File No. 811-2657
File No. 2-56969
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. 34
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 24
UNITED MUNICIPAL BOND FUND, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on December 31, 1994 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f(a)(1). Notice for the Registrant's
fiscal year ended September 30, 1994 was filed on November 22, 1994.
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
================================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Summary of Expenses
(b) ..................... *
(c) ..................... *
3(a) ..................... Financial Highlights
(b) ..................... Financial Highlights
(c) ..................... Performance Information
(d)...................... Financial Highlights
4(a) ..................... What is United Municipal Bond Fund, Inc.?; Goal
and Investment Policies of the Fund
(b) ..................... Goal and Investment Policies of the Fund
(c) ..................... Goal and Investment Policies of the Fund
5(a) ..................... What is United Municipal Bond Fund, Inc.?
(b)...................... Management and Services; Inside Back Cover
(c) ..................... Management and Services
(d) ..................... Management and Services; Inside Back Cover
(e) ..................... Management and Services; Inside Back Cover
(f) ..................... Management and Services
(g)(i)................... *
(g)(ii).................. Management and Services
5A........................ **
6(a) ..................... What is United Municipal Bond Fund, Inc.?
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... Management and Services
(f)...................... Dividends, Distributions and Taxes
(g) ..................... Dividends, Distributions and Taxes
7(a) ..................... Management and Services; Inside Back Cover
(b) ..................... Purchase of Shares
(c) ..................... Purchase of Shares
(d) ..................... Purchase of Shares
(e) ..................... *
(f) ..................... Management and Services
8(a) ..................... Redemption
(b) ..................... *
(c) ..................... Redemption
(d) ..................... Redemption
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Objective and Policies of the Fund
(b) ..................... Investment Objective and Policies of the Fund
(c) ..................... Investment Objective and Policies of the Fund
(d) ..................... Investment Objective and Policies of the Fund
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... *
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ Performance Information
(b)(iv) ................. Performance Information
23 ........................ ***
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in Annual Report to Shareholders
***Included in Prospectus
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
- -----------------------------------------------------------------
December 31, 199 4
PROSPECTUS
- -----------------------------------------------------------------
United Municipal Bond Fund, Inc. (the "Fund") is an open-end diversified
management investment company. Its goal is to provide income to shareholders
which is not subject to Federal income taxation.
This Prospectus contains concise information about the Fund of which you
should be aware before investing. Additional information has been filed with
the Securities and Exchange Commission and is contained in a Statement of
Additional Information (the "SAI"), dated December 31, 199 4 . You may
obtain a copy of the SAI free of charge by request to the Fund or Waddell &
Reed, Inc., its Underwriter, at the address or telephone number shown below.
The SAI is incorporated by reference into this Prospectus and you will not be
aware of all facts unless you read both this Prospectus and the SAI.
Investments in high-yield, high-risk securities may entail risks that are
different or more pronounced than those involved in higher-rated securities.
See "Risk Factors of High-Yield Investing" included in this Prospectus for a
discussion of the risks associated with non-investment grade securities.
---------------------------------------------
Retain This Prospectus For Future Reference.
---------------------------------------------
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.
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
Summary of Expenses
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Load Imposed on Purchases 4.25%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Management Fees 0.45 %
12b-1 Fees* 0.09 %
Other Expenses 0.11 %
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)
Total Fund Operating Expenses 0.65 %
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each
time period: $49 $62 $77 $120
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.
*See "Management and Services" for further information about the 12b-1
service fees.
<PAGE>
United Municipal Bond Fund, Inc.
FINANCIAL HIGHLIGHTS
(Audited)
The following information has been audited by Price Waterhouse LLP ,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse
LLP .
<TABLE>
<CAPTION>
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended September 30,
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period $7.83 $7.40 $7.18 $6.66 $7.07 $6.91 $6.29 $7.67 $6.65 $6.06
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income .38 .41 .43 .45 .47 .49 .48 .49 .55 .57
Net realized and
unrealized gain
(loss) on
investments (0.67) .65 .35 .52 (0.16) .22 .62 (0.70) 1.22 .59
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations (0.29) 1.06 .78 .97 .31 .71 1.10 (0.21) 1.77 1.16
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income (0.38) (0.40) (0.43) (0.45) (0.49) (0.48) (0.48) (0.48) (0.56) (0.57)
Distributions from
capital gains (0.25) (0.23) (0.13) 0.00 (0.23) (0.07) 0.00 (0.69) (0.19) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.63) (0.63) (0.56) (0.45) (0.72) (0.55) (0.48) (1.17) (0.75) (0.57)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $6.91 $7.83 $7.40 $7.18 $6.66 $7.07 $6.91 $6.29 $7.67 $6.65
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* -3.91% 15.15% 11.41% 14.97% 4.46% 10.74% 18.07% -3.50% 28.19% 19.87%
Net assets, end of
period (000
omitted) $950,952$1,055,434$890,004$769,122$648,546$594,733$477,479$413,163$402,445$279,700
Ratio of expenses
to average
net assets 0.64% 0.56% 0.57% 0.57% 0.57% 0.57% 0.58% 0.58% 0.61% 0.65%
Ratio of net investment
income to average
net assets 5.17% 5.38% 5.92% 6.47% 6.82% 6.98% 7.32% 6.98% 7.54% 8.68%
Portfolio
turnover rate 62.61% 94.51% 125.44% 144.36% 181.25% 226.41% 225.49% 216.82% 250.00% 328.36%
*Total return calculated without taking into account the sales load deducted on an
initial purchase.
Note: During the fiscal periods ended September 30, 1993, 1992, 1991, 1990, 1989,
1988, 1987, 1986 and 1985, 62.53%, 76.13%, 97.45%, 66.46%, 84.53%, 98.05%,
40.77%, 73.57% and 97.11% , respectively, of the dividends paid were exempt from
Federal income tax.
</TABLE>
Information regarding the performance of the Fund is contained in the
Fund's annual report to shareholders, which may be obtained without charge by
request to the Fund at the address or phone number shown on the cover of this
Prospectus.
<PAGE>
What is United Municipal Bond Fund, Inc.?
United Municipal Bond Fund, Inc. is a corporation organized under Maryland
law on September 29, 1976. It is an open-end diversified management investment
company commonly called a "mutual fund." The Fund has a Board of Directors
which has overall responsibility for the management of its affairs. For the
names of the Directors and other information about them, see the SAI. The Fund
has only one class of shares. Each share has the same rights to dividends and
to vote. Shares are fully paid and nonassessable when bought. The Fund does
not hold annual meetings of shareholders; however, certain significant corporate
matters, such as the approval of a new investment advisory agreement or a change
in a fundamental investment policy, which require shareholder approval, will be
presented to shareholders at an annual or special meeting called by the Board of
Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
shareholders for the purpose of electing directors until such time as less than
a majority of directors holding office have been elected by shareholders, at
which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended, applies to the Fund, the directors are required
to call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of the Fund's outstanding shares.
Performance Information
From time to time Waddell & Reed, Inc. or the Fund may include performance
data in advertisements or in information furnished to present or prospective
shareholders. Fund performance may be shown by presenting one or more
performance measurements, including yield, total return and performance
rankings.
The Fund's yield is based on a 30-day period ending on a specific date and
is computed by dividing the Fund's net investment income per share earned during
the period by the Fund's maximum offering price per share on the last day of the
period. The Fund may also advertise or include in information furnished to
present or prospective shareholders its tax equivalent yield, which is
calculated by applying the stated income tax rate to only the net investment
income exempt from taxation, according to a standard formula.
The Fund's total return is its overall change in value for the period shown
including the effect of reinvesting dividends and capital gains distributions
and any change in the net asset value per share. A cumulative total return
reflects the Fund's change in value over a stated period of time. An average
annual total return reflects the hypothetical annually compounded return that
would have produced the cumulative total return for a stated period if the
Fund's performance had been constant during each year of that period. Average
annual total returns are not actual year-by-year results and investors should
realize that total returns will fluctuate.
Standardized total return figures reflect payment of the maximum sales
charge. The Fund may also provide non-standardized performance information
which does not reflect deduction of such sales charge or which is for periods
other than those required to be presented or which differs otherwise from
standardized performance information. See the SAI for yield and total return
and methods of computation.
From time to time in advertisements and information furnished to present or
prospective shareholders the Fund may discuss its 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.
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
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
Goal and Investment Policies of the Fund
The goal of the Fund is to provide income which is not subject to Federal
income taxation. The Fund tries to achieve this goal by investing principally
in municipal bonds. The Fund's goal and the type of securities it may invest in
are matters of fundamental policy and may not be changed without the approval of
shareholders. At least 80% of the Fund's net assets during normal market
conditions will be invested in municipal bonds.
As used in this Prospectus, "municipal bonds" means debt obligations the
interest on which is excludable from gross income for Federal income tax
purposes. See "Dividends, Distributions and Taxes" concerning the alternative
minimum tax ("AMT"). The Fund anticipates that not more than one-third of the
dividends it will pay to shareholders will be subject to treatment as a
preference item for AMT purposes. The Fund and the Fund's Manager, Waddell &
Reed Investment Management Company (the "Manager"), rely on the opinion of bond
counsel for the issuer in determining whether obligations are municipal bonds.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various public purposes. The types of municipal bonds in which
the Fund may invest include "general obligation" bonds and "revenue" bonds and
certain "industrial development" bonds. Industrial development bonds are
revenue bonds issued by or on behalf of public authorities to obtain funds to
finance privately operated facilities. Their credit quality is generally
dependent on the credit standing of the company involved. Municipal obligations
in which the Fund may invest also include municipal lease obligations and
participations in these obligations (collectively, "lease obligations") of
municipal authorities or entities. The Manager determines liquidity of lease
obligations in accordance with guidelines established by the Fund's Board of
Directors. Unrated municipal lease obligations will be considered to be
illiquid. In determining the credit quality of unrated municipal lease
obligations, one of the factors, among others, to be considered will be the
likelihood that the lease will not be canceled. Certain "non-appropriation"
lease obligations may present special risks because the municipality's
obligation to make future lease or installment payments depends on money being
appropriated each year for this purpose. See the SAI for further information
about lease obligations. The Fund may also purchase municipal bonds on a when-
issued basis and will do so in order to secure an advantageous price and yield
at the time of entering into the transaction. These bonds are subject to market
value fluctuation until delivery and payment is completed. See the SAI for
additional information on the characteristics of these bonds.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. The bonds purchased by the Fund are selected on the basis of
quality, yield and diversification. Factors which affect the yield on municipal
bonds include general money market conditions, municipal bond market conditions,
the size of a particular offering, the maturity of the obligation and the nature
of the issue. Lower rated bonds usually, but not always, have higher yields
than similar but higher rated bonds. The Fund may not purchase any municipal
bonds which are not either (i) rated at least BBB by Standard & Poor's
Ratings Group ("S&P") or Baa by Moody's Investors Services, Inc. ("MIS")
(see Appendix A for a description of bond ratings) or (ii) are unrated municipal
bonds which, in the opinion of the Manager, would have the quality ratings
described above if they were rated, unless thereafter at least 80% of the value
of the Fund's total assets would consist of cash or municipal bonds which were
of such quality at the time of purchase. See the SAI for additional
information. Medium and lower rated or unrated municipal securities are
frequently traded only in markets where the number of potential purchasers and
sellers, if any, is very limited. This factor may have the effect of limiting
the availability of the securities for purchase by the Fund and may also limit
the ability of the Fund to sell such securities at their fair value either to
meet redemption requests or in response to changes in the economy or the
financial markets. See "Risk Factors of High-Yield Investing" for a discussion
of the risks associated with debt securities rated lower than BBB by S&P or Baa
by MIS.
When market conditions dictate, the Fund may have more than 25% of its
assets invested in industrial development bonds the interest on which is paid by
revenues from generating plants. Problems in the utility industry generally
affect the values of and the dividends paid on utility common stocks rather than
the ability to pay bond obligations. See the SAI for additional information.
Up to 10% of the Fund's assets may be invested in debt securities other
than municipal bonds (referred to as "taxable obligations"). The Fund may also
invest in Debt Futures and Municipal Bond Index Futures (defined below). The
Fund does not have a fundamental policy limiting the percentage of its assets
which may be invested in futures. Income from taxable obligations and Debt
Futures and Municipal Bond Index Futures will be subject to Federal income tax.
The only taxable obligations which the Fund may purchase are (i)
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (ii) bank obligations of domestic banks or savings and loan
associations which are subject to regulation by the U.S. Government; these
obligations may include certificates of deposit, letters of credit and
acceptances; and (iii) commercial paper having the quality ratings described in
Appendix A to this Prospectus.
The Fund may purchase and write (sell) listed options on domestic debt
securities (including, without limitation, securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) and on municipal bond
indices. Exchange-listed options on securities and on municipal bond indices are
issued by the Options Clearing Corporation.
The Fund may write options on securities for the purpose of increasing
income (which would be taxable) in the form of premiums paid by the purchaser of
the option. While writing calls may result in realization of income, the Fund
will lose the opportunity to profit from an increase in the price of the
security subject to the call over the exercise price. In writing puts, the Fund
assumes the risk of loss should the market value of the underlying security
decline below the exercise price at which the Fund is obligated to purchase the
security. The Fund will write a put only when it has determined that it would
be willing to purchase the underlying security at the exercise price.
The Fund may purchase calls to take advantage of an expected rise in the
market value of securities that the Fund does not hold in its portfolio and to
close positions in calls it has written. It may purchase puts on related
investments it owns ("protective puts") or on related investments it does not
own ("nonprotective puts"). Buying a protective put permits the Fund to protect
itself during the put period against a decline in the value of the related
investments below the exercise price by selling them through the exercise of the
put. Buying a nonprotective put permits the Fund, if the market price of the
related investments is below the put price during the put period, either to
resell the put or to buy the related investments and sell them at the exercise
price. The Fund may also purchase puts to close positions in puts it has
written. If an option purchased by the Fund is not exercised or sold, it will
become worthless at its expiration date and the Fund will lose the amount of the
premium it paid.
The Fund may also purchase and write (sell) listed options on municipal
bond indices. It may write options on municipal bond indices to generate income
(which would be taxable). It may also purchase calls on municipal bond indices
to hedge against an anticipated increase in the price of securities it wishes to
acquire and may purchase puts on municipal bond indices to hedge against an
anticipated decline in the market value of its portfolio securities. Because
municipal bond index options are settled in cash, the Fund cannot provide in
advance for its potential settlement obligations on a call it has written on a
municipal bond index by holding the underlying securities. The Fund bears the
risk that the value of the securities it holds will vary from the value of the
index.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. If the Fund is not able to enter into a closing
transaction on an option it has written, it will be required to maintain the
securities or collateral used to "cover" the Fund's obligations under such
option until a closing transaction can be entered into or the option expires.
For the purpose of hedging the value of the municipal bonds and taxable
obligations held by the Fund from the potentially adverse consequences of
changes in interest rates, the Fund may also buy and sell futures contracts on
domestic debt securities ("Debt Futures"), futures contracts on municipal bond
indices ("Municipal Bond Index Futures") and options on Debt Futures.
Since futures contracts and options thereon can replicate movements in the
cash markets for the securities in which the Fund invests without the large cash
investments required for dealing in such markets, they may subject the Fund to
greater and more volatile risks than might otherwise be the case. The principal
risks associated with the use of such instruments are (i) imperfect correlation
between movements in the market price of the portfolio investments (held or
intended to be purchased) being hedged and in the price of the futures contract
or option; (ii) possible lack of a liquid secondary market for closing out
futures contract or options positions; (iii) the need for additional portfolio
management skills and techniques; and (iv) losses due to unanticipated market
price movements. For a hedge to be completely effective, the price change of
the hedging instrument should equal the price change of the security being
hedged. Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged. The Manager will attempt to create a closely correlated hedge, but
hedging activity may not be completely successful in eliminating market value
fluctuation. The ordinary spreads between prices in the cash and futures
markets (including the options on futures market), due to the differences in the
natures of those markets, are subject to distortion. Due to the possibility of
distortion, a correct forecast of general interest rate or market trends by the
Manager may still not result in a successful transaction. The Manager may be
incorrect in its expectations as to the extent of various interest rate or bond
market movements or the time span within which the movements take place.
Options and futures transactions may increase the Fund's portfolio turnover
rate, creating greater commission expenses, transaction costs and tax
consequences.
The municipal bonds and taxable obligations which the Fund may purchase
(debt securities) go up and down in value depending in large part on changes in
prevailing interest rates. If interest rates go up after the Fund buys a debt
security, the value of that security may go down; if interest rates go down the
security value may go up. Debt securities with longer maturities, which may
produce higher yields, may go up or down more than debt securities which have
shorter maturities. The Fund holds securities with varying maturities. Changes
in the values of the debt securities which the Fund owns will affect its net
asset value per share, but will not affect the income the Fund receives.
The ability of the governments, agencies, companies or others to pay
principal and interest on debt securities held by the Fund may change. Such
changes, actual or expected, may also affect the value of these debt securities.
If interest is not in fact paid, the level of income the Fund receives and the
value of Fund shares may be affected; if principal is not paid, only the value
of Fund shares would be affected.
Sometimes the Manager may believe that a full or partial defensive position
is desirable temporarily due to present or anticipated market or economic
conditions which are affecting or could affect the values of municipal bonds.
To achieve a temporary defensive posture, the Manager may take any one or more
of the following steps: (i) shorten the average maturity of the Fund's
portfolio; (ii) hold cash or taxable obligations subject to the 10% limitation
described above; and (iii) emphasize debt securities of a higher quality than
those the Fund would ordinarily hold (see discussion of quality ratings above
and in Appendix A). A defensive posture might create a reduction in the Fund's
yield. As an alternative to taking a temporary defensive position in order to
more quickly participate in anticipated changes in market or economic
conditions, the Fund may invest in futures, as discussed above.
There can be no assurance that the Fund will achieve its goal; some market
risks are inherent in all securities to varying degrees.
Risk Factors of High-Yield Investing
The market for high-yield, high-risk debt securities is relatively new and
much of its growth paralleled a long economic expansion, during which this
market involved a significant increase in the use of high-yield debt securities
to fund highly leveraged corporate acquisitions and restructurings. Thereafter,
this market was affected by a relatively high percentage of defaults with
respect to high-yield securities as compared with higher rated securities. An
economic downturn or increase in interest rates is likely to have a greater
negative effect on this market, the value of high-yield debt securities in the
Fund's portfolio, the Fund's net asset value and the ability of the bonds'
issuers to repay principal and interest, meet projected business goals and
obtain additional financing than on higher rated securities. An investment in
this Fund may be considered more speculative than investment in shares of a fund
which invests primarily in higher rated debt securities.
Prices of high-yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments. Debt
securities with longer maturities, which may have higher yields, may increase or
decrease in value more than debt securities with shorter maturities. Market
prices of high-yield debt securities structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and may be
more volatile than securities which pay interest periodically and in cash.
Where it deems it appropriate and in the best interests of Fund shareholders,
the Fund may incur additional expenses to seek recovery on a debt security on
which the issuer has defaulted and to pursue litigation to protect the interests
of security holders of its portfolio companies.
Because the market for lower rated securities may be thinner and less
active than for higher rated securities, there may be market price volatility
for these securities and limited liquidity in the resale market. Unrated
securities are usually not as attractive to as many buyers as rated securities
are, a factor which may make unrated securities less marketable. These factors
may have the effect of limiting the availability of the securities for purchase
by the Fund and may also limit the ability of the Fund to sell such securities
at their fair value either to meet redemption requests or in response to changes
in the economy or the financial markets. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield debt securities, especially in a thinly
traded market. To the extent the Fund owns or may acquire illiquid or
restricted high-yield securities, these securities may involve special
registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Changes in values of debt securities which the Fund
owns will affect its net asset value per share. If market quotations are not
readily available for the Fund's lower rated or unrated securities, these
securities will be valued by a method that the Fund's Board of Directors
believes accurately reflects fair value. Valuation becomes more difficult and
judgment plays a greater role in valuing high-yield debt securities than with
respect to securities for which more external sources of quotations and last
sale information are available.
New and proposed laws may have an impact on the market for high-yield debt
securities. Special tax considerations are associated with investing in
high-yield debt securities structured as zero coupon or pay-in-kind
securities. See "Taxes" in the SAI.
While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with using
credit ratings. Credit ratings evaluate the safety of principal and interest
payments, not market value risk. Credit rating agencies may fail to timely
change the credit ratings to reflect subsequent events; however, the Manager
continuously monitors the issuers of high-yield debt securities in its portfolio
in an attempt to determine if the issuers will have sufficient cash flow and
profits to meet required principal and interest payments. Achievement of the
Fund's investment objective may be more dependent upon the Manager's credit
analysis than is the case for higher quality debt securities. Credit ratings
for individual securities may change from time to time, and the Fund may retain
a portfolio security whose rating has been changed.
During the Fund's fiscal year ended September 30, 199 4 , the
percentage of the Fund's assets invested in debt securities in each of the
rating categories of S&P, and the debt securities not rated by an established
rating service, determined on a dollar weighted average, were as follows:
Rated by Percentage of
S&P Fund Assets
-------- -------------
AAA 25.8 %
AA 15.4
A 36.3
BBB 12.2
BB 0.5
B 0.0
CCC 0.0
Unrated 7.3
-------
The percentage of assets in each category was calculated on the basis of a
monthly dollar weighted average. The monthly dollar weighted average was
calculated using the market value of the securities in the Fund's portfolio at
the end of each month in the thirteen-month period ended with the Fund's last
fiscal year, averaged over the Fund's last fiscal year. The rating used for
each security is that security's rating as of the end of each month and, as
ratings may change over time, does not necessarily indicate past or future
ratings of any particular security or the ratings of securities in the portfolio
in general. Asset composition of the Fund by rating categories at any
particular time does not necessarily indicate future asset composition by rating
categories.
Management and Services
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 inception of the investment company, whichever was later, and
to TMK/United Funds, Inc. since its inception. On January 8, 1992, subject to
the authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
its investment management duties (and assigned its professional staff for
investment management services) to Waddell & Reed Investment Management Company,
a wholly-owned subsidiary of Waddell & Reed, Inc. The Manager has also served
as 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 each commenced operations in February 1993.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. Waddell & Reed, Inc. is an indirect
subsidiary of Torchmark Corporation, a holding company, and United Investors
Management Company, a holding company, and a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company.
Subject to authority of the Fund's Board of Directors, the Manager provides
investment advice and supervises investments for which it is paid a fee
consisting of two elements: (i) a "Specific" fee computed on the Fund's net
asset value as of the close of business each day at the annual rate of .03 of 1%
of net assets and (ii) a pro rata participation based on the relative net asset
size of the Fund in a "Group" fee computed each day on the combined net asset
values of all of the funds in the United Group at the annual rates shown in the
following table. The fee is accrued and paid daily. Prior to the above-
described assignment to the Manager on January 8, 1992, the fees were paid to
Waddell & Reed, Inc.
Group Fee Rate
Group Net Asset Level Annual Group
(all dollars in millions) Fee 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%
Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc., acts
as transfer agent ("Shareholder Servicing Agent") for the Fund and processes the
payments of dividends. See the SAI for the fees paid for these services.
Inquiries concerning shareholder accounts should be sent to that company at the
address shown on the inside back cover of this Prospectus or to the Fund at the
address shown on the front cover of this Prospectus.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays the Accounting Services Agent a monthly fee of one-twelfth of the
annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to Waddell &
Reed, Inc., the principal underwriter for the Fund, 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 located at
field sales offices; engaging in other activities useful in providing personal
services to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers , and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. See the SAI for additional information and terms of the
Service Plan.
The combined net asset values of all of the funds in the United Group were
approximately $11.2 billion on September 30, 199 4 . Management
fees for the fiscal year ended September 30, 199 4 were 0..45 % of
the Fund's average net assets. The Fund's total expenses for that year were
0..64 % of its average net assets.
The Manager places transactions for the Fund's portfolio and in doing so
may consider sales of shares of the Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions. See the SAI for
further information.
John M. Holliday is primarily responsible for the day-to-day management of
the portfolio of the Fund. Mr. Holliday has held his Fund responsibilities
since May 1980. He is Senior Vice President of the Manager and Senior
Vice President of Waddell & Reed Asset Management Company, an affiliate of the
Manager. He is Vice President of the Fund and Vice President of
other investment companies for which the Manager serves as investment
manager. He has served as the portfolio manager for other investment
companies managed by Waddell & Reed, Inc. or the Manager since August 1979 and
has been an employee of Waddell & Reed, Inc. or its successor, the
Manager , since April 1978. Other members of the Manager's
investment management department provide input on market outlook, economic
conditions, investment research and other considerations relating to the Fund's
investments.
Dividends, Distributions and Taxes
Ordinarily, dividends are paid monthly from net investment income, which
includes accrued interest, earned discount (both original issue discount and, if
the Fund so elects, market discount on municipal securities purchased after
April 30, 1993) and other income earned on portfolio securities less expenses.
Ordinarily, dividends are paid on the 27th day of the month or on the
last business day prior to the 27th if the 27th falls on a weekend or holiday.
The Fund also distributes substantially all of its net capital gains (the excess
of net long-term capital gains over net short-term capital losses) and net
short-term capital gains, if any, after deducting any available capital loss
carryovers, with its regular dividend at the end of the calendar year. The Fund
may make additional distributions if necessary to avoid Federal income or excise
taxes on certain undistributed income and capital gains.
You have the option to receive dividends and distributions in cash, to
reinvest them without charge or to receive dividends in cash and reinvest
distributions, as you may instruct. In the absence of instructions, dividends
and distributions will be reinvested.
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986 so that it will be
relieved of Federal income tax on that part of its investment company taxable
income (consisting generally of taxable net investment income and net short-term
capital gains) and net capital gains that is distributed to its shareholders.
In addition, the Fund intends to continue to qualify to pay "exempt-interest"
dividends, which requires, among other things, that at the close of each quarter
of its taxable year at least 50% of the value of its total assets must consist
of municipal bonds.
Most of the distributions by the Fund will be designated by it as exempt-
interest dividends, which generally may be excluded by you from your gross
income. Dividends from the Fund's investment company taxable income are taxable
to you as ordinary income, to the extent of the Fund's earnings and profits,
whether received in cash or reinvested in additional Fund shares. Distributions
of the Fund's realized net capital gains, when designated as such, are taxable
to you as long-term gains, whether received in cash or reinvested in additional
Fund shares and regardless of the length of time you have owned your shares.
None of the dividends paid by the Fund is expected to be eligible for the
dividends-received deduction allowed to corporations. The Fund notifies you
after each calendar year-end as to the amounts and status of dividends and
distributions paid (or deemed paid) to you for that year.
If you have a gain on a redemption of Fund shares, the entire gain will be
taxable even though a portion of the gain may represent municipal bond interest
earned by the Fund but not yet paid out as a dividend. If the redemption is not
made until after record date, however, that interest will be received by you as
a dividend that is mostly tax-exempt rather than as part of a taxable gain.
Ordinarily, record date is the first Friday after the 9th day of each month.
Dividends exempt from Federal income tax may be subject to income taxation under
state and local tax laws.
The Tax Reform Act of 1986 eliminated the availability of tax-exempt
financing for certain functions and limited the availability of such financing
for certain other functions. This has resulted in a decrease in the number of
tax-exempt issues in which the Fund may invest.
Interest on indebtedness incurred or continued to purchase or carry Fund
shares will not be deductible for Federal income tax purposes to the extent the
Fund's distributions consist of exempt-interest dividends.
The Fund may invest in private activity bonds ("PABs") the interest on
which is treated as a tax preference item for purposes of determining your
liability for the AMT. If you may be subject to the AMT, you should consult
with your tax adviser concerning investment in the Fund. The Fund provides you
with information concerning the amount of distributions subject to the AMT after
the end of each calendar year.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by PABs should consult their tax
advisers before purchasing Fund shares because, for users of certain of these
facilities, the interest on PABs is not exempt from Federal income tax. For
these purposes, the term "substantial user" is defined generally to include a
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of PABs.
Proposals may be introduced before Congress for the purpose of restricting
or eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by the Fund and the value of its portfolio would be affected. In
such event, the Fund would reevaluate its investment objective and policies.
The Fund is required to withhold 31% of all taxable dividends, capital
gains distributions and redemption proceeds payable to you if you are an
individual or certain other noncorporate shareholder and do not furnish the Fund
with a correct taxpayer identification number. Withholding at that rate from
taxable dividends and capital gains distributions also is required if you
otherwise are subject to backup withholding.
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 90 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. 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 after redeeming other Fund shares at a loss, all or part 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; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor; for example, exempt-interest
dividends paid by the Fund may be partially or wholly taxable under some state
and local laws. You are urged to consult your own tax adviser.
Purchase of Shares
You may purchase shares through Waddell & Reed, Inc. and its sales
representatives. To open an account you must complete an application. Orders
are accepted only at the home office of Waddell & Reed, Inc. (see inside back
cover of this Prospectus for address), and it need not accept any orders. The
offering price of a share is its net asset value next determined following
acceptance plus the sales charge shown in the table below. This net asset value
per share is the value of the Fund's assets, less liabilities, divided by the
number of shares outstanding. Net asset value is determined once each day as of
the later of the close of the regular session of the New York Stock 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 on each day the New York Stock Exchange is open. The Fund's portfolio
securities are valued according to the prices quoted by a dealer in bonds which
offers a pricing service for valuation of municipal bonds or, if not available,
at their fair value in a manner determined in good faith by the Board of
Directors. Short-term debt securities are valued at amortized cost which
approximates market value. Other assets are valued at their fair value.
Sales Charge
Sales Charge as Approximate
as Percent of Percent of
Size of Purchase Offering PriceAmount Invested
Under $100,000 ...................... 4.25% 4.44%
$ 100,000 to less than $ 300,000 .. 3.25 3.36
300,000 to less than 500,000 .. 2.50 2.56
500,000 to less than 1,000,000 .. 1.75 1.78
1,000,000 to less than 2,000,000 .. 1.00 1.01
2,000,000 and over ................. 0.00 0.00
Ordinarily, the minimum initial investment is $500. A $100 minimum initial
investment pertains to certain exchanges of shares from other funds in the
United Group. A $50 minimum initial investment pertains to accounts for
which an investor has arranged, at the time of initial investment, to make
subsequent purchases for the account through automatic bank withdrawals, as
described below.
A shareholder may arrange with Waddell & Reed, Inc. to purchase shares by
having regular monthly withdrawals of $25 or more made from a bank
account . A shareholder may also arrange with Waddell & Reed, Inc. to
purchase shares by having regular monthly exchanges of shares with a value
of $25 or more made from United Cash Management, Inc., subject to certain
conditions explained in the SAI.
Lower sales charges are available by combining additional purchases of the
Fund, United Government Securities Fund, Inc. and United Municipal High Income
Fund, Inc. with the net asset value of shares already held ("rights of
accumulation") and by grouping all purchases made during a thirteen-month period
("Statement of Intention"). Purchases by certain related persons may be
grouped. Shares of the Fund held for at least six months may be exchanged for
shares of another fund in the United Group (listed on the back cover of this
Prospectus), unless the exchange is for shares of United Government Securities
Fund, Inc. or United Municipal High Income Fund, Inc. or unless the Fund shares
were acquired by reinvestment of a dividend or other distribution, in which
cases there is no holding period. There are no additional sales charges on such
exchanges. Subject to certain conditions, automatic monthly exchanges of shares
of United Cash Management, Inc. and exchanges of shares of certain other funds
(listed on the back cover of this Prospectus) may be made into the Fund. These
exchange privileges may be eliminated or modified at any time, upon notice in
certain instances. Information as to rights of accumulation, Statements of
Intention, grouping by related persons, exchange privileges, and Flexible
Withdrawal Service is contained in the SAI. Applicable forms are available from
Waddell & Reed, Inc.'s representatives.
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. Purchases in certain
trusts for these persons may also be made at net asset value. Shares may also
be issued at net asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Fund is a party. See the SAI
for additional information.
Redemption
You have the right to sell your shares back to the Fund (redeem) at any
time by sending a written request to the address on the front cover of this
Prospectus, stating how many shares or the amount in dollars you wish to redeem.
The written request must be in good order which requires that if more than one
person owns the shares, each owner must sign the written request. If you hold a
certificate, it must be properly endorsed and sent to the Fund. The Fund
reserves the right to require a signature guarantee by a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent in certain situations, such as: the request for redemption
is made by a corporation, partnership or fiduciary, or the redemption
request is made by, or redemption proceeds are payable to, someone other
than the owner of record. If you recently purchased the shares by check, the
payment of redemption proceeds on these shares may be delayed. You may arrange
for the bank upon which the purchase check was drawn to provide to the Fund
telephone or written assurance, satisfactory to the Fund, that the check has
cleared and been honored. If no such assurance is given, payment of the
redemption proceeds on these shares will be delayed until the earlier of 10 days
or when the Fund has been able to verify that your purchase check has cleared
and been honored.
The Fund will redeem your shares at their net asset value (which may be
more or less than what you paid) next computed after receipt of your written
request for redemption in good order at the Fund's address shown on the front
cover of this Prospectus. Payment is made within seven days, unless delayed
because of emergency conditions determined by the Securities and Exchange
Commission, 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.
You may reinvest in the Fund all or part of the amount you redeemed without
charge by sending to the Fund the amount you wish to reinvest. The reinvested
amounts must be received within thirty days after the date of your redemption.
You may do this only once as to Fund shares.
The Fund reserves the right to redeem at net asset value all shares owned
by a particular shareholder in the Fund having an aggregate net asset value less
than $500. The Fund will give the shareholder notice of intention to redeem and
a 60-day opportunity to purchase a sufficient number of additional shares to
bring the net asset value of his or her shares in the Fund to $500. See the SAI
for further information.
Information concerning the establishment of automatic payments from an
account is available from sales representatives of Waddell & Reed, Inc.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment .
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group . A Standard & Poor's corporate or
municipal bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with
any ratings 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.
A brief description of the applicable Standard & Poor's rating symbols
and their meanings follow:
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's . C apacity 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
differ s 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 exhibit s
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded
as having predominantly speculative characteristics with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. BB indicates the lowest degree of speculation and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless 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 Standard &
Poor's 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 Legal
Investment Laws of various states governing legal investments may impose
certain rating or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies and fiduciaries generally.
Moody's Investors Service. 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.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity factors and
market access risks unique to notes. Notes maturing in 3 years or less
will likely receive a note rating. Notes maturing beyond 3 years will most
likely receive a long-term debt rating. The following criteria will be used in
making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities , the more likely the issue is to be treated as a
note).
--Source of Payment (the more the issue depends on the market
for its refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. I ssues
determined to possess very strong characteristics are
given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest , with some
vulnerability to adverse financial and economic changes over the term
of the notes .
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings -- Moody's ratings for state and municipal
short-term obligations will be designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-term credit risk
and long-term risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while various factors of major
importance in bond risk are of lesser importance over the short run. Rating
symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Group commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term
in the relevant market . Ratings are graded into several categories,
ranging from "A-1" for the highest quality obligations to D for the
lowest. Issuers rated A are further referred to by use of numbers 1, 2 and 3 to
indicate the relative degree of safety. Issues assigned an A rating (the
highest rating) are regarded as having the greatest capacity for timely payment.
An A-1 designation indicates that the degree of safety regarding timely payment
is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. An
A-2 rating indicates that capacity for timely payment is satisfactory ;
however, the relative degree of safety is not as high as for issues designated
A-1. Issues rated A-3 have adequate capacity for timely payment;
however, they are more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Issues rated B
are regarded as having only speculative capacity for timely
payment . A C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default, which occurs
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALABAMA - 0.25%
The Southeast Alabama Gas District,
Natural Gas System Revenue Bonds,
Series 1994-B,
6.0%, 3-1-2014 ........................ $ 1,450 $ 1,388,375
Montgomery County, Alabama, Revenue
Warrants (Department of Human Resources
Project), Series 1992,
7.0%, 4-1-2007 ........................ 1,000 1,026,250
Total ................................. 2,414,625
ALASKA - 0.29%
Alaska Housing Finance Corporation:
General Housing Purpose Bonds, 1994
Series A (Refunding/Non-AMT),
5.0%, 12-1-2008 ....................... 1,640 1,418,600
Collateralized Home Mortgage Bonds,
1990 Subseries A-3,
5.7%, 12-1-2011 ....................... 1,455 1,325,869
Total ................................. 2,744,469
ARIZONA - 2.11%
The Industrial Development Authority
of the County of Greenlee, Arizona,
Pollution Control Revenue Refunding
Bonds (Phelps Dodge Corporation
Project),
5.45%, 6-1-2009 ....................... 4,000 3,675,000
The Industrial Development Authority
of the City of Tuscon, Arizona,
Multifamily Housing Revenue Bonds,
Series 1985 (HSL La Cholla Project),
Adjustable Rate Bond,
3.5%, 12-1-2014........................ 3,255 3,255,000
Tempe Elementary School District No. 3
of Maricopa County, Arizona, School
Improvement and Refunding Bonds,
Series 1993,
7.5%, 7-1-2010 ........................ 2,815 3,202,063
Arizona Municipal Financing Program,
Certificates of Participation (Composite
Issue - Series 34),
7.25%, 8-1-2009 ....................... 2,750 3,018,125
City of Phoenix, Arizona, General
Obligation Refunding Bonds,
Series 1993A,
7.0%, 7-1-2010 ........................ 2,500 2,687,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ARIZONA (Continued)
Gilbert Unified School District No. 41
of Maricopa County, Arizona School
Improvement Bonds, Project of 1993,
Series C (1994),
6.1%, 7-1-2014 ........................ $ 2,000 $ 1,960,000
Paradise Valley Unified School District
No. 69 of Maricopa County, Arizona,
Refunding Bonds, Second Series 1993,
0.0%, 7-1-2007 ........................ 3,000 1,391,250
Apache County (Arizona), Public Finance
Corporation, Certificates of Participation,
Series 1994,
5.5%, 5-1-2010......................... 1,000 881,250
Total ................................. 20,070,188
CALIFORNIA - 10.14%
City of Pomona, California, Single
Family Mortgage Revenue Refunding
Bonds (GNMA and FNMA Mortgage-Backed
Securities), Series 1990A,
7.6%, 5-1-2023 ........................ 15,000 17,287,500
County of Sacramento, California, Single
Family Mortgage Revenue Bonds (GNMA
Mortgage-Backed Securities Program),
Issue A of 1988,
8.125%, 7-1-2016 ...................... 10,810 13,039,563
Transmission Agency of Northern California,
California-Oregon Transmission Project
Revenue Bonds, 1990 Series A,
7.0%, 5-1-2013 ........................ 12,000 12,945,000
County of Riverside, California, Single
Family Mortgage Revenue Bonds (GNMA
Mortgage-Backed Securities),
1988 Series A,
8.3%, 11-1-2012 ....................... 10,000 11,887,500
Imperial Irrigation District,
1993 Refunding Certificates of
Participation (1990 Electric
System Project),
5.2%, 11-1-2009 ....................... 10,000 8,775,000
Community Facilities District No. 90-2
(Green Valley) of the City of Perris,
1991 Special Tax Bonds,
8.75%, 10-1-2021 ...................... 5,650 7,450,938
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
CALIFORNIA (Continued)
California Statewide Communities Development
Authority, Hospital Revenue Certificates
of Participation, Cedars-Sinai Medical Center,
Series 1992,
6.5%, 8-1-2012 ........................ $ 5,200 $ 5,252,000
State of California, Department of Water
Resources, Central Valley Project Water
System Revenue Bonds, Series M,
5.0%, 12-1-2013 ....................... 5,610 4,635,263
California Health Facilities Financing
Authority, Hospital Revenue Bonds (Downey
Community Hospital), Series 1993,
5.75%, 5-15-2015 ...................... 4,250 3,697,500
Community Redevelopment Agency of the City
of Palmdale, Restructured Single Family
Mortgage Revenue Bonds, Series 1986A,
8.0%, 3-1-2016 ........................ 3,000 3,596,250
Southern California Public Power Authority,
Multiple Project Revenue Bonds, 1989 Series,
6.75%, 7-1-2012 ....................... 3,455 3,528,419
Sacramento Municipal Utility District,
Electric Revenue Refunding Bonds,
1993 Series G,
6.5%, 9-1-2013 ........................ 2,500 2,559,375
City and County of San Francisco,
California, Sewer Revenue Refunding
Bonds, Series 1992,
5.5%, 10-1-2015 ....................... 2,000 1,780,000
Total ................................. 96,434,308
COLORADO - 3.67%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1991A:
8.75%, 11-15-2023 ..................... 8,000 8,440,000
0.0%, 11-15-2003 ...................... 7,855 3,947,138
Series 1991D:
7.75%, 11-15-2013 ..................... 8,705 8,661,475
0.0%, 11-15-2003 ...................... 5,000 2,512,500
Series 1994A:
7.5%, 11-15-2006 ...................... 1,000 992,500
7.4%, 11-15-2005 ...................... 1,000 988,750
Morgan County, Colorado, Pollution Control
Refunding Revenue Bonds, 1993 Series A
(Public Service Company of Colorado
Project),
5.5%, 6-1-2012 ........................ 3,500 3,193,750
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
COLORADO (Continued)
Colorado Health Facilities Authority,
Revenue Bonds, Series 1994 (Sisters of
Charity Health Care Systems, Inc.),
5.25%, 5-15-2014 ...................... $ 2,000 $ 1,730,000
City of Aurora, Colorado, General
Obligation Water Refunding Bonds,
Series 1993,
4.75%, 11-1-2014 ...................... 2,000 1,602,500
The Poudre Valley Hospital District
Larimer County, Colorado, Hospital Revenue
Refunding Bonds, Series 1993,
4.85%, 12-1-2006 ...................... 1,720 1,543,700
Regional Transportation District (Colorado),
Weekly Adjustable/Fixed Rate, Special
Passenger Fare Revenue Bonds, Series 1989A,
3.65%, 6-1-99 ......................... 1,270 1,270,000
Total ................................. 34,882,313
CONNECTICUT - 0.59%
Eastern Connecticut Resource Recovery
Authority, Wheelabrator Technologies, Inc.,
5.5%, 1-1-2014 ........................ 6,750 5,619,375
DISTRICT OF COLUMBIA - 3.01%
Metropolitan Washington Airports Authority,
Airport System Revenue Bonds,
Series 1994A,
5.875%, 10-1-2015 ..................... 20,835 19,194,244
District of Columbia (Washington, D.C.),
University Revenue Bonds (The Howard
University Issue), Series 1990A,
7.25%, 10-1-2020 ...................... 5,000 5,368,750
Certificates of Participation, Series 1993,
Issued by Security Trust Company, N.A.,
7.3%, 1-1-2013 ........................ 4,000 4,040,000
Total ................................. 28,602,994
FLORIDA - 2.24%
Florida Municipal Power Agency, Stanton II
Project Refunding Revenue Bonds,
Series 1993,
4.5%, 10-1-2016 ....................... 10,600 8,082,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
FLORIDA (Continued)
Dade County, Florida, Aviation Facilities
Revenue Bonds, 1994 Series C,
6.125%, 10-1-2014 ..................... $ 5,590 $ 5,450,250
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.85%, 10-1-2009 ...................... 3,825 3,423,375
State of Florida, Full Faith and Credit,
State Board of Education, Public Education
Capital Outlay Bonds, 1992 Series E,
5.1%, 6-1-2014 ........................ 2,285 1,945,106
Orlando Utilities Commission, Water and
Electric Subordinated Revenue Refunding
Bonds, Series 1994A,
5.0%, 10-1-2012 ....................... 1,500 1,265,625
City of Gainesville, Florida, Utilities
System Revenue Bonds, 1992 Series A,
6.5%, 10-1-2012 ....................... 1,085 1,109,413
Total ................................. 21,276,269
GEORGIA - 5.35%
Municipal Electric Authority of Georgia:
Project One Special Obligation Bonds,
Fifth Crossover Series,
6.4%, 1-1-2013 ........................ 15,500 15,655,000
General Power Revenue Bonds, 1992B Series:
8.25%, 1-1-2011 ....................... 8,700 10,222,500
6.2%, 1-1-2010 ........................ 3,495 3,433,838
City of Atlanta, Airport Facilities
Revenue Bonds, Series 1990,
6.5%, 1-1-2013 ........................ 11,200 11,256,000
Fulton County School District (Georgia),
General Obligation Refunding Bonds,
Series 1991,
6.375%, 5-1-2010 ...................... 5,000 5,125,000
Development Authority of Monroe County (Georgia),
Pollution Control Revenue Bonds (Oglethorpe
Power Corporation Scherer Project),
Series 1992A,
6.75%, 1-1-2010 ....................... 4,000 4,155,000
Downtown Development Authority of the
City of Atlanta (Georgia), Refunding
Revenue Bonds (Underground Atlanta
Project), Series 1992,
6.25%, 10-1-2012 ...................... 1,000 990,000
Total ................................. 50,837,338
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
HAWAII - 2.56%
State of Hawaii, Airports System Revenue
Bonds, Second Series of 1991:
6.9%, 7-1-2012 ........................ $20,195 $ 20,775,606
7.0%, 7-1-2018 ........................ 3,495 3,547,425
Total ................................. 24,323,031
IDAHO - 0.74%
Idaho Health Facilities Authority, Hospital
Revenue Refunding Bonds, Series 1992
(IHC Hospitals, Inc.), Indexed Inverse
Floating/Fixed Term Bonds,
8.21%, 2-15-2021 ...................... 6,000 6,105,000
Southern Idaho Regional Solid Waste
District, Certificates of Participation,
Series 1993,
5.45%, 11-1-2013 ...................... 1,000 935,000
Total ................................. 7,040,000
ILLINOIS - 4.75%
City of Chicago, Chicago-O'Hare
International Airport:
General Airport Revenue Bonds,
1992 Series A:
6.0%, 1-1-2018 ........................ 7,000 6,405,000
6.0%, 1-1-2012 ........................ 5,000 4,656,250
General Airport Revenue Refunding
Bonds, 1993 Series A,
5.0%, 1-1-2016 ........................ 6,000 4,837,500
Village Of Sauget, Illinois, Variable
Rate Demand Pollution Control Revenue
Refunding Bonds (Monsanto Company
Project), Series 1993,
3.7%, 5-1-2028 ........................ 12,585 12,585,000
Illinois Health Facilities Authority
(Lutheran General HealthSystem):
Indexed Inverse Floating Rate,
Revenue Bonds, Series 1993B,
6.88%, 4-1-2014 ....................... 4,100 3,936,000
Revenue Refunding Bonds, Series 1993C,
7.0%, 4-1-2008 ........................ 2,000 2,107,500
Metropolitan Pier and Exposition Authority
(Illinois), McCormick Place Expansion
Project Bonds, Series 1992A,
8.5%, 6-15-2006 ....................... 5,000 5,962,500
Illinois Educational Facilities Authority,
Revenue Refunding Bonds, Loyola
University of Chicago, Series 1993B,
Structured Yield Curve Notes,
5.62%, 7-1-2014 ....................... 4,000 3,735,000
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ILLINOIS (Continued)
City of Chicago, Chicago Midway Airport
Revenue Bonds, 1994 Series A,
6.25%, 1-1-2014 ....................... $ 1,000 $ 971,250
Total ................................. 45,196,000
INDIANA - 2.52%
Indiana State Office Building Commission,
Capitol Complex Revenue Bonds:
Series 1990B (State Office Building
I Facility),
7.4%, 7-1-2015 ........................ 8,000 8,870,000
Series 1990A (Senate Avenue Parking Facility),
7.4%, 7-1-2015 ........................ 4,775 5,294,281
Indiana Transportation Finance Authority,
Highway Revenue Bonds, Series 1990A,
7.25%, 6-1-2015 ....................... 9,000 9,753,750
Total ................................. 23,918,031
IOWA - 0.90%
Muscatine County, Iowa, Variable Rate Demand
Pollution Control Revenue Refunding Bonds
(Monsanto Company Project), Series 1992,
Adjustable Rate Bond,
3.7%, 10-1-2007 ....................... 8,600 8,600,000
KANSAS - 1.73%
City of Shawnee, Kansas, Variable Rate
Demand Industrial Revenue Bonds, Series
December 1, 1984 (Shawnee Village
Associates Project),
3.8%, 12-1-2009 ....................... 4,000 4,000,000
Unified School District No. 233, Johnson
County, Kansas (Olathe), General
Obligation School Improvement and
Refunding Bonds, Series 1994,
5.625%, 9-1-2014 ...................... 3,880 3,579,300
State of Kansas, Department of
Transportation, Highway Revenue Bonds,
Series 1993,
5.375%, 3-1-2013 ...................... 3,000 2,707,500
Unified School District No. 345,
Shawnee County, Kansas (Seaman),
General Obligation Bonds, Series 1994:
5.5%, 9-1-2013 ........................ 1,345 1,237,400
5.5%, 9-1-2012 ........................ 1,270 1,177,925
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
KANSAS (Continued)
Unified School District No. 265, Sedgwick
County, Kansas (Goddard), General
Obligation School Building Bonds, Series 1994:
Serial Bonds,
5.75%, 10-1-2011 ...................... $ 1,135 $ 1,072,575
Term Bonds,
5.5%, 10-1-2013 ....................... 1,185 1,082,794
Sedgwick County, Kansas and Shawnee County,
Kansas, Collateralized Single Family
Mortgage Revenue Bonds (GNMA Certificates),
Series 1994A-II,
8.05%, 5-1-2024 ....................... 1,500 1,595,625
Total ................................. 16,453,119
KENTUCKY - 0.19%
Kentucky Housing Corporation, Housing
Revenue Bonds, 1993 Series B,
5.4%, 7-1-2014 ........................ 2,000 1,765,000
LOUISIANA - 1.34%
Memorial Hospital Service District of the
Parish of Calcasieu, State of Louisiana,
Hospital Revenue Bonds (Lake Charles
Memorial Hospital Project), Series 1993,
Adjustable Rate Bond,
3.85%, 12-1-2018 (A) .................. 12,775 12,775,000
MARYLAND - 0.94%
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds (Montgomery
County Resource Recovery Project),
Series 1993A:
6.0%, 7-1-2006 ........................ 7,170 6,954,900
6.2%, 7-1-2010 ........................ 2,080 1,983,800
Total ................................. 8,938,700
MASSACHUSETTS - 6.71%
Massachusetts Water Resources Authority:
General Revenue Bonds:
1992 Series B,
5.5%, 11-1-2015 ....................... 12,135 10,693,969
1992 Series A,
6.5%, 7-15-2019 ....................... 6,740 6,765,275
General Revenue Refunding Bonds,
1993 Series B,
5.25%, 3-1-2013 ....................... 5,000 4,331,250
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MASSACHUSETTS (Continued)
Massachusetts Bay Transportation Authority,
General Transportation System Bonds:
1992 Series C,
6.1%, 3-1-2013 ........................ 11,000 10,628,750
1992 Series B Refunding,
6.2%, 3-1-2016 ........................ $10,300 $ 9,978,125
City of Boston, Massachusetts, Industrial
Development Financing Authority, Sewage
Facility Revenue Bonds (Harbor Electric
Energy Company Project), 1991 Series,
7.375%, 5-15-2015 ..................... 6,900 7,193,250
Town of Agawam, Massachusetts, Resource
Recovery Revenue Bonds (Springfield
Resource Recovery Project),
1986 Series,
8.5%, 12-1-2008 ....................... 4,150 4,430,125
The Commonwealth of Massachusetts,
General Obligation Refunding Bonds,
1992 Series B,
6.5%, 8-1-2008 ........................ 3,115 3,220,131
Massachusetts Municipal Wholesale
Electric Company, Power Supply System
Revenue Bonds, 1992 Series B,
6.75%, 7-1-2017 ....................... 2,680 2,686,700
Boston Water and Sewer Commission,
General Revenue Bonds, 1992 Series A
(Senior Series),
5.75%, 11-1-2013 ...................... 1,575 1,464,750
City of Boston, Massachusetts, General
Obligation Bonds, 1994 Series B,
5.875%, 8-1-2012 ...................... 1,490 1,434,125
Massachusetts Industrial Finance Agency,
Pollution Control Revenue Refunding
Bonds, 1993 Series (Eastern Edison
Company Project),
5.875%, 8-1-2008 ...................... 1,000 937,500
Total ................................. 63,763,950
MICHIGAN - 4.54%
Michigan Strategic Fund, Limited Obligation
Refunding Revenue Bonds (The Detroit Edison
Company Pollution Control Bonds Project),
Collateralized Series 1991 AA,
6.95%, 5-1-2011 ....................... 9,000 9,607,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MICHIGAN (Continued)
Charter County of Wayne, Michigan, Detroit
Metropolitan Wayne County Airport:
Series 1993B,
5.25%, 12-1-2013 ...................... $ 7,340 $ 6,294,050
Series 1993A,
5.25%, 12-1-2013 ...................... 2,750 2,358,125
State Building Authority, State of Michigan,
1993 Revenue Refunding Bonds, Series I,
5.3%, 10-1-2016 ....................... 10,000 8,625,000
School District of the City of Detroit,
Wayne County, Michigan, School Building
and Site Improvement and Refunding Bonds
(Unlimited Tax General Obligation),
Series 1993:
5.4%, 5-1-2013 ........................ 4,000 3,495,000
5.0%, 5-1-2011 ........................ 1,885 1,592,825
The Economic Development Corporation of
the City of Detroit, Resource Recovery
Revenue Bonds, Series 1991A,
6.875%, 5-1-2009 ...................... 3,765 3,920,306
Michigan State Hospital Finance Authority:
Hospital Revenue Refunding Bonds
(McLaren Obligated Group),
Series 1993A,
5.375%, 10-15-2013 .................... 3,130 2,664,413
Hospital Revenue Bonds (Holland Community
Hospital), Series 1993,
5.25%, 1-1-2010 ....................... 1,200 1,032,000
Regents of the University of Michigan,
Hospital Revenue Refunding Bonds,
Series 1993A,
5.75%, 12-1-2012 ...................... 2,000 1,862,500
City of Detroit, Michigan, Convention
Facility Limited Tax Revenue Refunding
Bonds (Cobo Hall Expansion Project),
Series 1993,
5.25%, 9-30-2012 ...................... 2,000 1,710,000
Total ................................. 43,161,719
MINNESOTA - 0.47%
City of Rochester, Minnesota, Health
Care Facilities Revenue Bonds (Mayo
Foundation/Mayo Medical Center),
Series 1992D, Indexed Inverse
Floating/Fixed Term Bonds,
7.7%, 11-15-2009 ...................... 4,500 4,455,000
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MISSISSIPPI - 1.34%
Lowndes County, Mississippi, Solid Waste
Disposal and Pollution Control
Refunding Revenue Bonds (Weyerhaeuser
Company Project), Series 1992B, Indexed
Inverse Floating/Fixed Term Bonds,
8.21%, 4-1-2022 ....................... $11,000 $ 11,137,500
Mississippi Home Corporation, Single Family
Mortgage Revenue Bonds (Access Program),
Series 1994D,
8.1%, 12-1-2024 ....................... 1,500 1,631,250
Total ................................. 12,768,750
MISSOURI - 1.83%
St. Louis County, Missouri, Regional
Convention and Sports Complex Authority,
Convention and Sports Facility Project
and Refunding Bonds, Series B 1993:
5.6%, 8-15-2008 ....................... 2,130 1,940,963
5.25%, 8-15-2005 ...................... 1,295 1,186,544
5.5%, 8-15-2007 ....................... 1,270 1,157,288
School District of Kansas City, Missouri,
Building Corporation, Insured Leasehold
Revenue Bonds, Series 1993 (The School
District of Kansas City, Missouri,
Capital Improvements Project),
5.0%, 2-1-2014 ........................ 5,000 4,237,500
Missouri Economic Development, Export
and Infrastructure Board, Lease Revenue
Bonds:
Missouri Department of Social Service
Office Facility, Series 1992,
6.3%, 12-1-2008 ....................... 2,000 2,032,500
Missouri Division of Professional
Registration Office Building,
Series 1992,
6.3%, 12-1-2008 ....................... 1,000 1,021,250
Health and Education Facilities Authority
of the State of Missouri, Health Facilities
Revenue Bonds (Health Midwest), Menorah
Medical Center,
6.25%, 6-1-2014 ....................... 2,500 2,462,500
State of Missouri, Certificates of
Participation (Acute Care Psychiatric
Hospital Project), Series A 1994,
5.625%, 10-15-2014 .................... 2,200 1,996,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MISSOURI (Continued)
Missouri Higher Education Loan Authority
(A Public Instrumentality and Body
Corporate and Politic of the State of
Missouri), Student Loan Revenue Bonds,
Subordinate Series 1994A,
5.45%, 2-15-2009 ...................... $ 1,500 $ 1,365,000
Total ................................. 17,400,045
MONTANA - 0.23%
Anaconda-Deer Lodge County, Montana,
Solid Waste Facility Revenue Bonds
(ARCO-Anaconda Smelter Site Project),
Series 1992,
6.375%, 10-1-2016 ..................... 2,250 2,162,813
NEVADA - 0.15%
Nevada Housing Division, Single Family
Program Senior Bonds, 1993 Issue C,
5.85%, 10-1-2015 ...................... 1,575 1,447,031
NEW JERSEY - 2.26%
Pollution Control Financing Authority
of Camden County (Camden County, New
Jersey), Solid Waste Disposal and
Resource Recovery System Revenue Bonds:
Series B,
7.5%, 12-1-2009 ....................... 6,775 6,758,063
Series A,
7.5%, 12-1-2010 ....................... 5,500 5,458,750
New Jersey Economic Development Authority,
Revenue Bonds, (RWJ Health Care Corp. at
Hamilton Obligated Group Project),
Series 1994,
6.25%, 7-1-2011 ....................... 4,950 4,875,750
Middlesex County Utilities Authority,
Sewer Revenue Refunding Bonds, Series
1992A, Indexed Inverse Floating/Fixed
Term Bonds,
7.35%, 8-15-2010 ...................... 3,000 2,985,000
New Jersey Health Care Facilities Financing
Authority, Revenue Bonds, St. Clares
Riverside Medical Center Obligated
Group Issue, Series 1994,
5.75%, 7-1-2010 ....................... 1,515 1,446,825
Total ................................. 21,524,388
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW MEXICO - 0.94%
New Mexico Educational Assistance
Foundation, Student Loan Purchase Bonds:
Senior 1995 Series IV-A1,
7.05%, 3-1-2010 (B) ................... $ 6,485 $ 6,379,619
1994 Series II-B,
5.75%, 12-1-2008 ...................... 1,750 1,612,188
City of Santa Fe, New Mexico, Revenue
Bonds, Series 1994A,
6.25%, 6-1-2015 ....................... 1,000 985,000
Total ................................. 8,976,807
NEW YORK - 10.99%
The City of New York, General Obligation
Bonds:
Fiscal 1993 Series B,
7.0%, 10-1-2011 ....................... 15,000 15,581,250
Fiscal 1993 Series A,
6.375%, 8-1-2007 ...................... 6,000 5,835,000
Fiscal 1993 Series H,
7.0%, 2-1-2022 ........................ 3,000 3,172,500
Fiscal 1994 Series G,
5.6%, 8-1-2006 ........................ 3,400 3,115,250
New York City Municipal Water Finance
Authority, Water and Sewer System
Revenue Bonds:
Fiscal 1993 Series A:
6.0%, 6-15-2010 ....................... 12,000 11,715,000
6.0%, 6-15-2009 ....................... 6,500 6,386,250
Fiscal 1994 Series F,
5.5%, 6-15-2015 ....................... 4,000 3,575,000
Fiscal 1994 Series B,
5.375%, 6-15-2007 ..................... 1,750 1,610,000
New York State Environmental Facilities
Corporation, State Water Pollution
Control, Revolving Fund Revenue Bonds,
Series 1994 A (New York City Municipal
Water Finance Authority Project)
(Second Resolution Bonds):
5.75%, 6-15-2012 ...................... 10,000 9,475,000
5.75%, 6-15-2011 ...................... 5,000 4,768,750
New York State Medical Care Facilities,
Finance Agency Mental Health Services
Facilities, Improvement Revenue Bonds,
1993 Series F Refunding,
5.375%, 2-15-2014 ..................... 12,000 10,440,000
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW YORK (Continued)
Metropolitan Transportation Authority,
Transit Facilities Revenue Bonds,
Series I,
7.0%, 7-1-2009 ........................ $ 9,000 $ 9,798,750
Dormitory Authority of the State
of New York:
City University Refunding Bonds,
5.875%, 5-15-2011...................... 4,655 4,486,256
State University Educational Facilities,
Revenue Bonds, Series 1993B:
7.5%, 5-15-2011 ....................... 2,000 2,215,000
5.5%, 5-15-2008 ....................... 1,000 896,250
Triborough Bridge and Tunnel Authority,
General Purpose Revenue Bonds,
Series Q,
6.75%, 1-1-2009 ....................... 4,700 4,958,500
New York State Urban Development Corporation,
Correctional Capital Facilities Revenue
Bonds, 1993A Refunding Series,
5.5%, 1-1-2014......................... 4,000 3,505,000
New York Local Government Assistance
Corporation (A Public Benefit Corporation
of the State of New York),
Series 1993D Bonds,
5.375%, 4-1-2014 ...................... 2,370 2,076,713
New York State Thruway Authority, Local
Highway and Bridge Service Contract
Bonds, Series 1994,
5.75%, 4-1-2013 ....................... 1,000 940,000
Total ................................. 104,550,469
NORTH CAROLINA - 4.54%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds:
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ 30,000 31,950,000
Refunding Series 1993 C,
7.0%, 1-1-2013 ........................ 3,500 3,596,250
North Carolina Municipal Power Agency
Number 1, Catawba Electric Revenue Bonds,
Series 1992,
5.75%, 1-1-2015 ....................... 5,000 4,612,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NORTH CAROLINA (Continued)
Person County, North Carolina, Industrial
Facility and Pollution Control Finance
Authority, Revenue Solid Waste Disposal
Bonds, Series 1986,
2.65%, 11-1-2016....................... $ 3,000 $ 3,000,000
Total.................................. 43,158,750
OHIO - 2.22%
Toledo-Lucas County Port Authority, Port
Facilities Refunding Revenue Bonds,
Series 1993 (Cargill, Incorporated Project),
5.9%, 12-1-2015 ....................... 5,145 4,771,988
City of Cleveland, Ohio, Airport
System Improvement Revenue Bonds,
Series 1994A,
5.75%, 1-1-2015 ....................... 4,700 4,318,125
Hamilton County, Ohio, Sewer System
Improvement and Refunding Revenue
Bonds, 1993 Series A (The Metropolitan
Sewer District of Greater Cincinnati),
5.0%, 12-1-2014 ....................... 4,500 3,825,000
1993 Beneficial Interest Certificates
(Belleville Hydroelectric Project),
Ohio Municipal Electric Generation
Agency Joint Venture 5,
5.375%, 2-15-2013 ..................... 2,750 2,461,250
State of Ohio, Ohio Air Quality Development
Authority, Air Quality Development Revenue
Refunding Bonds (JMG Funding, Limited
Partnership Project), Series 1994,
6.375%, 1-1-2029 ...................... 2,500 2,431,250
County of Montgomery, Ohio, Water Revenue
Refunding Bonds, Greater Moraine-BeaverCreek
Sewer District, Series 1993,
5.3%, 11-15-2007 ...................... 1,890 1,786,050
City of Moraine, Ohio, Solid Waste Disposal
Revenue Bonds (General Motors Corporation
Project), Series 1994,
6.75%, 7-1-2014 ....................... 1,550 1,546,125
Total ................................. 21,139,788
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA - 0.55%
Trustees of the Tulsa Municipal Airport
Trust, Revenue Bonds, Series 1985,
9.5%, 6-1-2020......................... $ 5,000 $ 5,275,000
OREGON - 0.25%
State of Oregon, Housing and Community
Services Department, Mortgage Revenue
Bonds, Single-Family Mortgage Program,
1992 Series C,
5.5%, 7-1-2013 ........................ 1,500 1,359,375
City of Portland, Oregon, Sewer System
Revenue Bonds, 1994 Series A,
6.2%, 6-1-2012 ........................ 1,000 981,250
Total ................................. 2,340,625
PENNSYLVANIA - 1.78%
Certificates of Participation, Series
1993A, Commonwealth of Pennsylvania,
Fixed Rate Certificates,
5.4%, 7-1-2008 ........................ 5,000 4,618,750
Washington County Hospital Authority
(Commonwealth of Pennsylvania), Hospital
Revenue Bonds, Series of 1993 (The
Washington Hospital Project),
5.5%, 7-1-2012 ........................ 5,000 4,518,750
The Hospitals and Higher Education
Facilities Authority of Philadelphia,
Refunding Revenue Bonds, Saint Agnes
Medical Center Project (FHA Insured
Mortgage), Series 1991,
7.25%, 8-15-2031 ...................... 3,750 3,932,813
Montgomery County Industrial Development
Authority (Pennsylvania), Resource
Recovery Revenue Bonds (Montgomery
County Project), Series 1989,
7.5%, 1-1-2012 ........................ 3,750 3,871,875
Total ................................. 16,942,188
RHODE ISLAND - 0.09%
Rhode Island Port Authority and Economic
Development Corporation, Airport Revenue
Bonds, 1993 Series A,
5.125%, 7-1-2009 ...................... 1,000 862,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
SOUTH CAROLINA - 1.56%
Calhoun County, South Carolina, Solid
Waste Disposal Facilities Revenue Bonds
(Eastman Kodak Company Project),
Series 1992,
6.75%, 5-1-2017 ....................... $10,895 $ 11,126,519
South Carolina State Education
Assistance Authority, Guaranteed Student
Loan Revenue and Refunding Bonds,
1993 Series,
5.55%, 9-1-2008 ....................... 4,000 3,700,000
Total ................................. 14,826,519
TENNESSEE - 1.15%
Tennessee Housing Development Agency,
Mortgage Finance Program Bonds:
1993 Series A,
5.85%, 7-1-2013 ....................... 4,820 4,542,850
1994 Series B,
6.45%, 7-1-2014 ....................... 3,015 2,969,775
Memphis-Shelby County Airport Authority,
Airport Revenue Refunding Bonds,
Series 1993B,
6.5%, 2-15-2009 ....................... 3,335 3,393,363
Total ................................. 10,905,988
TEXAS - 4.99%
Harris County, Texas, Toll Road Senior Lein
Revenue Refunding Bonds, Series 1994,
5.0%, 8-15-2016 ....................... 8,900 7,286,875
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1991 (American Airlines, Inc.
Project),
7.0%, 12-1-2011 ....................... 6,850 6,541,750
Lubbock Health Facilities Development
Corporation, Hospital Revenue Bonds
(Methodist Hospital, Lubbock, Texas
Project),
6.75%, 12-1-2010 ...................... 5,000 5,212,500
Harris County Health Facilities Development
Corporation, Hospital Revenue Bonds
(St. Luke's Episcopal Hospital Project),
Series 1991A,
6.75%, 2-15-2021 ...................... 5,000 5,137,500
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TEXAS (Continued)
Port of Corpus Christi, Authority of
Nueces County, Texas, Pollution Control
Revenue Bonds (Hoechst Celanese Corporation
Project), Series 1992,
6.875%, 4-1-2017 ...................... $ 4,500 $ 4,640,625
Texas National Research Laboratory Commission
Financing Corporation, Lease Revenue
Bonds, Series 1991 (Superconducting
Super Collider Project),
6.75%, 12-1-2004 ...................... 3,945 3,999,244
Gulf Coast Waste Disposal Authority,
Solid Waste Disposal Revenue Refunding
Bonds, Series 1994 (The Quaker Oats
Company Project),
3.7%, 4-1-2013 ........................ 3,950 3,950,000
City of Houston, Texas, Water Conveyance
System Contract, Certificates of
Participation:
Series 1993F,
7.2%, 12-15-2007 ...................... 1,500 1,655,625
Series 1993B,
7.0%, 12-15-2007 ...................... 1,000 1,085,000
Series 1993C,
7.0%, 12-15-2007 ...................... 1,000 1,085,000
Brazos River Authority (Texas), Variable
Rate Demand Pollution Control Revenue
Refunding Bonds (Monsanto Company Project),
Series 1994, Adjustable Rate Bond,
3.7%, 2-1-2004......................... 2,575 2,575,000
Brenham Independent School District,
(Washington and Austin Counties,
Texas), Unlimited Tax School Building
Bonds, Series 1994,
5.25%, 2-15-2013 ...................... 1,920 1,687,200
Metro Health Facilities Development
Corporation (Sherman, Texas), Hospital
Revenue Bonds (The Wilson N. Jones
Memorial Hospital), Series 1993,
5.5%, 1-1-2012 ........................ 1,500 1,325,625
Texas Public Finance Authority, Texas
State Technical College System, Building
Revenue and Refunding Revenue Bonds,
Series 1992,
6.25%, 8-1-2009 ....................... 1,250 1,250,000
Total ................................. 47,431,944
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
UTAH - 0.10%
Utah Housing Finance Agency, Single Family
Mortgage Subordinate Bonds, 1993 Issue B,
5.7%, 7-1-2013 ........................ $ 1,000 $ 907,500
VIRGINIA - 1.85%
Upper Occoquan Sewage Authority (Virginia),
Regional Sewerage System Revenue
Refunding Bonds, Series of 1993,
5.0%, 7-1-2015 ........................ 9,000 7,492,500
Virginia Education Loan Authority (A
Political Subdivision of the Commonwealth
of Virginia), Student Loan Program
Revenue Bonds, Series C Bonds,
5.75%, 9-1-2010 ....................... 6,660 6,185,475
Southeastern Public Service Authority of
Virginia:
Senior Revenue Bonds, Series 1993 (Regional
Solid Waste System),
5.95%, 7-1-2009 ....................... 1,500 1,404,375
Senior Revenue Refunding Bonds,
Series 1993A (Regional Solid Waste System),
5.125%, 7-1-2013....................... 1,000 858,750
City of Chesapeake, Virginia, Water
and Sewer System Revenue Refunding
Bonds, Series of 1994,
5.1%, 5-1-2014 ........................ 2,000 1,680,000
Total ................................. 17,621,100
WASHINGTON - 7.73%
Washington Public Power Supply System:
Nuclear Project No. 3, Refunding Revenue
Bonds, Series 1989B,
7.125%, 7-1-2016 ...................... 20,750 21,969,063
Nuclear Project No. 1, Refunding Revenue
Bonds:
Series 1989B,
7.125%, 7-1-2016 ...................... 8,200 8,681,750
Series 1990B,
7.25%, 7-1-2009 ....................... 3,055 3,295,581
Nuclear Project No. 3, Refunding Revenue
Bonds, Series 1993C,
5.375%, 7-1-2015 ...................... 11,000 9,308,750
Nuclear Project No. 2, Refunding Revenue
Bonds, Series 1990A,
7.25%, 7-1-2006 ....................... 6,475 7,049,656
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WASHINGTON (Continued)
Public Utility District No. 1 of
Snohomish County, Washington, Generation
System Revenue Bonds, Series 1993B,
5.7%, 1-1-2014 ........................ $ 6,500 $ 5,825,625
State of Washington, Various Purpose General
Obligation Bonds, Series 1990A,
6.75%, 2-1-2015 ....................... 4,995 5,232,263
Washington Health Care Facilities Authority,
Revenue Bonds:
Refunding Series 1993 (Franciscan
Health System/St. Joseph Hospital
and Health Care Center, Tacoma),
5.5%, 1-1-2009 ........................ 2,785 2,572,644
Series 1993
(Highline Community Hospital, Seattle),
5.5%, 8-15-2014 ....................... 1,500 1,310,625
Public Utility District No. 1 of Chelan
County, Washington, Chelan Hydro
Consolidated System Revenue Bonds,
Series 1993E:
5.7%, 7-1-2009 ........................ 2,630 2,439,325
5.7%, 7-1-2008 ........................ 1,500 1,411,875
Industrial Development Corporation of the
Port of Longview (Washington), Solid
Waste Disposal Revenue Bonds (Weyerhaeuser
Company Project), Series 1992,
6.875%, 10-1-2008 ..................... 2,250 2,354,063
Port of Seattle, Washington, Revenue Bonds,
Series 1992B,
6.7%, 11-1-2010 ...................... 2,000 2,025,000
Total ................................. 73,476,220
WISCONSIN - 0.38%
Wisconsin Housing and Economic Development
Authority, Home Ownership Revenue Bonds,
1990 Series E,
8.0%, 3-1-2021 ........................ 3,500 3,661,875
WYOMING - 0.24%
Wyoming Community Development Authority,
Single Family Mortgage Bonds (Federally
Insured or Guaranteed Mortgage Loans),
6.875%, 6-1-2014 ...................... 2,210 2,259,725
TOTAL MUNICIPAL BONDS - 100.21% $952,911,454
(Cost: $963,634,552)
TOTAL SHORT-TERM SECURITIES - 0.89% $ 8,496,060
(Cost: $8,496,060)
See Notes to Schedule of Investments on page 39.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL BOND FUND, INC.
SEPTEMBER 30, 1994
Value
TOTAL INVESTMENT SECURITIES - 101.10% $961,407,514
(Cost: $972,130,612)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.10%) (10,455,186)
NET ASSETS - 100.00% $950,952,328
Notes to Schedule of Investments
(A) A portion of this security has been designated as collateral for the
delayed delivery security.
(B) Delayed delivery security.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
Assets
Investment securities-at value
(Notes 1 and 3) ............................... $961,407,514
Cash ........................................... 11,341
Receivables:
Interest ...................................... 17,099,519
Investment securities sold .................... 8,275,597
Fund shares sold .............................. 675,055
Prepaid insurance premium ...................... 37,752
------------
Total assets ................................ 987,506,778
------------
Liabilities
Payable for investment securities purchased .... 33,854,357
Payable for Fund shares redeemed ............... 2,426,575
Accrued service fee ............................ 181,043
Accrued transfer agency and dividend disbursing 52,912
Accrued accounting services fee ................ 7,083
Other .......................................... 32,480
------------
Total liabilities ........................... 36,554,450
------------
Total net assets ........................... $950,952,328
============
Net Assets
$1.00 par value capital stock, authorized --
400,000,000; shares outstanding -- 137,671,566
Capital stock ................................. $137,671,566
Additional paid-in capital .................... 818,298,915
Accumulated undistributed income:
Accumulated undistributed net investment
income ...................................... 1,055,699
Accumulated undistributed net realized gain on
investment transactions ..................... 4,649,246
Net unrealized depreciation in value of
investments at end of period ................ (10,723,098)
------------
Net assets applicable to outstanding units
of capital ................................. $950,952,328
============
Net asset value per share (net assets divided by
shares outstanding) ............................ $6.91
Sales load (offering price x 4.25%)............... .31
-----
Offering price per share (net asset value divided
by 95.75%) ...................................... $7.22
=====
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1994
Investment Income
Interest (taxable portion - $472,638) ............ $ 58,917,247
------------
Expenses (Note 2):
Investment management fee ....................... 4,531,669
Service fee ..................................... 880,375
Transfer agency and dividend disbursing ......... 691,710
Accounting services fee ......................... 92,500
Custodian fees .................................. 56,835
Audit fees ...................................... 43,551
Legal fees ...................................... 19,213
Other ........................................... 199,601
------------
Total expenses ................................ 6,515,454
------------
Net investment income ........................ 52,401,793
------------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 11,348,538
Realized net gain on futures contracts closed .... 2,185,781
Realized net gain on put options purchased ........ 584,370
------------
Net realized gain on investments ................ 14,118,689
Unrealized depreciation in value of securities
during the period................................ (107,526,858)
------------
Net loss on investments ....................... (93,408,169)
------------
Net decrease in net assets resulting
from operations ............................ $(41,006,376)
============
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
September 30,
--------------------------------
1994 1993
-------------- --------------
Increase (Decrease) in Net Assets
Operations:
Net investment income.............. $ 52,401,793 $ 51,933,369
Realized net gain on investments... 14,118,689 26,630,314
Unrealized appreciation
(depreciation) .................. (107,526,858) 57,525,709
-------------- --------------
Net increase (decrease) in net
assets resulting from
operations ..................... (41,006,376) 136,089,392
-------------- --------------
Dividends to shareholders from:*
Net investment income ............. (52,309,180) (51,122,560)
Realized gains on securities
transactions .................... (34,570,958) (27,984,514)
-------------- --------------
(86,880,138) (79,107,074)
-------------- --------------
Capital share transactions:
Proceeds from sale of shares
(9,645,029 and 16,974,075
shares, respectively) .......... 71,488,819 127,188,027
Proceeds from reinvestment of
dividends and/or capital gains
distribution (10,027,100 and
8,990,841 shares, respectively) .. 73,910,210 66,136,852
Payments for shares redeemed
(16,830,264 and 11,337,453
shares, respectively) ........... (121,994,288) (84,877,211)
-------------- --------------
Net increase in net assets
resulting from capital
share transactions ............. 23,404,741 108,447,668
-------------- --------------
Total increase (decrease) ...... (104,481,773) 165,429,986
Net Assets
Beginning of period ................ 1,055,434,101 890,004,115
-------------- --------------
End of period, including
undistributed net investment
income of $1,055,699 and
$963,086, respectively ............$ 950,952,328 $1,055,434,101
============== ==============
*See "Financial Highlights" on page 43.
See notes to financial statements.
<PAGE>
United Municipal Bond Fund, Inc.
FINANCIAL HIGHLIGHTS
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP.
<TABLE>
<CAPTION>
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended September 30,
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period $7.83 $7.40 $7.18 $6.66 $7.07 $6.91 $6.29 $7.67 $6.65 $6.06
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income .38 .41 .43 .45 .47 .49 .48 .49 .55 .57
Net realized and
unrealized gain
(loss) on
investments (0.67) .65 .35 .52 (0.16) .22 .62 (0.70) 1.22 .59
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations (0.29) 1.06 .78 .97 .31 .71 1.10 (0.21) 1.77 1.16
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income (0.38) (0.40) (0.43) (0.45) (0.49) (0.48) (0.48) (0.48) (0.56) (0.57)
Distributions from
capital gains (0.25) (0.23) (0.13) 0.00 (0.23) (0.07) 0.00 (0.69) (0.19) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.63) (0.63) (0.56) (0.45) (0.72) (0.55) (0.48) (1.17) (0.75) (0.57)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $6.91 $7.83 $7.40 $7.18 $6.66 $7.07 $6.91 $6.29 $7.67 $6.65
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* -3.91% 15.15% 11.41% 14.97% 4.46% 10.74% 18.07% -3.50% 28.19% 19.87%
Net assets, end of
period (000
omitted) $950,952$1,055,434$890,004$769,122$648,546$594,733$477,479$413,163$402,445$279,700
Ratio of expenses
to average
net assets 0.64% 0.56% 0.57% 0.57% 0.57% 0.57% 0.58% 0.58% 0.61% 0.65%
Ratio of net investment
income to average
net assets 5.17% 5.38% 5.92% 6.47% 6.82% 6.98% 7.32% 6.98% 7.54% 8.68%
Portfolio
turnover rate 62.61% 94.51% 125.44% 144.36% 181.25% 226.41% 225.49% 216.82% 250.00% 328.36%
*Total return calculated without taking into account the sales load deducted on an
initial purchase.
Note: During the fiscal periods ended September 30, 1993, 1992, 1991, 1990, 1989,
1988, 1987, 1986 and 1985, 62.53%, 76.13%, 97.45%, 66.46%, 84.53%, 98.05%,
40.77%, 73.57% and 97.11% , respectively, of the dividends paid were exempt from
Federal income tax.
</TABLE>
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 -- Significant Accounting Policies
United Municipal Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Municipal bonds and the taxable obligations in the
Fund's investment portfolio are not listed or traded on any securities
exchange. Therefore, municipal bonds are valued using prices quoted by
Muller and Company, a dealer in bonds which offers a pricing service.
Short-term debt securities, whether taxable or nontaxable, are valued at
amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined by the Internal
Revenue Code) and premiums on the purchase of bonds are amortized for both
financial and tax reporting purposes over the remaining lives of the bonds.
Interest income is recorded on the accrual basis. See Note 3 -- Investment
Security Transactions.
C. Federal income taxes -- The Fund intends to distribute all of its net
investment income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue Code.
The Fund intends to pay distributions as required to avoid imposition of
excise tax. Accordingly, provision has not been made for Federal income
taxes. In addition, the Fund intends to meet requirements of the Internal
Revenue Code which will permit it to pay dividends from net investment
income, substantially all of which will be exempt from Federal income tax.
See Note 4 -- Federal Income Tax Matters.
D. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. During the period ended
September 30, 1994, the Fund adopted Statement of Position 93-2
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
Accordingly, permanent book and tax basis differences relating to future
shareholder distributions have been reclassified to additional paid-in
capital. As of October 1, 1993, the cumulative effect of such differences
totaling $1,250 was reclassified from accumulated undistributed net
realized gain on investment transactions to additional paid-in capital.
Net investment income, net realized gains and net assets were not affected
by this change.
E. Futures -- See Note 5 -- Futures.
F. Options -- See Note 6 -- Options.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .03% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $11.2 billion of
combined net assets at September 30, 1994) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month, plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Fund also reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$2,263,180, out of which W&R paid sales commissions of $1,279,436 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to W&R in an
amount not to exceed .25% of the Fund's average annual net assets. The fee is
to be paid to reimburse W&R for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Fund paid Directors' fees of $37,992.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $653,614,418 while proceeds from maturities and
sales aggregated $620,183,098. Purchases of options aggregated $996,880 while
proceeds aggregated $1,581,250. Purchases of short-term securities aggregated
$603,243,596 while proceeds from maturities and sales aggregated $606,808,035.
No U.S. Government securities were bought or sold during the period ended
September 30, 1994.
For Federal income tax purposes, cost of investments owned at September 30,
1994 was $972,643,339, resulting in net unrealized depreciation of $11,235,825,
of which $10,011,427 related to appreciated securities and $21,247,252 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $7,957,589 during the year ended September 30, 1994, of which a portion was
paid to shareholders during the period ended September 30, 1994. Remaining net
capital gains will be distributed to the Fund's shareholders.
NOTE 5 -- Futures
The Fund may engage in buying and selling interest rate futures contracts,
but only Debt Futures and Municipal Bond Index Futures. Upon entering into a
futures contract, the Fund is required to deposit, in a segregated account, an
amount of cash or U.S. Treasury Bills equal to a varying specified percentage of
the contract amount. This amount is known as the initial margin. Subsequent
payments ("variation margins") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying debt security
or index. These changes in the variation margins are recorded by the Fund as
unrealized gains or losses. Upon the closing of the contracts, the cumulative
net change in the variation margin is recorded as realized gain or loss.
NOTE 6 -- Options
Options purchased by the Fund are accounted for in the same manner as
marketable portfolio securities. The cost of portfolio securities acquired
through the exercise of call options is increased by the premium paid to
purchase the call. The proceeds from securities sold through the exercise of
put options are decreased by the premium paid to purchase the put.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Municipal Bond Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Municipal Bond Fund, Inc.
(the "Fund") at September 30, 1994, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1994 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
October 31, 1994
<PAGE>
United Municipal Bond 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 66201-9217
Kirkpatrick & Lockhart (913) 236-2000
1800 M Street, N. W.
Washington, D. C. Shareholder Servicing Agent
Waddell & Reed Services Company
Independent Accountants 6300 Lamar Avenue
Price Waterhouse LLP P. O. Box 29217
Kansas City, Missouri Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Investment Manager
Waddell & Reed Investment Accounting Services Agent
Management Company Waddell & Reed Services Company
6300 Lamar Avenue 6300 Lamar Avenue
P. O. Box 29217 P. O. Box 29217
Shawnee Mission, Kansas 66201-9217 Shawnee Mission, Kansas 66201-9217
(913) 236-2000 (913) 236-2000
<PAGE>
United Municipal Bond Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROSPECTUS
December 31, 199 4
The United Group of Mutual Funds
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
TABLE OF CONTENTS
Summary of Expenses ..... 2
Financial Highlights .... 3
What is United Municipal
Bond Fund, Inc.? ...... 4
Performance Information.. 4
Goal and Investment Policies
of the Fund .......... 5
Risk Factors of
High-Yield Investing . 8
Management and Services .10
Dividends, Distributions
and Taxes ............12
Purchase of Shares ......13
Redemption ..............15
Appendix A ..............16
Financial Statements ....20
NUP1(12-94)
printed on recycled paper
<PAGE>
UNITED MUNICIPAL BOND FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
December 31, 199 4
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus (the
"Prospectus") of United Municipal Bond Fund, Inc. (the "Fund"), dated December
31, 199 4 , which may be obtained from the Fund or its Underwriter, Waddell
& Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ............................ 2
Investment Objective and Policies .................. 4
Investment Management and Other Services ........... 22
Purchase, Redemption and Pricing of Shares ......... 26
Directors and Officers ............................. 37
Payments to Shareholders ........................... 41
Taxes .............................................. 42
Portfolio Transactions and Brokerage ............... 44
Other Information .................................. 46
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund, may from time to
time publish the Fund's total return information, yield information and/or
performance rankings in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Standardized total return information is calculated by assuming an initial
$1,000 investment from which the maximum sales load of 4.25% is deducted. All
dividends and distributions are assumed to be reinvested at net asset value as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions. The formula used to calculate the total
return is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented and it may
not reflect the sales charge. For example, the Fund may also compute total
return without deduction of the sales load in which case the same formula noted
above will be used but the entire amount of the $1,000 initial payment will be
assumed to have been invested. If the sales charge were reflected, it would
reduce the performance quoted.
The average annual total return quotations as of September 30, 199 4 ,
which is the most recent balance sheet included in the Prospectus, for the
periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from October 1, 199 3 to
September 30, 199 4 : -8.00%-3.91%
Five-year period from October 1, 198 9 to
September 30, 199 4 : 7.22%8.16%
Ten-year period from October 1, 198 4 to
September 30, 199 4 : 10.64% 11.12%
The Fund may also quote unaveraged or cumulative total return which
reflects the change in value of an investment over a stated period of time.
Cumulative total returns will be calculated according to the formula indicated
above but without averaging the rate for the number of years in the period.
Yield
A yield quoted for the Fund 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.
The yield computed according to the formula for the 30-day period ended on
September 30, 199 4 , the date of the most recent balance sheet included in
the Prospectus, is 5.50 %.
The Fund may also advertise or include in sales material its tax equivalent
yield, which is calculated by applying the stated income tax rate to only the
net investment income exempt from taxation according to a standard formula which
provides for computation of tax equivalent yield by dividing that portion of the
Fund's yield which is tax exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the yield of the Fund that is not
tax exempt.
The tax equivalent yield computed according to the formula for the 30-day
period ended on September 30, 199 4 , the date of the most recent balance
sheet included in the Prospectus, is 6.45 %, 7.59 %, 7.92 %,
8.53 % and 9.03 % for marginal tax brackets of 15%, 28%, 31%, 36%
and 39.6%, respectively.
Change in yields primarily reflect different interest rates received by the
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses.
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. A Fund may also compare its performance to that of other selected
mutual funds or selected recognized market indicators such as the Standard &
Poor's 500 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.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Municipal Bonds
Municipal Bonds are issued by a wide range of governments, agencies and
authorities for various public purposes. The two main kinds of municipal bonds
are "general obligation" bonds and "revenue" bonds. In "general obligation"
bonds, the issuer has pledged its full faith, credit and taxing power for the
payment of principal and interest. "Revenue" bonds are payable only from
specific sources; these may include revenues from a particular facility or class
of facilities or special tax or other revenue source.
A special class of municipal bonds are some, but not all, "industrial
development bonds." The Fund may purchase industrial development bonds only if
the interest on them is free from Federal income taxation, though such interest
is an item of tax preference for purposes of the alternative minimum tax. In
general, industrial development bonds are revenue bonds and are issued by or on
behalf of public authorities to obtain funds to finance privately operated
facilities. They generally depend for their credit quality on the credit
standing of the company involved. The Fund may invest an unlimited percentage
of its assets in municipal bonds which are industrial development bonds. As of
September 30, 199 4, 4.93 % of the Fund's net assets were invested in
industrial development bonds.
Another specific type of municipal bond in which the Fund may invest
includes municipal leases and participation interests therein. The factors to
be considered in determining whether or not any rated municipal lease
obligations are liquid include (i) the frequency of trades and quotes for the
obligations; (ii) the number of dealers willing to purchase or sell the security
and the number of other potential buyers; (iii) the willingness of dealers to
undertake to make a market in the securities; (iv) the nature of marketplace
trades, including the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer; (v) the likelihood that the
marketability of the obligation will be maintained through the time the
instrument is held; (vi) the credit quality of the issuer and the lessee; and
(vii) the essentially to the lessee of the property covered by the lease.
Unrated municipal lease obligations will be considered to be illiquid. These
obligations, which may take the form of a lease, an installment purchase, or a
conditional sale contract, are issued by state and local governments and
authorities to acquire land and a variety of equipment and facilities. The Fund
has not held and does not intend to hold such obligations directly as a lessor
of the property, but may from time to time purchase a participation interest in
a municipal obligation from a bank or other third party. A participation
interest gives the Fund a specified, undivided interest in the obligation in
proportion to its purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt, including
voter referenda, interest rate limits or public sale requirements. Leases,
installment purchases or conditional sale contracts have evolved as a means for
governmental issuers to acquire property and equipment without being required to
meet these constitutional and statutory requirements. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer has
no obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the legislative body on a yearly or other
periodic basis. Non-appropriation clauses free the issuer from debt issuance
limitations. In determining the liquidity of a municipal lease obligation,
Waddell & Reed Investment Management Company (the "Manager"), the Fund's
investment manager, will differentiate between direct interests in municipal
leases and municipal lease-backed securities, the latter of which may take the
form of a lease-backed revenue bond, a tax-exempt asset-backed security or any
other investment structure using a municipal lease-purchased agreement as its
base. While the former may present liquidity issues, the latter are based on a
well established method of securing payment of a municipal lease obligation.
The Fund and the Manager rely on the opinion of bond counsel for the issuer
in determining whether obligations are municipal bonds. If a court should hold
that obligations held by the Fund are not municipal bonds (i.e., that the
interest on them is taxable), the Fund will sell them as soon as possible, but
it might incur losses if it sold them in other than an orderly manner.
The Fund may not purchase any municipal bonds which are not rated at least
BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's
Investors Services, Inc. ("MIS") unless thereafter at least 80% of the value of
the Fund's total assets would consist of cash or municipal bonds which, at the
time of purchase, were so rated. See Appendix A to the Prospectus for a
description of these ratings. Subject to this 80% requirement, the Fund may
also purchase unrated municipal bonds if, in the opinion of the Manager, the
municipal bonds, if rated, would have the quality of municipal bonds rated as
indicated above. Normally the issuer of unrated bonds has decided not to apply
for a rating because it considers such ratings not necessary or because of the
cost of obtaining the rating.
Now or in the future, S&P or MIS may use different rating designations for
municipal bonds depending on their maturities on issuance or other
characteristics. For example, MIS now rates the top four categories of
"municipal notes" (i.e., municipal bonds generally with a maturity at the time
of issuance ranging from six months to three years) as MIG 1, MIG 2, MIG 3 and
MIG 4. Municipal bonds purchased by the Fund comply with the 80% requirement
discussed above if they are within the top four rating designations of S&P or
MIS for the type of municipal bond in question. The Fund is not required to
dispose of any municipal bond if its rating should fall below the rating
required for its purchase, nor does such a fall in ratings affect the amount of
unrated municipal bonds which the Fund may buy.
When-Issued Municipal Bonds
The Fund may also purchase municipal bonds on a when-issued basis; their
value may be less when delivered than the purchase price paid. For example,
delivery to the Fund and payment by the Fund may take place a month or more
after the date of the transaction. The purchase price is fixed on the
transaction date. The Fund will enter into when-issued transactions in order to
secure what is considered to be an advantageous price and yield at the time of
entering into the transaction. The municipal bonds so purchased by the Fund are
subject to market value fluctuation; their value may be less when delivered than
the purchase price paid. No interest accrues to the Fund until delivery and
payment is completed. When the Fund makes a commitment to purchase securities
on a when-issued basis the Fund will record the transaction and thereafter
reflect the value of the securities in determining its net asset value per
share.
Ordinarily the Fund purchases municipal bonds on a when-issued basis with
the intention of actually taking delivery of the securities. However, before
the securities are delivered to the Fund and before it has paid for them (the
"settlement date") the Fund could sell the securities if the Manager decided it
was advisable to do so for investment reasons. The Fund will hold aside or
segregate cash or other municipal bonds, other than those purchased on a when-
issued basis, at least equal to the amount it will have to pay on the settlement
date; these other municipal bonds will mature or be sold at or before the
settlement date. There are no percentage limitations on the Fund's right to buy
municipal bonds on a when-issued basis.
Limited Permitted Investment in Other Debt Securities
All of the Fund's invested assets, other than cash or receivables, must be
invested in municipal bonds, except that a limited amount of assets may be
invested in specified debt securities which are referred to in the Prospectus as
taxable obligations and in certain futures contracts (see discussion below).
The Fund may invest in taxable obligations only if, after any such investment,
not more than 10% of its total assets would consist of taxable obligations. The
only taxable obligations which the Fund may purchase are (i) obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities; (ii)
bank obligations of domestic banks or savings and loan associations which are
subject to regulation by the U.S. Government; these obligations may include
certificates of deposit, letters of credit and acceptances; and (iii) commercial
paper. The taxable commercial paper the Fund may buy must, at the time of
purchase, be rated A by S&P or MIS. See Appendix A to the Prospectus for a
description of these ratings. The Fund has no intention to invest more than 5%
of its assets in U.S. Government Securities (defined below).
Investment In Electrical Utility Related Municipal Bonds
From time to time the Fund has varying but substantial portions of its
assets invested in municipal bonds of Public Power Agencies and in Pollution
Control Revenue Bonds which are industrial development bonds. The interest on
both of these type of bonds is paid by revenues from generating plants. As of
September 30, 199 4, 18.15 % of the Fund's assets were so invested. The
Fund may invest any portion of its assets in these bonds, and it is expected
that there may be times, depending on economic conditions in the industry or the
relative attractiveness of other municipal bonds, when more than 25% of its
assets will be so invested.
The generating industry is facing certain problems, which may or may not
affect their ability to meet their obligations on bonds of this type. These
problems include the effects of: inflation on financing large construction
programs; environmental considerations on costs, delays and operations;
limitations of available capital on the ability to issue additional debt;
shortages and high prices of fuel on operations and profits; and energy
conservation on sales. Problems of these types generally affect the values of
and the dividends paid on utility common stocks rather than the ability to pay
bond obligations.
Options, Futures Contracts and Options on Futures Contracts
The use of options, futures contracts and options on futures contracts is
subject to applicable regulations of the Securities and Exchange Commission
("SEC"), the several exchanges on which they are traded, the Commodity Futures
Trading Commission ("CFTC") and various state regulatory authorities. In
addition, the Fund's ability to use these instruments will be limited by tax
considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and in
the Prospectus, the Manager expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts and
other similar or related techniques. These opportunities may become available
as the Manager develops new techniques, as regulatory authorities broaden the
range of permitted transactions and as new options, futures contracts, options
on futures contracts and other techniques are developed. The Manager may
utilize these opportunities to the extent that they are consistent with the
Fund's investment goals and are permitted by the Fund's investment limitations
and applicable regulatory authorities. The Fund's Prospectus or Statement of
Additional Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
Writing Calls on Securities. The Fund may write call options on
securities, but only if the investments to which the call relates (the "related
investments") are domestic debt securities, including, without limitation,
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"). The above limitation is a
fundamental policy, which cannot be changed without a shareholder vote.
The Fund may write call options on domestic debt securities to attempt to
enhance the Fund's income or to reduce the overall risk of its investments. The
Fund may only write call options on securities if they are listed on a national
securities exchange.
If the Fund writes a call, it agrees to sell to the purchaser of the call
the securities subject to the call at a fixed price; this is referred to as the
exercise price. This price may be equal to, or more or less than, the market
price of the securities covered by the call. During the period of a call the
Fund must, if the call is exercised, sell at the exercise price no matter what
happens to the market price of the securities subject to the call.
As compensation for entering into this contract, the Fund receives a
premium. Should the market price of the security on which the Fund has written
a call go down during the call period, the premium would help to offset that
decline. However, the Fund would lose the opportunity to profit from an
increase in the market price of the securities that are subject to the call over
the exercise price except to the extent that the premium represents such a
profit. The Fund will write calls when the Manager believes that the amount of
the premium represents adequate compensation for the loss of the opportunity.
Writing calls is a highly specialized activity, which involves investment
techniques and risks different from those ordinarily associated with investment
companies. The personnel engaging in this activity have had experience with
other Funds in the United Group and in managed accounts engaging in this
activity. It is believed that the Fund's limitations on writing calls will tend
to reduce these risks.
The Fund may purchase calls to close its position in a call that it has
written. To do this, it will make a "closing transaction." As discussed
below, it may also purchase calls other than as part of a closing
transaction. This involves buying a call on the same security with the
same exercise price and expiration date as the call it has written. When the
Fund sells a security on which it has written a call, it may effect a closing
transaction. The Fund may also effect a closing transaction to avoid having to
sell a security on which it has written a call if the call is exercised. The
Fund will have a profit or loss from a closing transaction, depending on the
amount of option transaction costs and on whether the amount it pays to purchase
the call is less or more than the premium it received on the call that is closed
out. A profit will also be realized if the call lapses unexercised because the
Fund retains the premium received. There is no assurance that the Fund will be
able to effect a closing transaction if there is no market for the call in
question; if the Fund cannot do so, it may be required to hold the security on
which the call was written until the call expires or is exercised even though it
might otherwise be desirable to sell the security. If a call that the Fund
wrote is exercised, it could deliver the securities that it owns (or the
securities that it has the right to get). It could also deliver other
securities that it purchases.
Fund securities will be sought and sold in order to attempt to achieve the
goals of the Fund. However, the fact that listed calls can be written on a
particular security may be a factor in buying or keeping it if it is otherwise
considered suitable for the Fund.
Writing Puts on Securities. The Fund may write put options on securities,
but only if the related investments are domestic debt securities, including,
without limitation, U.S. Government Securities. The above limitation is a
fundamental policy, which cannot be changed without a shareholder vote.
The Fund may write put options on domestic debt securities to attempt to
enhance the Fund's income or to reduce the overall risk of its investments. The
Fund may only write put options on securities if they are listed on a national
securities exchange.
As with covered call writing, the Fund may write puts on securities for the
purpose of increasing income by receiving premiums from the purchaser of the
option. When the Fund writes a put, it receives a premium and agrees to
purchase the related investments from the purchaser of the put during the put
period at a fixed exercise price (which may differ from the market price of the
related investments) regardless of market price changes during the put period.
If the put is exercised, the Fund must purchase the related investments at the
exercise price. Puts are ordinarily sold when the Fund anticipates that, during
the option period, the market price of the underlying security will decline by
less than the amount of the premium. In writing puts, the Fund assumes the risk
of loss should the market value of the underlying security decline below the
exercise price of the option. The Fund's cost of purchasing the investments
will be adjusted by the amount of the premium it has received. The Fund will
write a put only when it has determined that it would be willing to purchase the
underlying security at the exercise price.
To terminate its obligation on a put that it has written, the Fund may
purchase a put in a "closing transaction." As discussed below, it may
also purchase puts other than as part of a closing transaction. A profit
or loss will be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the cost of the put
purchased. A profit will also be realized if the put lapses unexercised because
the Fund retains the premium received.
Purchasing Calls and Puts on Securities. The Fund may purchase call and
put options on securities, but only if the related investments are domestic debt
securities, including, without limitation, U.S. Government Securities. The
above limitation is a fundamental policy, which cannot be changed without a
shareholder vote.
The Fund may purchase call and put options on domestic debt securities to
attempt to enhance the Fund's income or to attempt to reduce the overall risk of
its investments. The Fund may only purchase put and call options on securities
if they are listed on a national securities exchange.
The Fund may purchase a call in a closing transaction in order to terminate
its obligation on a call it has written. In addition, the Fund may purchase
calls on securities for the purpose of taking advantage of a rise in the market
value of the underlying securities.
When the Fund buys a call, it pays a premium and has the right to buy the
related investments from the seller of a call during the call period at a fixed
exercise price. The Fund benefits only if the market price of the related
investments is above the call price prior to the expiration date and the call is
either exercised or sold at a profit. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration date
and the Fund will lose the premium paid and the right to purchase the related
investments.
The Fund may purchase puts on securities to protect against price declines
in the value of its portfolio securities. The Fund may purchase a put on a
security it owns ("protective put") or on a security it does not own
("nonprotective put"). When the Fund buys a put, it pays a premium and has the
right to sell the related investments to the seller of the put during the put
period at a fixed exercise price. Buying a protective put (as defined above)
permits the Fund to protect itself prior to the time the put expires against a
decline in the value of the related investments below the exercise price by
selling them through the exercise of the put. Buying a nonprotective put (as
defined above) permits the Fund, if the market price of the related investments
is below the put price during the put period, either to resell the put or to buy
the related investments and sell them at the exercise price. If the market
price of the related investments is above the exercise price and as a result the
put is not exercised or resold (whether or not at a profit), the put will become
worthless at its expiration date.
Risks of Options on Securities. The Fund is only authorized to write and
purchase options on securities that are listed. Exchange-listed options are
issued by a clearing organization affiliated with the exchange on which the
option is listed. A position in an exchange-listed option may be closed out
only on an exchange that provides a secondary market for options covering the
same related investment having the same exercise price and expiration date.
There is no assurance that a liquid secondary market will exist for any
particular option.
The Fund's put and call activities may affect its turnover rate and
brokerage commission payments. The exercise of calls or puts written by the
Fund may cause it to sell or purchase related investments, thus increasing its
turnover rate in a manner beyond its control. 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.
Such commissions may be higher than those that would apply to direct purchases
or sales.
Option premiums paid to control an amount of related investments are small
in relation to the market value of related investments and, consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment.
Options on Municipal Bond Indices. The Fund may write and purchase options
on indices, but only if the indices are municipal bond indices. The above
limitation is a fundamental policy, which cannot be changed without a
shareholder vote.
The Fund may write and purchase options on municipal bond indices to
attempt to enhance the Fund's income or to reduce the overall risk of its
investments. The Fund may only write and purchase options on municipal bond
indices if they are listed on a national securities exchange.
The Fund may write options on municipal bond indices, primarily to generate
income, when the Manager anticipates that the index price will not increase or
decrease by more than the premium received by the Fund. The Fund may purchase
calls on municipal bond indices to hedge against anticipated increases in the
price of debt securities it wishes to acquire and purchase puts on municipal
bond indices to hedge against anticipated declines in the market value of
portfolio securities. Puts and calls on municipal bond 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 (and
thus on price movements in the municipal bond market generally) rather than on
price movements in individual securities or futures contracts. When the Fund
writes a call on a municipal bond 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
municipal bond 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 a municipal bond 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 a municipal bond 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 municipal bond index upon which the put is based is less
than the exercise price of the put, which amount of cash is determined by the
multiplier, as described above for calls. When the Fund writes a put on a
municipal bond 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 municipal bond
index and the exercise price times the multiplier if the closing level is less
than the exercise price.
Risks of Options on Municipal Bond Indices. The risks of investment in
options on municipal bond indices may be greater than options on securities.
Because municipal bond index options are settled in cash, when the Fund writes a
call on a municipal bond 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 municipal bonds 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 municipal bonds as
those that underlie the index and, as a result, bears a risk that the value of
the securities it does hold will vary from the value of the index.
Even if the Fund could assemble a municipal bond 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 a municipal
bond, 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 municipal bonds that exactly
match the composition of the underlying index, it will not be able to satisfy
its assignment obligations by delivering those municipal bonds 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 municipal bond portfolio. This "timing risk" is an
inherent limitation on the ability of index call writers to cover their risk
exposure by holding municipal bond positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
Futures Contracts and Options Thereon. The Fund may engage in buying and
selling interest rate futures contracts, but only "Debt Futures" (futures
relating to domestic debt securities) and "Municipal Bond Index Futures"
(futures contracts relating to municipal bond indices). The Fund may also buy
and sell options on Debt Futures. The limitation on buying and selling futures
contracts to Debt Futures and Municipal Bond Index Futures, and the limitation
on buying and selling options on futures contracts to options on Debt Futures,
are fundamental policies, which cannot be changed without a shareholder vote.
When the Fund purchases a futures contract, it incurs an obligation to take
delivery of a specified amount of the obligation underlying the contract at a
specified time in the future for a specified price. When the Fund sells a
futures contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon price.
In the case of a Municipal Bond Index Future, the obligation underlying the
futures contract is an amount of cash equal to a specified dollar amount times
the difference between the index value at the close of the last trading day of
the futures contract and the price at which the futures contract is originally
struck. In the case of a Debt Future, the underlying obligation is the related
domestic debt security.
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.
The Fund will not purchase or sell futures contracts or options thereon for
speculative purposes but rather only for the purpose of hedging against changes
in the market value of its portfolio securities or changes in the market value
of securities that the Manager anticipates that it may wish to include in the
portfolio of the Fund. The Fund may sell a Municipal Bond Index Future if the
Manager anticipates that a general market or market sector decline may adversely
affect the market value of any or all of the Fund's municipal bond holdings.
The Fund may buy a Municipal Bond Index Future if the Manager anticipates a
significant market sector advance in the municipal bonds it intends to purchase
for the Fund's portfolio. The Fund may purchase a Municipal Bond Index Future
as a temporary substitute for the purchase of individual bonds that may then be
purchased in an orderly fashion. In the case of debt securities, the Fund could
sell a Debt Future, or write a call or buy a put on a Debt Future, to attempt to
protect against the risk that the value of the debt securities held by the Fund
might decline. The Fund could purchase a Debt Future, or purchase a call or
write a put on a Debt Future, to protect against the risk of an increase in the
value of debt securities at a time when the Fund is not invested in debt
securities to the extent permitted by its investment policies. As securities
are purchased, corresponding futures or options positions would be terminated.
Futures strategies also can be used to manage the average duration of the
Fund's portfolio. If the Manager wishes to shorten the average duration of the
Fund, the Fund may sell a Debt Future or a call option thereon, or purchase a
put option on a Debt Future. If the Manager wishes to lengthen the average
duration of the Fund, the Fund may buy a Debt Future or a call option thereon,
or sell a put option on a Debt Future.
Unlike when the Fund purchases or sells a municipal bond or taxable
obligation, 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 broker will be made on a daily basis as the price of the
underlying debt securities or index 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. Initial margin payments will be deposited with the Fund's Custodian
bank in an account registered in the broker's name; access to the assets in that
account may be made by the broker 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 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.
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 absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, 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.
The Fund must operate within certain restrictions as to positions in
futures contracts and options thereon 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 registration 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 and options on futures
contracts that are not for bona fide hedging purposes (as defined by the CFTC),
the aggregate initial margin and premiums on these positions (excluding the
amount by which options are "in-the-money") may not exceed 5% of the Fund's net
assets. (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.)
Risks of Futures Contracts and Options Thereon. Since futures contracts
and options thereon can replicate movements in the cash markets for the
securities in which the Fund invests without the large cash investments required
for dealing in such markets, they may subject the Fund to greater and more
volatile risks than might otherwise be the case. The principal risks associated
with the use of such instruments are (i) imperfect correlation between movements
in the market price of the portfolio investments (held or intended to be
purchased) being hedged and in the price of the futures contract or option; (ii)
possible lack of a liquid secondary market for closing out futures contract or
options positions; (iii) the need for additional portfolio management skills and
techniques; and (iv) losses due to unanticipated market price movements.
For a hedge to be completely effective the price change of the hedging
instrument should equal the price change of the security being hedged. Such
equal price changes are not always possible because the investment underlying
the hedging instrument may not be the same investment that is being hedged. The
Manager will attempt to create a closely correlated hedge, but hedging activity
may not be completely successful in eliminating market value fluctuation. (See
below for additional discussion of correlation as it relates to Municipal Bond
Index Futures.)
The ordinary spreads between prices in the cash and futures markets
(including the options on futures market), due to differences in the natures of
those markets, are subject to the following factors, which may create
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions, which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. The extent participants decide to make or take delivery, liquidity in
the futures market could be reduced, thus producing distortion. Third, from the
point of view of speculators, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may cause temporary
price distortions. Due to the possibility of distortion, a correct forecast of
general interest rate or municipal bond market trends by the Manager may still
not result in a successful transaction. The Manager may be incorrect in its
expectations as to the extent of various interest rate or bond market movements
or the time span within which the movements take place.
The risk of imperfect correlation between movements in the price of a
Municipal Bond Index Future and movements in the price of the municipal bonds
that are the subject of the hedge increases as the composition of the Fund's
municipal bond portfolio diverges from the municipal bonds included in the
index. The price of the Municipal Bond Index Futures may move more than or less
than the price of the securities being hedged. If the price of the Municipal
Bond 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 Municipal Bond
Index Futures, the Fund may buy or sell Municipal Bond 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 municipal bonds 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 municipal bonds and taxable obligations 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 municipal bonds will tend to move in the
same direction as the municipal bond indices on which the futures contracts are
based.
Where Municipal Bond Index Futures are purchased to hedge against a
possible increase in the price of municipal bonds and/or taxable obligations
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 municipal bonds and/or taxable
obligations it had anticipated purchasing.
Limitations on the Use of Options on Securities, Municipal Bond Indices and
Futures Contracts. The Fund's use of options is governed by the following
guidelines, which can be changed by the Fund's Board of Directors without a
shareholder vote:
(1) options may be purchased or written only when the Manager believes
that there exists a liquid secondary market in such options;
(2) the Fund may not write call options having aggregate exercise prices
greater than 25% of its net assets; and
(3) the Fund may purchase a put or a call option (including straddles or
spreads) only if the value of its premium, when aggregated with the premiums on
all other options held by the Fund, does not exceed 5% of the Fund's total
assets.
Cover for Futures Contracts and Options on Securities, Municipal Bond
Indices and Futures Contracts. Transactions using 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 or
other options or futures contracts or (2) cash, receivables and short-term debt
securities with a value sufficient at all times to cover its potential
obligations 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 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.
Defensive Strategies and Temporary Investments
Sometimes the Manager may believe that a full or partial defensive position
is desirable due to present or anticipated market or economic conditions which
are affecting or could affect the value of municipal bonds. The length of time
a temporary defensive position is maintained depends on actual or foreseen
changes in the conditions due to which the position was taken. To achieve a
defensive posture, the Manager may take any one or more of the following steps:
(i) shortening the average maturity of the portfolio; (ii) holding cash or
taxable obligations (which obligations may be held only subject to the 10%
limitation described in the Prospectus); and (iii) emphasizing high-grade debt
securities. Going defensive in any one or more of these manners might involve a
reduction in the yield on the Fund's portfolio. As an alternative to taking a
defensive posture at a time when present or anticipated market conditions may
affect the value of municipal bonds, the Manager may buy or sell futures
contracts.
To shorten the average maturity of the Fund's portfolio, it may buy
municipal bonds which are payable in a relatively short time. This could be
either because they were so payable when they were first issued or because they
will mature shortly after purchase.
Another reason for buying either these short-term municipal bonds or
taxable obligations (up to the 10% limitation on taxable obligations described
in the Prospectus) during normal market conditions is to keep assets at work
until appropriate investments in longer-term municipal bonds can be made or in
order to have cash available to pay for redemptions.
Short-term municipal bonds or taxable obligations purchased for defensive
purposes will be held for as long as the Manager believes a temporary defensive
posture should be maintained. When bought during normal conditions, they will
be held until appropriate investments in longer-term municipal bonds are made or
until they are sold to meet redemptions.
Investment Restrictions
Certain of the Fund's investment restrictions and policies are described in
the Prospectus. The following are fundamental policies and, together with
certain restrictions described in the Prospectus, cannot be changed without
shareholder approval. Under these additional restrictions, the Fund:
(i) May not make any investments other than in the municipal bonds and in
the taxable obligations, options, futures contracts and other
financial instruments described in the Prospectus. Further, such
municipal bonds and taxable obligations are subject to the percentage
limitations and the quality restrictions described in the Prospectus.
Thus, the Fund may not purchase any voting securities, any commodities
or commodity contracts (except that it may buy and sell the options,
futures contracts and other financial instruments described in the
Prospectus whether or not any of them is considered to be a commodity
or a commodity contract), any real estate or interests in real estate
investment trusts or any investment company securities. Also, the
Fund may not engage in repurchase transactions;
(ii) May not invest in securities on which the payment of principal and
interest is the obligation of any nongovernmental entity (i.e., a
company) unless the company obligated to make these payments has been
in continuous operation for at least three years. This three-year
test includes the operation of predecessor companies. However, the
Fund may buy securities not meeting this test if it does not then have
more than 5% of its total assets in these other securities;
(iii) May not lend money or other assets; it may, of course, purchase all or
a portion of an issue of the municipal bonds or taxable obligations in
which it invests;
(iv) May not invest for the purpose of exercising control or management of
other companies;
(v) May not buy or continue to hold securities if any one of the Fund's
Directors or officers or certain others own more than .5 of 1% of the
securities of an issuer and if the persons who own that much or more
own 5% of that issuer's securities;
(vi) May not sell short, buy on margin, engage in arbitrage transactions or
participate on a joint, or a joint and several, basis in any trading
account in securities; however, it may make margin deposits in
connection with the options, futures contracts and other financial
instruments described in the Prospectus; also, the Fund may enter into
escrow and collateral arrangements in connection with its use of
options and futures contracts;
(vii) May not engage in the underwriting of securities, that is, the selling
of securities for others. Also, it may not invest in restricted
securities. Restricted securities are securities which cannot freely
be sold for legal reasons or because a promise has been given
establishing conditions for their sale;
(viii) May not purchase the securities of any "issuer" if more than 5% of the
Fund's total assets, taken at market, would then be invested in that
"issuer." There is a question as to who is the "issuer" of municipal
bonds. For example, they may be created by a particular government
but be backed only by the assets and revenues of a subdivision of that
government such as an agency, instrumentality, authority or other
subdivision. In such case, the Fund would consider that such
subdivision is the "issuer" for the purposes of this 5% restriction.
In the case of industrial development bonds, the nongovernmental user
of facilities financed by them is also considered as a separate
"issuer." The method of determining who is an "issuer" may be changed
without shareholder vote. This restriction does not apply to U.S.
Government Securities, i.e., securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
In applying this 5% restriction, the Fund allows the same standards
set forth above for determining who is an "issuer"; however, it also
considers for the purpose of this 5% restriction that a guarantee by a
government or other entity of a municipal bond is a separate security
which would be given a value and included in the 5% restriction if the
value of all municipal bonds created by the government or entity and
owned by the Fund should exceed 10% of the value of its total assets;
(ix) May not purchase securities of issuers in any one industry except for
municipal bonds and U.S. Government Securities (see above) if more
than 25% of the value of its assets would then be invested in issuers
in that industry. Despite the fact that this restriction does not
apply to municipal bonds, the Fund intends to apply the restriction to
nongovernmental users (other than utilities) of facilities financed by
industrial development bonds.
Additional Restrictions
The Fund has undertaken to the State of Ohio that it will not borrow,
pledge, mortgage or hypothecate assets in excess of one-third of total Fund
assets. The Fund's ability to borrow for other than emergency or extraordinary
purposes is a special risk consideration.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. A Fund's turnover rate may vary
greatly from year to year as well as with a particular year and may be affected
by cash requirements for the redemption of its shares. For fiscal years 1994
and 1993 the portfolio turnover rates were 62.61 % and 94.51 %,
respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to Waddell & Reed Investment Management Company, a wholly-
owned subsidiary of Waddell & Reed, Inc. Under the Management Agreement, the
Manager is employed to supervise the investments of the Fund and provide
investment advice to the Fund. The address of the Manager and Waddell & Reed,
Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
The Manager 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 its duties as investment manager for these funds (and the related
professional staff) to the Manager. The Manager has also served as 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 investment companies in the United
Group of Mutual Funds, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between Waddell &
Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed, Inc., and
the Fund, 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, for the Manager's management services, the
Fund pays the Manager a fee as described in the Prospectus.
Prior to the above-described assignment from Waddell & Reed, Inc. to
Waddell & Reed Investment Management Company, all fees were paid to Waddell &
Reed, Inc. The management fee paid to the investment manager during the three
fiscal years ended September 30, 1994, 1993 and 1992 were
$4,531,669, $4,349,383 and $3,781,296 , respectively. For
purposes of calculating the daily fee the Fund does not include money owed to it
by Waddell & Reed, Inc. for shares which it has sold but not yet paid to the
Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account 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. It also
pays certain out-of-pocket expenses of the Agent, including long distance
telephone communications costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs and costs of legal and special
services not provided by Waddell & Reed, Inc., the Manager or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a fee for
accounting services as described in the Prospectus. The fees paid to the Agent
for the fiscal years ended September 30, 1994, 1993 and
1992 were $92,500, $88,750 and $85,000 ,
respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay and requires the Manager to reduce its fee if these expense
amounts are exceeded. The Manager must reduce the amount of such expenses to
the extent they exceed these expense limits. Not all of the Fund's expenses are
included in the limit. The excluded expenses 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 Manager must, under California law, reduce the cost of any included
expenses which are over 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 Fund will notify
shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the Manager
and the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with the Manager and its affiliates.
The Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed. Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund. The aggregate dollar amounts of
underwriting commissions for the fiscal years ended September 30, 1994,
1993 and 1992 were $2,263,180, $3,662,610 and
$4,043,316 , respectively. The amounts retained by Waddell & Reed, Inc.
for each fiscal year were $983,744, $1,591,029 and
$1,750,505 , respectively.
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., the principal underwriter for the Fund, 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.
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 , and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. Service fees in the amount of $880,375 were paid (or
accrued) by the Fund for the fiscal year ended September 30, 1994.
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 shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding shares of the Fund, and (iv) while the
Plan remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is United Missouri Bank, n.a., Kansas City, Missouri.
In general, the Custodian is responsible for holding the Fund's cash and
securities. Price Waterhouse LLP , Kansas City, Missouri, the Fund's
independent accountants, audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each 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. 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 ($110 divided by 11).
Shares of the Fund are sold at their next determined net asset value plus
the sales charge described in the Prospectus. The price makeup as of September
30, 1994 was as follows:
Net asset value per share (net assets divided
by capital shares outstanding) ......................$ 6.91
Add: selling commission (4.25% of offering
price) ............................................. .31
-----
Maximum offering price per share (net asset
value per share divided by 95.75%) ................. $7.22
=====
The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge. The number of
shares you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal business
office at the address shown on the cover of this SAI. You will be sent a
confirmation after your purchase which will indicate how many shares you have
purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily computed
once on each day that the New York Stock Exchange is open for trading
as of the later of the close of the regular session of the New York Stock
Exchange (ordinarily 4:00 p.m. Eastern time) 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 New York Stock Exchange annually announces
the days on which it will not be open for trading. The most recent announcement
indicates that the New York Stock Exchange 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 New York Stock Exchange may close on other days. The
net asset value will change every business day, since the value of the assets
changes every business day and so does the number of shares.
The Board of Directors has decided to use the prices quoted by a dealer in
bonds which offers a pricing service to value municipal bonds. The Board
believes that such a service does quote their fair value. The Board, however,
may hereafter determine to use another service or use the bid price quoted by
dealers if it should determine that such service or quotes more accurately
reflect the fair value of municipal bonds held by the Fund.
Short-term debt securities are valued at amortized cost, which approximates
market. Securities or other assets which are not valued by either of the
foregoing methods and for which market quotations are not readily available
would be valued by appraisal 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.
Options and futures contracts purchased and held by the Fund are valued
at the last sales price thereof on the securities or commodities exchanges on
which they are traded, or, if there are no transactions, at the mean between bid
and asked prices. Ordinarily, the close of the regular session for option
trading on national securities exchanges is 4:10 P.M. Eastern time and the close
of the regular session for commodities exchanges is 4:15 P.M. Eastern time.
Futures contracts will be valued with reference to established futures
exchanges. The value of a futures contract purchased by the Fund will be either
the closing price of that contract or the bid price. Conversely, the value of a
futures contract sold by the Fund will be either the closing price or the asked
price.
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 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 the Manager, Waddell & Reed, Inc. or
their affiliates. Except with respect to certain exchanges and automatic
withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
Reduced Sales Charges
Account Grouping
Large purchases are subject to lower sales charges. The schedule of sales
charges appears in the Prospectus. 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.
References to purchases in an Individual Retirement Account ("IRA") or other
retirement plan (for which investments in the Fund would not be appropriate) are
made only to illustrate how purchases of Fund shares may be grouped with
purchases made in other funds in the United Group.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;
6. Purchases by that individual or his or her spouse for his or her IRA, tax
sheltered annuity account ("T.S.A.") or Keogh plan account, provided that
the individual and spouse are the only participants in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. (If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.)
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.
Example: H and W open an account in the Fund and invest $100,000; at the same
time, H's parents open up two UGMA accounts for H and W's two
minor children and invest $100,000 in each child's name; the combined
purchases are subject to the reduced sales load applicable to a
purchase of $300,000 provided that Waddell & Reed, Inc. is advised
that the purchases are entitled to grouping.
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.
Example: H is a current shareholder who invested in the Fund three years ago.
His account has a net asset value of $100,000. His wife, W, now
wishes to invest $15,000 in the Fund. W's purchase will be combined
with H's existing account and will be entitled to the reduced sales
charge applicable to a purchase in excess of $100,000. H's original
$100,000 purchase was subject to a full sales charge and the reduced
charge does not apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under the plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases 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.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
shares at the sales charge applicable to a purchase of $300,000. H
has an UGMA for his child and the shares held in the account have a
net asset value as of the date the Statement is accepted by Waddell &
Reed, Inc. of $50,000; H's wife, W, has an account in her own name
invested in another fund in the United Group which charges the same
sales load as the Fund, with a net asset value as of the date of
acceptance of the Statement of $75,000; H needs to invest $175,000
over the 13-month period in order to qualify for the reduced sales
load applicable to a purchase of $300,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount which must be purchased within the 13-month period in order to
qualify for the reduced sales charge.
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.
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. and
United High Income Fund II, 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.
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. 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.
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
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.
Redemptions
The Prospectus gives information as to redemption procedures; the emergency
or other extraordinary conditions there indicated under which payment may be
delayed beyond seven days are certain emergency conditions determined by the
Securities and Exchange Commission, when the New York Stock Exchange is closed
other than for weekends or holidays, or when trading on the Exchange is
restricted. The extraordinary conditions mentioned in the Prospectus under
which redemptions may be made in portfolio securities are that the Fund's Board
of Directors can decide that conditions exist making cash payments undesirable.
If they should, redemption payments could be made in securities. They would be
valued at the value used in figuring net asset value. There would be brokerage
costs to the redeeming shareholder in selling such securities. The Fund,
however, has elected to be governed by Rule 18f-1 under the 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 regular monthly, quarterly,
semi-annual or annual payments; this can be done by redeeming shares on a
regular basis. This service is called Flexible Withdrawal Service (the
"Service"). It is available not only for Fund shares but also for shares of any
of the funds in the United Group. It would be a disadvantage to an investor to
make additional purchases of shares while a withdrawal program is in effect as
this would result in duplication of sales charges.
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
not the net asset value but the value at the offering price, i.e., the net asset
value plus the sales charge.
To start this service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semi-annual or annual payment of $50
or more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a fixed number of shares (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
The Fund, not Waddell & Reed, Inc., pays the costs of this Service. Having
the Service costs you nothing extra individually.
If you have a share certificate for the shares you want to make available
for this Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for this
Service are reinvested in additional shares. All payments are made by redeeming
shares, which may involve a gain or loss for tax purposes. To the extent that
payments exceed dividends and distributions, the number of shares you own will
decrease. When all of the shares in your account are redeemed, you will not
receive any payments. Thus, the payments are not an annuity or an income or
return on your investment.
You may, at any time change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. For
example, if you started out with a $50 monthly payment, you could change to a
$200 quarterly payment. You can at any time redeem part or all of the shares in
your account; if you redeem all of the shares, the Service is terminated. The
Fund can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
You may decide you would rather own shares of one or more of the other
funds in the United Group rather than Fund shares. An exchange of Fund shares
may be made only if you have held the shares for at least six months unless the
exchange is for shares of United Government Securities Fund, Inc. or United
Municipal High Income Fund, Inc. or unless the Fund shares were acquired by
reinvestment of a dividend or distribution, in which cases there is no holding
period. You may exchange for shares of another fund without payment of an
additional sales charge. You should ask for and read the prospectus for the
fund into which you are thinking of making an exchange before doing so.
Fund shares may be received in exchange for shares of any of the other
funds in the United Group, except for shares of United Cash Management, Inc.
acquired by direct purchase or received in payment of dividends on those shares.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of shares of United Cash Management, Inc. automatically exchanged
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 monthly 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 the fund receives your written exchange request 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.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege under which, if you
redeem and then decide it was not a good idea, you may reinvest. If Fund shares
are then being offered, you can put all or part of your redemption payment back
into Fund shares without any sales charge at the net asset value next determined
after you have returned the amount. Your written request to do this must be
received within 30 days after your redemption request was received. You can do
this only once as to Fund shares.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
<PAGE>
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 the selected experts. It 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.
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;
Chairman of the Board of Directors of Vesta Insurance Group, Inc.;
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
the Manager, Waddell & Reed, Inc., Waddell & Reed Services Company, Waddell &
Reed Asset Management Company and Torchmark Distributors, Inc., an affiliate of
Waddell & Reed, Inc.; Vice Chairman of the Board of Directors, Chief Executive
Officer and President of United Investors Management Company; Vice Chairman of
the Board of Directors of Torchmark Corporation; Director of Southwestern
Life Corporation; formerly, partner in Trivest, a private investment
concern; formerly, Director of Atlantis Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
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
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corp.; formerly, Senior Vice President and Director of Marketing Services, The
Meyer Group of Management Consultants; formerly, Chairman, Department of
Marketing, Transportation and Tourism, University of Colorado ; formerly,
Professor of Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards
Company ; formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
P.O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust ; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and related subsidiaries .
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund, 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 the Manager 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 and Principal Financial Officer 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 the Manager; 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 the Manager and Waddell & Reed Asset Management Company; Senior Vice
President and Chief Investment Officer of United Investors Management Company.
Theodore W. Howard
Vice President , Treasurer and Principal Accounting Officer of
the Fund; Vice President of Waddell & Reed Services Company.
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.; Director, Senior Vice President, Secretary and General
Counsel of Waddell & Reed Services Company; Director, 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 the Manager, Waddell & Reed Financial Services, Inc., Waddell & Reed,
Inc., Waddell & Reed Asset Management Company and Waddell & Reed Services
Company.
John M. Holliday
Vice President of the Fund; Senior Vice President of the Manager and
Waddell & Reed Asset Management Company; formerly, Senior Vice President of
Waddell & Reed, Inc..
Carl E. Sturgeon
Vice President of the Fund; Vice President of the Manager; formerly, Vice
President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, 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 the Manager. 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 director of the funds in
the United Group for a total of at least five years. A Director Emeritus
receives fees in recognition of his past services whether or not services are
rendered in his capacity as Director Emeritus, but has no authority or
responsibility with respect to management of the Fund. Currently, no person
serves as Director Emeritus.
The funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $40,000 per year , plus $500
for each meeting of the Board of Directors attended and $500 for each committee
meeting attended which is not in conjunction with a Board of Directors' meeting,
other than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the funds in the United
Group, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. based on their
relative size. During the Fund's fiscal year ended September 30, 1994 ,
its share was $37,992 . The officers are paid by the Manager or an
affiliate of the Manager.
Shareholdings
As of November 30, 1994 , all of the Fund's Directors and officers as
a group owned less than 1% of the outstanding shares of the Fund. As of such
date no person owned of record or was known by the Fund to own beneficially 5%
or more of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are two 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 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. Payments made to shareholders from net
investment income and net short-term capital gains are called dividends.
Payments, if any, from long-term capital gains are called distributions.
The Fund pays distributions only if it has net realized capital
gains (the excess of net long-term capital gains over net short-term capital
losses) . It may or may not have such gain , depending on whether or
not securities are sold and at what price. If the Fund has net capital
gains, it will ordinarily pay distributions once each year, in the latter
part of the fourth calendar quarter. Even if it has capital gains for a
year, the Fund does not pay out the gains if it has applicable
prior year losses to offset the gains .
Choices You Have on Your Dividends and Distributions
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 reinvested in Fund shares or (iii) you want cash for your
dividends and want your distributions reinvested in Fund shares. You can change
your instructions at any time. If you give no instruction, your
dividends and distributions will be reinvested in Fund shares. All
reinvestments are at net asset value without any sales charge. The net asset
value used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the
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 (i.e.,
no sales charge) next determined after receipt by Waddell & Reed, Inc. of the
amount clearly identified as a reinvestment. The reinvestment must be within 45
days after the payment.
TAXES
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"), the Fund must distribute to its shareholders for each taxable year at
least 90% of the sum 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 ) plus its
net interest income excludable from gross income under section 103(a) of the
Code, and must meet several additional requirements. These requirements include
the following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or foreign
currencies , or other income (including gains from options , futures
contracts or forward contracts ) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2)
the Fund must derive less than 30% of its gross income each taxable year from
the sale or other disposition of securities or any of the following, that
were held for less than three months (i) options, futures contracts or
forward contracts or (ii) foreign currencies (or options, futures contracts or
forward contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or in option 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 paid by the Fund will qualify as "exempt-interest dividends," and
thus will be excludable from your gross income, if the Fund satisfies the
additional requirement that, at the close of each quarter of its taxable year,
at least 50% of the value of its total assets consists of securities the
interest on which is excludable from gross income under section 103(a); the Fund
intends to continue to satisfy this requirement. The aggregate dividends
excludable from all shareholders' gross income may not exceed the Fund's net
tax-exempt income. The treatment of dividends from the Fund under local and
state income tax laws may differ from the treatment thereof under the Code.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described above; they are only included in the
calculation of whether a recipient's income exceeds the established amounts.
If the Fund invests in any instruments that generate taxable income, under
the circumstances described in the Prospectus, distributions of the interest
earned thereon will be taxable to you as ordinary income to the extent of the
Fund's earnings and profits. Moreover, if the Fund realizes capital gain as a
result of market transactions, any distribution of that gain will be taxable to
you. There also may be collateral federal income tax consequences regarding the
receipt of tax-exempt dividends by shareholders such as S corporations,
financial institutions and property and casualty insurance companies. Any
shareholder that falls into any of these categories should consult its tax
adviser concerning its investment in Fund shares.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by you on
December 31 of that year even if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be
taxed to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares and any balance of the loss that is not disallowed 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 taxable dividend or
distribution, the purchaser will pay tax thereon, even though he is receiving
some portion of the purchase price back.
The Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain s 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.
The use of hedging strategies, such as writing (selling) and purchasing
options and futures, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses the
Fund realizes in connection therewith. Income from transactions in options and
futures derived by the Fund with respect to its business of investing in
securities will qualify as permissible income under the Income Requirement.
However, income from the disposition of options and futures will be subject to
the Short-Short Limitation if they are held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a position
that is part of a "designated hedge" will be offset by any decrease in value
(whether realized or not) of the offsetting hedging position during the period
of the hedge for purposes of determining whether the Fund satisfies the Short-
Short Limitation. Thus, only the net gain (if any) from the designated hedge
will be included in gross income for purposes of that limitation. The Fund
intends that, when it engages in hedging transactions, they will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of the Funds' hedging transactions. To the extent
this treatment is not available, the Fund may be forced to defer the closing out
of certain options and futures beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have short-term capital gains or losses based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many options
that it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may be
"section 1256 contracts." Section 1256 contracts held by the Fund at the end of
each taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, are
treated as long-term capital gains or losses, and the balance is treated as
short-term capital gains or losses. Section 1256 contracts also may be marked-
to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If the Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Fund are not entirely clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by the Manager pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the portfolio of
the Fund. Purchases are made directly from issuers or from underwriters,
dealers or banks. Purchases from underwriters include a commission or
concession paid by the issuer to the underwriter. Purchases from dealers will
include the spread between the bid and the asked prices. Brokerage commissions
are paid primarily for effecting transactions in securities traded on an
exchange and otherwise only if it appears likely that a better price or
execution can be obtained. The Fund has not effected transactions through
brokers and does not anticipate doing do. The individual who manages the
Fund may manage other advisory accounts with similar investment objectives. It
can be anticipated that the manager will frequently place concurrent orders for
all or most of the 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, the Manager 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. The Manager 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 the Manager to be useful or desirable for its investment
management of the Fund and/or the other funds and accounts over which the
Manager 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 the Manager that the
commission is reasonable in relation to the brokerage services provided.
Subject to the foregoing considerations, the Manager may also consider the
willingness of particular brokers and dealers to sell shares of the Fund and
other funds managed by the Manager and its affiliates as a factor in its
selection. No allocation of brokerage or principal business is made to provide
any other benefits to the Manager 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 the Manager 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 the
Manager 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 the Manager.
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 the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager 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, the Manager may consider
sales of shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in the selection of brokers to execute portfolio
transactions. The Manager 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.
<PAGE>
OTHER INFORMATION
The Shares of the Fund
The Fund presently has only one kind (class) of shares. Each share has the
same rights to dividends, to vote and to receive assets if the Fund liquidates
(winds up). Each fractional share has the same rights, in proportion, as a full
share. Shares are fully paid and nonassessable when bought.
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Municipal Bond Fund, Inc.
Included in Part B:
-------------------
As of September 30, 1994
Statements of Assets and Liabilities
For the year ended September 30, 1994
Statements of Operations
For each of the two years in the period ended September 30, 1994
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1994
Report of Independent Accountants
Included in Part C:
-------------------
Consent of Independent Accountants
Amended Schedule A to Custodian Agreement dated October 20, 1994-EX-
99.B8-MBCAA
Amended Schedule B to Custodian Agreement dated July 5, 1994-EX-99.B8-
MBCAA2
Amendment to Service Agreement -EX-99.B9(d)-MBSAA
Financial Data Schedule-EX-27.B17-MBFDS
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 34 to the Registration Statement on Form N-1A of our
report dated October 31, 1994 relating to the financial statements and the
financial highlights of United Municipal Bond Fund, Inc., which appears in such
Prospectus. We further consent to the reference to us under the heading
"Financial Highlights" in such Prospectus and to the reference to us under the
heading "Custodial and Auditing Services" in the Statement of Additional
Information constituting part of this Post-Effective Amendment.
PRICE WATERHOUSE LLP
Kansas City, Missouri
December 29, 1994
<PAGE>
(b) Exhibits
(1) Articles of Incorporation filed August 2, 1976 as Exhibit 1(1) to
Amendment No. 1 to the initial Registration Statement on Form S-
5*
Articles of Amendment filed January 25, 1982 as Exhibit 1 to
Post-Effective Amendment No. 12 to the Registration Statement on
Form N-1*
(2) By-Laws filed August 2, 1976 as Exhibit 1(2) to Amendment No. 1
to the initial Registration Statement on Form S-5*
Amendment to Bylaws filed December 31, 1989 as Exhibit (b)(2) to
Post-Effective Amendment No. 26 to the Registration Statement on
Form N-1A*
Amendment to Bylaws filed November 21, 1990 as Exhibit No. 3 on
Form SE to Form N-SAR for the six months ended September 30,
1990*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed August 2, 1976 as
Exhibit 1(1) to Amendment No. 1 to the initial registration
statement on Form S-5*; Article I, Article IV and Article VII of
the Bylaws of the Registrant, as amended, filed August 2, 1976 as
Exhibit 1(2) to Amendment No. 1 to the initial registration
statement on Form S-5*
(5) Investment Management Agreement filed April 30, 1990 as Exhibit
(b)(5) to Post-Effective Amendment No. 27 to the Registration
Statement on Form N-1A*
Assignment to the Investment Management Agreement filed May 26,
1992 as Exhibit No. 2 on Form SE to From N-SAR for the six months
ended March 31, 1992*
(6) Underwriting Agreement filed January 25, 1982 as Exhibit 6 to
Post-Effective Amendment No. 12 to the Registration Statement on
Form N-1*
(7) Not applicable
(8) Custodian Agreement filed December 9, 1991 as Exhibit No. b(8) on
Form SE to Post-Effective Amendment No. 29 to the Registration
Statement on Form N-1A*
Amended Schedule A to the Custodian Agreement dated October 20,
1994 attached hereto
Amended Schedule B to the Custodian Agreement dated July 5, 1994
attached hereto
___________________________
*Incorporated herein by reference
<PAGE>
Amendment to the Custodian Agreement dated February 17, 1993
filed March 24, 1993 as Exhibit (b)(8) to Post-Effective
Amendment No. 31 to the Registration Statement on Form N-1A*
(9) (a) Shareholder Servicing Agreement filed March 24, 1993 as
Exhibit (b)9(a) to Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A*
(b) Fund application filed December 9, 1991 as Exhibit b(9)(b)
on Form SE to Post-Effective Amendment No. 29 to the
Registration Statement on Form N-1A*
(c) Accounting Services Agreement filed November 21, 1990 as
Exhibit No. 4 on Form SE to Form N-SAR for the six months
ended September 30, 1990*
(d) Service Agreement filed by electronic format on July 30,
1993 as Exhibit (b)(15) to Post-Effective Amendment No.32 to
the Registration Statement on Form N-1A*
Amendment to Service Agreement attached hereto
(10) Not applicable
(11) Not applicable
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Service Plan filed by electronic format on July 30, 1993 as
Exhibit (b)(15) to Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A*
(16) (1) Computation of average annual total return performance
quotations filed by electronic format on July 30, 1993 as
Exhibit (b)(16)(1) to Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A*
(2) Computation of Yield Performance Quotation and Tax
Equivalent Yield Performance Quotation filed June 26, 1992
as Exhibit (b)(16)(2) on Form SE to Post-Effective Amendment
No. 30 to the Registration Statement on Form N-1A*
(17) Financial Data Schedule attached hereto
25. Persons controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class September 30, 1994
-------------- ------------------------------
Capital Stock 37,422
___________________________
*Incorporated herein by reference
<PAGE>
27. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through (f) of the
Articles of Amendment filed January 25, 1982 as Exhibit (1)(b)(1) to Post-
Effective Amendment No. 12 to the Registration Statement on Form N-1A* and
to Article IV of the Underwriting Agreement filed January 25, 1982 as
Exhibit 1(b)(6) to Post-Effective Amendment No. 12 to the Registration
Statement*, both of which provide indemnification. Also refer to Section
2-418 of the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is not engaged in any business other
than the provision of investment management services to those registered
investment companies described in Part A and Part B of this Post-Effective
Amendment.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant, and except for Mr. Ronald K.
Richey. Mr. Richey is Chairman of the Board and Chief Executive Officer of
Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a holding
company of which Waddell & Reed, Inc. is an indirect subsidiary. Mr.
Richey's address is 2001 Third Avenue South, Birmingham, Alabama 35233.
The address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter 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 Retirement Shares, 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.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United Science
and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and Part B
of this Post-Effective Amendment and as listed in response to Items (b)(9)
and (b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
___________________________
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment pursuant to Rule
485(b) of the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Overland Park, and State of Kansas, on the 29th day
of December, 1994.
UNITED MUNICIPAL BOND 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 Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board December 29, 1994
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 29, 1994
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 29, 1994
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 29, 1994
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 29, 1994
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director December 29, 1994
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 29, 1994
- -------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director December 29, 1994
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 29, 1994
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director December 29, 1994
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director December 29, 1994
- ------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director December 29, 1994
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director December 29, 1994
- ------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director December 29, 1994
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
- -------------------- --------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
- -------------------- (Principal Executive Officer) --------------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
- -------------------- and Principal Accounting --------------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
- -------------------- Principal Financial --------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
- -------------------- --------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
- -------------------- --------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
- -------------------- --------------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
- -------------------- --------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 1, 1994
- -------------------- --------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
- -------------------- --------------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
- -------------------- --------------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
- -------------------- --------------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
- -------------------- --------------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
- -------------------- --------------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
December 29, 1994
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Municipal Bond Fund, Inc.
Post-Effective Amendment No. 34
Dear Sir or Madam:
In connection with the filing of the above referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Very truly yours,
Sharon K. Pappas
General Counsel
SKP:jb
EX-99.B8-MBCAA
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
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
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
Balanced 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. 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, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De France
Germany Berliner Handels Und Frankfurter KASSENVEREIN
Bank
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing Company
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
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. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche
Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. None
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. TvS, Central Bank of
Turkey
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
EX-99.B8-MBCAA2
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED MUNICIPAL BOND FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of November 26, 1991
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, 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 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 Collection 64.00
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(d)-MBSAA
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 1st day of September, 1994, by
and between United Municipal Bond Fund, Inc. (the "Fund") and Waddell & Reed,
Inc. ("W&R").
WHEREAS, the Fund and W&R have entered into a certain Service Agreement dated
October 1, 1993, which the parties now desire to amend to provide for the
provision of personal services and maintenance of shareholder accounts through
broker-dealers who sell shares of the Fund to qualified benefit plans under a
selling group agreement with W&R, or through other third parties;
AND WHEREAS, the Fund has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan pursuant to which this Service Agreement has
been adopted and which Service Plan authorizes the payment to W&R of a service
fee to finance shareholder servicing by, among others, broker-dealers who may
sell Fund shares.
NOW THEREFORE, it is mutually agreed as follows:
A. Section A of the Service Agreement is hereby amended by the addition of the
following subsection:
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. Section B of the Service Agreement is hereby amended by the addition of the
following subsection:
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. Approval and Other Provisions.
1. The Fund represents that this Amendment has been approved by 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 financial interest in the
operation of the Service Plan or this Agreement ("independent directors"), which
was cast in person by such directors at a meeting called for the purpose of
voting on the plan and approval of this Amendment.
2. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in the
Service Agreement and to the other provisions set forth therein.
IN WITNESS WHEREOF, the parties have executed this Amendment this 1st day of
September, 1994.
United Municipal Bond Fund, Inc.
By: ______________________________________
Sharon K. Pappas, Vice President and Secretary
Waddell & Reed, Inc.
By: ______________________________________
Robert L. Hechler, President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000203493
<NAME> UNITED MUNICIPAL BOND FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
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</TABLE>
