Company, shall be prepared to demonstrate that such
determinations were made in good faith, and that all commissions paid by Fund
over a representative period selected by its Board of Directors were reasonable
in relation to the benefits to Fund.
(c) Subject to the foregoing provisions of this Paragraph
"IV," Waddell & Reed Investment Management Company, may also consider sales of
insurance policies funded by Fund's shares and sales of shares of investment
companies distributed by Waddell & Reed Investment Management Company, 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 Investment Management Company
As compensation in full for services rendered and for the
facilities and personnel furnished under sections I, II, and IV of this
Agreement, Fund will pay to Waddell & Reed Investment Management Company, for
each day the fees specified in Exhibit A hereto.
The amounts payable to Waddell & Reed Investment Management
Company, shall be determined as of the close of business each day; shall, except
as set forth below, be based upon the value of net assets computed in accordance
with the Articles of Incorporation of Fund; and shall be paid in arrears
whenever requested by Waddell & Reed Investment Management Company
Notwithstanding the foregoing, if the laws, regulations or
policies of any state in which shares of Fund are qualified for sale limit the
operation and management expenses of Fund, Waddell & Reed Investment Management
Company, will refund to Fund the amount by which such expenses exceed the lowest
of such state limitations.
VI. Undertakings of Waddell & Reed Investment Management
Company; Liabilities
Waddell & Reed Investment Management Company, shall give to
Fund the benefit of its best judgment, efforts and facilities in rendering
advisory services hereunder.
Waddell & Reed Investment Management Company, shall at all
times be guided by and be subject to Fund'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 Fund's Board of Directors.
This Agreement shall be performed in accordance with the
requirements of the Investment Company Act of 1940, the Investment Advisers Act
of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to
the extent that the subject matter of this Agreement is within the purview of
such Acts. Insofar as applicable to Waddell & Reed Investment Management
Company, as an investment adviser and affiliated person of Fund, Waddell & Reed
Investment Management Company, shall comply with the provisions of the
Investment Company Act of 1940, the Investment Advisers Act of 1940 and the
respective rules and regulations of the Securities and Exchange Commission
thereunder.
In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of Waddell & Reed Investment Management Company, it shall not be subject to
liability to Fund or to any stockholder of Fund (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
Fund and by the vote of a majority of the directors who are not parties to this
Agreement or "interested persons" (as so defined) of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed
Investment Management Company, at any time without penalty upon giving Fund one
hundred twenty (120) days' written notice (which notice may be waived by Fund)
and may be terminated by Fund at any time without penalty upon giving Waddell &
Reed Investment Management Company sixty (60) days' written notice (which notice
may be waived by Waddell & Reed Investment Management Company), provided that
such termination by Fund shall be directed or approved by the vote of a majority
of the Board of Directors of Fund 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 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 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 ASSET STRATEGY FUND, INC.
By:
---------------------------------
Sharon K. Pappas, Vice President
ATTEST:
- ---------------------------
Amy D. Eisenbeis
Assistant Secretary
(Seal) WADDELL & REED INVESTMENT
MANAGEMENT COMPANY
By:
--------------------------
Robert L. Hechler
Executive Vice President
ATTEST:
- ----------------------
Sharon K. Pappas
Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED ASSET STRATEGY FUND, INC.
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on Fund net asset value at the
annual rate of .30 of 1%; 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 Asset Strategy Fund, 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.B6-ASUA
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this _____ day of _________, 1994, by and between
United Asset Strategy Fund, Inc. (hereinafter the "Fund"), a Maryland
corporation, and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware
corporation;
I. REPRESENTATIONS
A. The Fund represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) its shares are registered with the Securities and Exchange
Commission ("SEC") and qualified or otherwise authorized for sale in all such
states of the United States as may be agreed upon.
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Fund in Kansas and in such other states as may
be required by the laws of such states in order for shares of the Fund to be
offered to investors who reside in such states;
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 Waddell &
Reed, Inc. orders for Fund 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 Fund shares, and it files, when
applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Fund hereby appoints W&R, and W&R agrees to act as the Fund's principal
underwriter under the terms and provisions of this Underwriting Agreement.
A. Fund agrees
1) to use its best efforts to register from time to time under the
Securities Act of 1933 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 or the then effective prospectus or statement of 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 the then effective
prospectus or which, in the opinion of counsel for the Fund, requires the making
of a change in the registration statement or the 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 Fund or its securities and
which should be set forth in a supplement to or an amendment of the then
effective prospectus in order to make the statements therein not misleading, to
prepare and furnish to W&R such amendment or amendments to the then effective
prospectus as will correct the prospectus so that as corrected it will not
contain, or such supplement or supplements to the then effective prospectus
which when read in conjunction with the then effective 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
the then effective 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 the 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 its shares 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 Fund;
4) to make delivery of its shares subject to the provisions of its
Articles of Incorporation and By-Laws 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 Fund therefor from W&R; and
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 Fund's counsel, accountants or any
other experts used in connection with the foregoing;
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 Fund, 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 the Fund's shares for
shares in another investment or securities holding company; or
e) the sale of shares to registered unit investment trusts.
B. W&R agrees
1) to offer Fund shares in such states as may be agreed upon through
its retail sales 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 Fund only after it has received a
purchase order therefor;
3) to pay to the Fund 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 Fund at such other time
as may be agreed upon hereafter by the Fund 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 Fund and with the provisions stated in its
prospectus;
5) timely to inform the Fund 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 Fund 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 Fund
shares, including the cost of reports to the shareholders of the Fund in excess
of the cost of reports to existing shareholders and the cost of printing the
prospectuses furnished to it by the Fund.
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 Fund 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 Fund. Title to shares issued and sold by the Fund
through W&R shall pass directly from the Fund 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
Fund; except provided, however, that W&R may, if so agreed by W&R and the Fund,
act as agent of the Fund without commission on repurchase of shares of the Fund.
2) certificates for shares shall not be created or delivered by the
Fund in any case in which the purchase is pursuant to any provisions of the Fund
described in its then current prospectus 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 Fund may be sold by W&R
shall include selling commission 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
the sales commission and may re-allow all or any part of the sales commission to
its sales representatives and to selected brokers and dealers who sell shares of
the Fund.
4) W&R may designate, reduce or eliminate its selling commissions in
certain sales or exchanges to the extent described in the prospectus of the Fund
and in accordance with Section 22d of the Investment Company Act and any rules,
regulations or orders of the SEC thereunder.
IV. THE PLAN
A. It is mutually acknowledged that the Fund has adopted a Plan
effective the date of this Agreement to which this Agreement is subject.
B. Pursuant to the Plan the Fund daily shall pay to W&R in
consideration of W&R's efforts to provide personal service to shareholders and
the maintenance of shareholder accounts, an amount equal to 1/365 of .25 of 1%
of the Fund's net asset value that day or such lesser amount as the Fund and W&R
may agree. This fee shall be reduced unless fully expended to promote the
service to the Fund shareholder or the Fund ("service fee").
C. W&R represents that it will employ all of the service fees
received by it hereunder to compensate its retail sales force for providing
personal services to shareholders, to pay to its affiliate, Waddell & Reed
Services Fund for providing personal services to shareholders beyond those
required of that Fund pursuant to its duties as the Fund's shareholder servicing
agent and to pay for administration of the personal services provided by its
sales force. It is acknowledged that the purpose of providing such services is
to seek to maintain shareholders' investments in the Fund's shares.
D. W&R shall at least quarterly proved to the Fund's board of
directors a written report of the amount of the 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 Fund 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 Fund's Plan and continue this Agreement and to
determine whether there is reasonable likelihood that the Plan and this
Agreement will benefit the Fund and its shareholders.
V. INDEMNIFICATION
A. The Fund agrees with W&R for the benefit of W&R and each person, who
controls W&R within the meaning of Section 15 of the Securities Act of 1933 (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 W&R 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 amendments
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
Fund 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 Fund 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 Fund on account of its
agreement contained in this paragraph, notify the Fund in writing of the
commencement thereof. The omission of W&R or such controlling person so to
notify the Fund of any such litigation shall relieve the Fund 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 Fund 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 Fund of the
commencement thereof, the Fund 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 Fund 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 Fund. The Fund 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 Fund for liabilities (other than payment by the Fund 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
or 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 Underwriting Agreement, is a director of the Fund, 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 Fund 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 Fund 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 Fund 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 Fund
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 Fund.
W&R shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. The Fund and
its directors and such officers, defendant or defendants, in any such litigation
shall, promptly after the complaint shall have been served upon the Fund or any
such director or officer in any litigation against the Fund 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 Fund 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 Fund 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 Fund 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 Fund 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
Fund. 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 Fund and shall survive any delivery of shares of the Fund.
W&R agrees to notify the Fund 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 Fund's shares.
D. Notwithstanding any provision contained in this Underwriting Agreement,
no party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Fund 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 Underwriting
Agreement.
VI. OTHER TERMS
A. This Underwriting 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 Fund, 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 Fund 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 Fund,
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 Underwriting 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 Underwriting Agreement shall continue in effect, unless terminated
as hereinafter provided, for a period of two (2) years 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 (hereafter the "independent directors"), cast in
person at a meeting called for the purpose of voting on such approval and who
have no direct or indirect financial interest in the operation of the Plan or
any agreement relating to the Plan (hereafter the "Plan directors"), cast in
person at a meeting called for the purpose of voting on such approval, or by
vote of the holders of a majority (as so defined) of the outstanding voting
securities of the Fund and by the vote of a majority of the independent
directors, cast in person at a meeting called for the purpose of voting on such
approval. This Underwriting Agreement may be terminated by W&R at any time
without penalty upon giving the Fund sixty (60) 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 W&R sixty (60) days' written notice, provided that
such termination by the Fund shall be directed or approved by the vote of a
majority of the Board of Directors or by the vote of a majority (as defined in
the Investment Company Act of 1940) of the outstanding voting securities of the
Fund. This Underwriting 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 applicable
Rules thereunder.
D. This Underwriting Agreement shall be governed and construed in
accordance with the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Underwriting 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 Asset Strategy Fund, Inc.
By:
--------------------------------
Sharon K. Pappas, Vice President
and Secretary
ATTEST:
- --------------------
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By
----------------------------
Robert L. Hechler, President
ATTEST:
- ---------------------------
Sharon K. Pappas, Secretary
<PAGE>
EX-99.B8-ASCA
CUSTODIAN AGREEMENT
Dated as of _______________________, 1994
Between
UNITED MISSOURI BANK, n.a.
and
UNITED ASSET STRATEGY FUND, INC.
<PAGE>
Table of Contents
ARTICLE PAGE
I. Appointment of Custodian 1
II. Powers and Duties of Custodian 1
2.01 Safekeeping 1
2.02 Manner of Holding Securities 1
2.03 Purchase of Assets 2
2.04 Exchanges of Securities 2
2.05 Sales of Securities 2
2.06 Depositary Receipts 3
2.07 Exercise of Rights, Tender Offers, Etc. 3
2.08 Stock Dividends, Rights, Etc. 3
2.09 Options 3
2.10 Futures Contracts 4
2.11 Borrowing 4
2.12 Interest Bearing Deposits 4
2.13 Foreign Exchange Transactions 5
2.14 Securities Loan 5
2.15 Collections 6
2.16 Dividends, Distributions and Redemptions 6
2.17 Proceeds from Shares Sold 6
2.18 Proxies, Notices, Etc. 6
2.19 Bills and Other Disbursements 6
2.20 Nondiscretionary Functions 7
2.21 Bank Accounts 7
2.22 Deposit of Fund Assets in Securities System 7
2.23 Other Transfers 8
2.24 Establishment of Segregated Account 8
2.25 Custodian's Books and Records 8
2.26 Opinion of Fund's Independent
Certified Public Accountants 9
2.27 Reports by Independent Certified Public Accountants 9
2.28 Overdraft Facility 9
III. Proper Instructions, Special Instructions
and Related Matters 10
3.01 Proper Instruction and Special Instructions 10
3.02 Authorized Persons 10
3.03 Persons Having Access to Assets of the Portfolios 10
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions 11
IV. Subcustodians 11
4.01 Domestic Subcustodians 11
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians 11
4.03 Special Subcustodians 12
4.04 Termination of a Subcustodian 13
4.05 Certification Regarding Foreign Sub-Subcustodians 13
V. Standard of Care, Indemnification 13
5.01 Standard of Care 13
5.02 Liability of the Custodian for Actions
of Other Person 14
5.03 Indemnification by Fund 15
5.04 Investment Limitations 15
5.05 Fund's Right to Proceed 16
5.06 Indemnification by Custodian 16
5.07 Custodian's Right to Proceed 17
VI. Compensation 17
VII. Termination 17
VIII. Defined Terms 18
IX. Miscellaneous 19
9.01 Execution of Documents, Etc. 19
9.02 Representations and Warranties 19
9.03 Entire Agreement 19
9.04 Waivers and Amendments 20
9.05 Interpretation 20
9.06 Captions 20
9.07 Governing Law 20
9.08 Notices 20
9.09 Assignment 20
9.10 Counterparts 21
9.11 Confidentiality 21
Appendices
Appendix "A" 22
Appendix "B" 23
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the _____ day of ___________________, 1994 between
United Asset Strategy Fund, 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 Asset Strategy Fund, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
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 ASSET STRATEGY FUND, INC. UNITED MISSOURI BANK, n.a.
By: By:
Name: Name:
Title: Title:
<PAGE>
APPENDIX "A"
This Appendix A relates to the Custodian Agreements between United Missouri
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as amended:
Fund Date
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
Untied High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balance Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
Global Income Fund April 24, 1992
Growth Fund April 24, 1992
Torchmark Government Securities Fund, Inc. December 9, 1992
Torchmark Insured Tax-Free Fund, Inc. December 9, 1992
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., Argentina 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. Chile None
Denmark Den Danske 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
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banco
D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of
Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank n.a., Mexico INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche
Bank
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank n.a., Philippines None
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Thailand HongKong & Shanghai Banking Corp. Share Depository Center (SDC)
Turkey Citibank, n.a. None
United KingdomMidland 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 ASSET STRATEGY FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of ___________________, 1994
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 Depository
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:
.00025 for the first $100,000,000 of the net assets of the United Funds,
plus
.00015 for the next $900,000,000 of the net assets of the United Funds,
plus
.00010 for the next $1,000,000,000 of the net assets of the United Funds,
plus
.00005 for the next $3,000,000,000 of the net assets of the United Funds,
plus
.000025 for the next $5,000,000,000 of the net assets of the United Funds,
plus
.00001 for any net assets exceeding $10,000,000,000 of the assets of the
United
Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(1)For each portfolio transaction* processed through a
Depository (DTC, PTC, Fed) $10.00
(2) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(3)For each futures/options contract written 25.00
(4)For each principal/interest paydown 6.00
(5)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 fees charged by any Special Subcustodian to the Custodian as
Custodian for any assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Annual Fee (combining all foreign 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 global assets), at the annual rate of:
.0035 on all assets held in countries assigned to category 5 below, plus
.0014 on all assets held in countries assigned to category 4 below, plus
.0012 on the first $500,000,000 remaining global assets, plus
.0010 on the remaining global assets in excess of $500,000,000.
B. Portfolio Transaction Fees (billed to each Fund)*:
Category 1: $30.00
Belgium, Canada, Euroclear, Japan, Netherlands
Category 2: 60.00
Austria, Denmark, Germany, Ireland, Italy, Sweden,
United Kingdom
Category 3: 90.00
Australia, Finland, France, Greece, Hong Kong,
Indonesia, Malaysia, New Zealand, Norway, Philippines,
Portugal, Singapore, Spain, Switzerland, Thailand
Category 4: 30.00
Argentina, Brazil, Chile, India, Mexico, Peru,
Turkey
Category 5: 60.00
Korea
Miscellaneous Cash Transactions 10.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Including, but not limited to, telex, legal, telephone, postage, and direct
expenses, including but not limited to, emerging markets subcustodian
custody fees and transaction charges (Category 4 above), tax reclaim,
customized systems programming, certificate fees, duties, and registration
fees.
D. Short-term Dollar Denominated Global Assets--Eurodollar CDs, Time Deposits
(billed to each Fund):
(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 (billed to each Fund)*:
Eurodollar Time Deposits/CDs and Euroclear issues will be assessed the
following charges:
First Chicago Clearing Centre-Trades with Members 136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection64.00
E. Euroclear Eligible Issues (billed to each Fund):
(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
United Missouri Bank, n.a.
(2) Portfolio Transaction Fees (billed to each Fund)*:
Euroclear $60.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
EX-99.B9-ASSSA
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the ____ day of ____________, 1994 by and
between UNITED ASSET STRATEGY FUND, INC. (the "Fund") and Waddell & Reed
Services Company (the "Agent"),
W I T N E S S E T H :
WHEREAS, The Fund wishes to appoint 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 Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Shareholder
Servicing Agent for the Fund upon and subject to the terms and provisions of
this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Fund and agrees through its Torchmark Division 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 Fund registered
on the books of the Fund 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.
(c) the term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) the term "officers' instruction" means an instruction given
on behalf of the Fund to the Agent and signed on behalf of the Fund by any one
or more persons authorized to do so by the Fund's board of directors;
(e) the term "prospectus" means the prospectus and Statement of
Additional Information of the Fund from time to time in effect;
(f) the term "shares" means shares including fractional shares
of capital stock of the Fund, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Fund;
(g) the term "shareholder" shall mean the owner of record of
shares of the Fund;
(h) the term "stock certificate" means a certificate
representing shares, in the form then currently in use by the Fund, it being
understood, however, that the Fund may under applicable law elect not to issue
stock certificates.
3. Duties of the Agent.
The Agent shall through its Torchmark Services Division 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) Transaction of Records.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Fund:
(a) recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Fund on the books of the Fund;
(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
Fund on shares and of redemption proceeds due by the Fund on redemption of
shares;
(e) furnishing to shareholders such information as may be
reasonably required by the Fund, including appropriate income tax information;
(f) addressing and mailing to shareholders prospectuses, annual
and semiannual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Fund;
(g) in the event the Fund elects to issue stock certificates,
replacing allegedly lost, stolen or destroyed stock certificates in accordance
with and subject to procedures and conditions agreed upon and set out in
officer's 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 Fund 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 Fund 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 Fund, or imposed on the Agent as the Fund'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 Internal Revenue Code 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 Fund agrees to pay the Agent for its services under this Agreement
an amount payable on the first day of each month of [$1.0208] for each account
of the Fund 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. In addition, the Fund
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 Fund: (i) costs of stationery, appropriate forms, envelopes,
checks, postage, printing (except cost of printing prospectuses, annual and
semiannual 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 Fund 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) required by and provided to the
Agent, other than by its employees or employees of an affiliate, with respect to
functions of the Fund 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 Fund
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
Fund'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 Fund under this Agreement,
nor shall any activity of the Agent called for under a Services Agreement which
the Fund and the Agent are parties, be all the expenses of the Fund under this
Agreement.
5. Right of Fund to Inspect Records, etc.
The Fund will have the right under this Agreement to perform on site
inspection of records and accounts and to perform audits directly pertaining to
the Fund 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 Funds' auditors or representatives of appropriate regulatory agencies and
furnish all reasonably requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit B,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Fund, 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 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 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 Fund, (c) any
authorization or instruction contained in any officers' instruction, or (d) with
respect to the functions performed for the Fund listed under Paragraph 3(1) of
this Agreement, any advice of counsel approved by the Fund who may be internally
employed counsel or outside counsel, in either case for the Fund and/or the
Agent.
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.
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 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 of 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 or of Waddell & Reed Investment Management
Company or Torchmark Distributors, Inc., 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 vote shall 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.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Fund 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 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 the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Fund's acting as such on its
own behalf, the Fund 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 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.
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 ASSET STRATEGY FUND, INC.
By:
--------------------------------
Sharon K. Pappas, Vice President
ATTEST:
By:
----------------------
Amy D. Eisenbies
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 Fund'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 Fund as set forth in an officers' instruction. In the event a
signature guarantee is required by the Fund, 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 Fund 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 Fund and the Agent and evidenced on behalf of the Fund 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.
EXHIBIT B
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015194B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $20,000,000
Audit Expense 500,000
On Premises 20,000,000
In Transit 20,000,000
Forgery or Alterations 20,000,000
Securities 20,000,000
Counterfeit Currency 20,000,000
Uncollectible Items of
Deposit 25,000
Total Limit 20,000,000
Directors and Officers/ 87015194D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond 30S100639551 Aetna Life
& Casualty
EX-99.B9-ASASA
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the _____ day of __________, 1994, by and
between United Asset Strategy Fund, Inc. (the "Fund"), a Maryland corporation
and Waddell & Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting Services
Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting Services
Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services Agent
for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this Paragraph B
as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of the
Fund's attorneys and independent accountants, to prepare or assist the Fund's
attorneys and independent accountants to prepare, as may be applicable, reports
required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be 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
the Month Fee
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,667
$200 - $ 350 million $ 4,167
$350 - $ 500 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 reasonof 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 ASSET STRATEGY FUND, INC.
By:___________________________________
Sharon K. Pappas, Vice President
ATTEST:
_______________________
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED SERVICES COMPANY
By: __________________________________
Robert L. Hechler, President
ATTEST:
_______________________
Sharon K. Pappas
Secretary
EX-99.B9-ASSA
SERVICE AGREEMENT
THIS AGREEMENT made this ____ day of ___________, 1994, by and between
United Asset Strategy Fund, Inc. (the "Fund"), and Waddell & Reed, Inc.
("W&R"),
WHEREAS, W&R serves as the principal underwriter and sole distributor of
the Fund's shares, which it markets through its national sales force, and is the
parent company of Waddell & Reed Services Company, which provides transfer
agency and related services to the Fund, including the maintenance of
shareholder records;
AND WHEREAS, the Fund has adopted a plan ("Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended ("Act") to provide for
personal services to Fund shareholders and/or maintenance of shareholder
accounts, as such terms are used in Article III, Section 26(b) of the National
Association of Securities Dealers, Inc.'s Rules of Fair Practice, through the
efforts of W&R and its affiliates under the terms of which the Fund may pay an
amount not to exceed .25 of 1% of the Fund's average annual net assets for
personal services and/or maintenance of shareholder accounts;
NOW THEREFORE, it is mutually agreed as follows:
A. WADDELL & REED, INC. - DUTIES
W&R may provide personal services to the Fund's shareholders and/or seek to
maintain shareholder accounts by taking any or all of the following actions:
1. Field Compensation, Training and Management - Through compensation
arrangements, training, support and management practices cause its registered
representatives, managers and/or other appropriate personnel to provide personal
services to Fund shareholders with respect to their investments in the Fund,
their rights and privileges as Fund shareholders, status of their Fund accounts,
assistance in handling transactions and other needs shareholders may have as may
be relevant to their holding and maintaining their investments in the Fund;
2. Field Office Support -Increases the services provided to Fund
shareholders by office personnel located at its field offices;
3. Other. Engage in such other activities as W&R deems appropriate and
useful to provide personal services to Fund shareholders and/or maintain
shareholder accounts.
4. Third-Party Services - Through broker-dealers selling shares of the
Fund to employee benefit plans, including benefit plans existing under the
provisions of Section 457 of the United States Internal Revenue Code (hereafter
"Benefit Plans"), or through other third parties, and who provide personal
services to the Benefit Plans and assist in the maintenance of participants'
accounts for whom the Benefit Plans hold shares of the Fund.
B. PAYMENTS TO WADDELL & REED, INC.
1. Subject to the limitation in Section B.3. below, the Fund shall fully
reimburse W&R for its cost of providing the services specified in the foregoing
Section A of this Agreement, including W&R's direct expenses, overhead and
administrative costs, and payments made by it to its registered representatives
and managers for providing services.
2. Payments shall be made by the Fund to W&R monthly on presentation of a
statement by W&R to the Fund listing the amounts of expenses incurred by W&R
(including expenses incurred by any subsidiary of W&R providing the services
through W&R) during the last month ended.
3. Payments by the Fund shall be made pursuant to the Plan. For each of
the Fund's fiscal years the maximum aggregate amount of all payments made
pursuant to Sections B.1. and B.2. above shall not exceed an amount equal to .25
of 1% of the Fund's average annual net assets (prorated for the fiscal year in
which this Agreement becomes effective).
4. In calculating the amount of costs and expenses for providing services
hereunder where the services are provided also to shareholders of other funds in
the United Group of Mutual Funds listed in Appendix A hereto which have adopted
similar Plans and have entered into similar agreements with W&R, and the
expenses are not specifically attributable to services to a particular fund or
funds, W&R shall allocate its costs and expenses among the Fund and the other
funds on the basis of relative net assets of each fund, on the basis of the
number of shareholder accounts of each fund or a combination of both as W&R may
deem as reasonable and appropriate methods for fairly allocating such costs and
expenses, provided that it periodically reviews such allocation methods and the
fairness thereof with the independent directors of the Fund and with the Fund's
independent accountants if so requested by the Fund's independent directors as
defined in Section D.1. hereafter.
5. Subject to the limitation set forth in Section B.3., the Fund shall
fully reimburse W&R for payments it makes to a broker-dealer who sells Fund
shares to Benefit Plans to cover a part of the broker-dealer's cost incurred
directly or through affiliates, and to any other third party to cover a part of
that party's cost, in providing personal services to the Benefit Plans and for
the maintenance of participants' accounts of the Benefit Plans, provided that
such payment shall not exceed a sum equal to .25 of 1% of the Fund's average
annual net assets represented by Fund shares purchased through the broker-dealer
or in accounts coded in the name of the third party, as applicable, and held by
the Benefit Plans.
C. REPORTS
W&R shall furnish to the Fund's board of directors at least quarterly a
written report of the amounts it has expended hereunder and the specific
purposes for which expenditures were made.
D. APPROVAL AND TERMINATION
1. The Fund represents that this Agreement has been approved by a vote of
the board of directors of the Fund and of the directors of the Fund who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or this Agreement (the "independent
directors"), which was cast in person by such directors at a meeting called for
the purpose of voting on the Plan and the approval of this Agreement.
2. This Agreement shall continue in effect for a period of one (1) year
from the date hereof and from year to year thereafter only so long as such
continuance is approved by the directors, including the independent directors,
as specified hereinabove, for the approval of this Agreement by the directors
and independent directors.
3. This Agreement may be terminated by the Fund or by W&R by giving at
least sixty (60) days' notice to the other party.
4. This Agreement shall automatically terminate in the event of its
assignment as such term is defined in the Act and the rules thereunder, and
shall automatically terminate if the Fund terminates the Plan under which this
Agreement was adopted by the Fund.
5. Any termination shall be without payment of any penalty.
IN WITNESS WHEREOF, the parties have executed this Agreement this ____ day of
____________, 1994.
United Asset Strategy Fund, Inc.
By:
-----------------------------------
Sharon K. Pappas, Vice President
ATTEST:
- --------------------------
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By:
----------------------------
Robert L. Hechler, President
ATTEST
- --------------------------------
Sharon K. Pappas, Secretary
<PAGE>
APPENDIX A
United Funds, Inc.
United Accumulative Fund
United Bond Fund
United Income Fund
United Science and Technology Fund
United Continental Income Fund, Inc.
United Gold & Government Fund, Inc.
United Asset Strategy 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.
United Asset Strategy Fund, Inc.
EX-99.B10-ASopin
UNITED ASSET STRATEGY FUND, INC.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
_________________, 1994
United Asset Strategy Fund, Inc.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
Dear Sir:
In connection with the public offering of shares of Capital Stock, par value
$.001 per share, of United Asset Strategy Fund, Inc. (the "Fund"), I have
examined such corporate records and documents and have made such further
investigation and examination as I deemed necessary for the purpose of this
opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
Sharon K. Pappas
General Counsel
SKP/sw
EX-99.B15-ASSP
SERVICE PLAN
(Adopted on _________________, 1994)
This Plan is adopted by United Asset Strategy Fund, Inc. (the "Fund"), pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act")
to provide for payment by the Fund of certain expenses in connection with the
provision of personal services to Fund shareholders and/or maintenance of its
shareholder accounts. Payments under the Plan are to be made to Waddell & Reed,
Inc. ("W&R") which serves as the principal underwriter for the Fund under the
terms of a written Service Agreement ("Agreement") separate and apart from the
Underwriting Agreement pursuant to which W&R offers and sells the shares of the
Fund.
Service Fee
The Fund is authorized to pay to W&R an amount not to exceed .25 of 1% of the
Fund's average annual net assets as a "service fee" to finance shareholder
servicing by W&R, its affiliated companies and broker-dealers who may sell Fund
shares and to encourage and foster the maintenance of shareholder accounts of
the Fund. 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 Fund for personal service and/or maintenance of 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 Fund 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 voting securities of the Fund (as defined in the
Act) and by a vote of the board of directors of the Fund and of the directors
who are not interested persons of the Fund and have no direct or indirect
financial interest in the operation of the Plan or any agreement related to this
Plan (other than as directors or shareholders of the Fund) ("independent
directors") cast in person at a meeting called for the 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 the 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 Fund or by a vote of the majority of the
outstanding voting securities of the Fund without penalty. On termination, the
payment of all service fees shall cease, and the Fund shall have no obligation
to W&R to reimburse it for any cost or expenditure it has made or may make to
service 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 shareholder
approval of the Fund, and all material amendments of this Plan must be approved
in the manner prescribed for the adoption of the Plan as provided hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan, the Agreement and reports made pursuant to this Plan shall
be preserved as provided in Rule 12b-1(f) under the Act.
