<PAGE>
File No. 2-63643
File No. 811-2907
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. 25
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 22
UNITED HIGH INCOME FUND, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Overland Park, 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 June 30, 1996 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-2(a)(1). Notice for the
Registrant's fiscal year ending March 31, 1996 was filed on or about May 24,
1996.
<PAGE>
UNITED HIGH INCOME FUND, INC.
=============================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; Account Your Account
4(a) ..................... About the Investment Principles of the Fund; About
the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund
(c) ..................... An Overview of the Fund; About the Investment
Principles of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b)...................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... About the Management and Expenses of the Fund
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... Expenses; About the Management and Expenses of the
Fund
(g) ..................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... About Your Account
(f) ..................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account; About the
Management and Expenses of the Fund
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
<PAGE>
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... Portfolio Transactions and Brokerage
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- -------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated June 30, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
THE FUND MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS ISSUED BY DOMESTIC OR
FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS,"
WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER
RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUND" INCLUDED IN THIS
PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-INVESTMENT GRADE
DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND RATINGS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United High Income Fund, Inc.
Class A Shares
This Fund seeks as its primary goal a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund invests primarily in a diversified portfolio of high-yield,
high-risk, fixed-income securities, the risks of which are, in the judgment of
the Fund's investment manager, consistent with the Fund's goals.
This Prospectus describes one class of shares of the Fund -- Class A shares.
Prospectus
June 30, 1996
UNITED HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND......................................2
EXPENSES........................................................5
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE.....................................................8
Explanation of Terms ..........................................8
ABOUT WADDELL & REED............................................9
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....................10
Investment Goals and Principles ..............................10
Risk Considerations ........................................10
Securities and Investment Practices ..........................11
ABOUT YOUR ACCOUNT.............................................24
Ways to Set Up Your Account ..................................24
Buying Shares ................................................25
Minimum Investments ..........................................27
Adding to Your Account .......................................27
Selling Shares ...............................................28
Shareholder Services .........................................30
Personal Service ...........................................30
Reports ....................................................30
Exchanges ..................................................30
Automatic Transactions .....................................30
Dividends, Distributions and Taxes ...........................31
Distributions ..............................................31
Taxes ......................................................32
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................34
WRIMCO and Its Affiliates ....................................35
Breakdown of Expenses ........................................36
Management Fee .............................................36
Other Expenses .............................................37
APPENDIX A.....................................................38
DESCRIPTION OF BOND RATINGS ..................................38
DESCRIPTION OF PREFERRED STOCK RATINGS 42
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United High Income
Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United High Income Fund, Inc. (the "Fund") seeks, as a
primary goal, a high level of current income. As a secondary goal, the Fund
seeks capital growth when consistent with its primary goal. There is no
assurance that the Fund will achieve its goals. The Fund invests primarily in a
diversified portfolio of high-yield, high-risk, fixed-income securities, the
risks of which are, in the judgment of the Fund's investment manager, consistent
with the Fund's goals. See "About the Investment Principles of the Fund" for
further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of the Fund
is the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Risk Considerations: Investments in high-yield, high-risk securities ("junk
bonds") may entail risks that are different or more pronounced than those
involved in higher-rated securities. The value of the Fund's investments and
the income generated will vary from day to day, generally reflecting changes in
interest rates, market conditions and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments. See
"About the Investment Principles of the Fund" for information about the risks
associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases 5.75%
(as a percentage of offering price)
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees 0.12%
Other expenses1 0.20%
Total Fund operating
expenses2 0.88%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $ 66
3 years $ 84
5 years $103
10 years $160
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class A shares of the Fund will
bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater or
lesser than those shown. For a more complete discussion of certain expenses and
fees, see "Breakdown of Expenses."
1Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
2Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
3Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP,
included in the SAI.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended March 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $8.70 $9.20 $9.21 $8.82 $7.51 $8.51 $11.63 $12.14 $14.48 $14.24
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Income from investment
operations:
Net investment income ... 0.79 0.80 0.80 0.83 0.95 1.16 1.44 1.53 1.63 1.69
Net realized and
unrealized gain (loss)
on investments ........ 0.40 (0.51) (0.01) 0.40 1.29 (1.00) (3.08) (0.51) (1.95) 0.33
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Total from investment
operations .......... 1.19 0.29 0.79 1.23 2.24 0.16 (1.64) 1.02 (0.32) 2.02
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Less distributions:
Dividends declared from net
investment income ..... (0.80) (0.79) (0.80) (0.84) (0.93) (1.16) (1.48) (1.51) (1.62) (1.70)
Distributions from
capital gains ......... (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.02) (0.40) (0.08)
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Total distributions ....... (0.80) (0.79) (0.80) (0.84) (0.93) (1.16) (1.48) (1.53) (2.02) (1.78)
----- ----- ----- ----- ----- ----- ------ ------ ------ ------
Net asset value,
end of period ........... $9.09 $8.70 $9.20 $9.21 $8.82 $7.51 $ 8.51 $11.63 $12.14 $14.48
===== ===== ===== ===== ===== ===== ====== ====== ====== ======
Total return** ............ 14.16% 3.41% 8.69% 14.72% 31.72% 2.56% -15.57% 8.90% -2.10% 15.23%
Net assets, end of period
(000 omitted) ........... $971,916 $933,576$1,006,619 $986,867 $910,917 $735,376 $874,615$1,250,504$1,248,215$1,364,583
Ratio of expenses to average
net assets .............. 0.85% 0.84% 0.78% 0.75% 0.79% 0.82% 0.74% 0.73% 0.76% 0.76%
Ratio of net investment income
to average net assets ... 8.74% 9.07% 8.51% 9.28% 11.56% 14.89% 13.72% 12.81% 12.58% 11.97%
Portfolio turnover rate ... 41.67% 18.94% 54.80% 58.68% 62.12% 30.43% 52.00% 87.75% 115.70% 117.65%
*On July 31, 1995, the Fund began offering Class Y shares to the public. Fund shares outstanding prior to that date were
designated Class A shares.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and distributions.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may not reflect deduction
of the applicable sales charge or may be for periods other than those required
to be presented or may otherwise differ from standardized total return. Total
return quotations that do not reflect the applicable sales charge will reflect a
higher rate of return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. The Fund's yield
is based on a 30-day period ending on a specific date and is computed by
dividing the Fund's net investment income per share earned during the period by
the Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The primary goal of the Fund is to earn a high level of current income. As
a secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed income securities, the
risks on which are, in the judgment of WRIMCO, consistent with the Fund's goals.
There is no assurance that the Fund will achieve its goals.
There are three main types of securities that the Fund owns: debt
securities, preferred stock and common stock. The Fund may also own convertible
securities. In general, the high income that the Fund seeks is paid by debt
securities in the lower rating categories of the established rating services or
unrated securities that are, in the opinion of WRIMCO, of similar quality to
rated securities in these categories; these are securities rated BBB or lower by
Standard & Poor's Ratings Services ("S&P") or Baa or lower by Moody's Investors
Service, Inc. ("MIS") and unrated securities. S&P and MIS ratings are described
in Appendix A.
WRIMCO may look at a number of factors in selecting securities for the
Fund's portfolio. These include an issuer's past, current and estimated future:
(i) financial strength; (ii) cash flow; (iii) management; (iv) borrowing
requirements; and (v) responsiveness to changes in interest rates and business
conditions. When WRIMCO believes that a full or partial temporary defensive
position is desirable, due to present or anticipated market or economic
conditions, WRIMCO may take any one or more of the following steps with respect
to up to all of the assets in the Fund's portfolio: (i) shortening the average
maturity of the Fund's debt portfolio; (ii) holding cash or cash equivalents
(short-term investments, such as commercial paper and certificates of deposit)
in varying amounts designed for defensive purposes; and (iii) emphasizing high-
grade debt securities. Going defensive in any one or more of these manners
might involve a reduction in the yield on the Fund's portfolio. As an
alternative to taking a temporary defensive position or in order to more quickly
participate in anticipated market changes or market conditions, the Fund may
invest in options and futures.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to
varying degrees of market risk, financial risk and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risks, you should
anticipate that the share price of the Fund will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of the Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Certain types of instruments in which the Fund may invest, and certain
strategies WRIMCO may employ in pursuit of the Fund's goals, involve special
risks. Lower-quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty. Foreign
securities and foreign currencies may involve risks relating to currency
fluctuations, political or economic conditions in the foreign country, and the
potentially less stringent investor protection and disclosure standards of
foreign markets. These factors could make foreign investments, especially those
in developing countries, more volatile.
The Fund can use various techniques to increase or decrease its exposure to
changing security prices, interest rates or other factors that affect security
values. These techniques may involve derivative instruments, including options,
futures contracts, options on futures contracts, indexed securities, stripped
securities and mortgage-backed securities. If WRIMCO judges market conditions
incorrectly or employs a strategy that does not correlate well with the Fund's
investments, these techniques could result in a loss, regardless of whether the
intent was to reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative to
the magnitude of the risk assumed. In addition, these techniques could result
in a loss if the counterparty to the transaction does not perform as promised or
if there is not a liquid secondary market to close out a position that the Fund
has entered into. See "Risks of Derivative Instruments" for further information
on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest and strategies WRIMCO may employ in
pursuit of the Fund's goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies and
restrictions unless it believes that doing so will help the Fund achieve its
goals. As a shareholder, you will receive annual and semiannual reports
detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without the
approval of the shareholders of the Fund. Operating policies may be changed by
the Board of Directors without the approval of the affected shareholders. The
goals of the Fund are fundamental policies. Unless otherwise indicated, the
types of securities and other assets in which the Fund may invest and other
policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase, or otherwise voluntarily acquire, any common stocks if, as a result,
more than 20% of its total assets would consist of common stocks.
The Fund does not intend to invest more than 4% of its total assets in non-
dividend-paying common stocks.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which
the Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk, corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly-leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by the
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by S&P and C by MIS). Debt securities rated D by S&P or C by MIS are in payment
default or are regarded as having extremely poor prospects of ever attaining any
real investment standing. In addition, the Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security to be
equivalent to securities having that rating.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk. Credit ratings for individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has been
changed.
Policies and Restrictions: At least 80% of the Fund's total assets will be
invested to seek a high level of current income.
Debt Holdings, by Rating. During the fiscal year ended March 31, 1996,
the percentage of the assets of the Fund invested in debt securities in each of
the rating categories of S&P and the corporate debt securities not rated by an
established rating service, determined on a dollar-weighted average, were as
follows:
Percentage of
Rated Assets of
by S&P the Fund
AAA 1.7%
AA 0.0
A 2.4
BBB 0.6
BB 19.5
B 56.8
CCC 3.8
CC 0.0
C 0.0
D 0.0
Unrated (Equivalent to)
AAA 0.0
AA 0.0
A 0.0
BBB 0.1
BB 0.2
B 3.0
CCC 0.4
CC 0.0
C 0.0
D 0.7
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in the Fund's portfolio at
the end of each month in the thirteen-month period ended with its last fiscal
year, averaged over its last fiscal year. The rating used for each security is
that security's rating as of the end of each month and, as ratings may change
over time, does not necessarily indicate past or future ratings of any
particular security or the ratings of securities in the portfolio in general.
Asset composition of the Fund by rating categories at any particular time does
not necessarily indicate future asset composition by rating categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A.
The Fund may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be of
equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase an unlimited amount of
foreign securities. The Fund may not hold foreign currency except in connection
with the purchase or sale of such foreign securities. The Fund will not invest
more than 25% of its total assets in securities issued by the government of any
one foreign country.
Options, Futures and Other Strategies. The Fund may use certain options
and indexed securities to attempt to enhance income or yield or may attempt to
reduce the overall risk of its investments by using certain options, futures
contracts and certain other strategies described herein. The strategies
described below may be used in an attempt to manage certain risks of the Fund's
investments that can affect fluctuation in its net asset value.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right to
buy, and obligates the writer to sell, the underlying investment at the agreed
upon exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying investment at
the agreed upon exercise price during the option period. Purchasers of options
pay an amount, known as a premium, to the option writer in exchange for the
right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities, or cash in the case of an option on an index, subject to the
call or the collateral underlying the put until a closing purchase transaction
can be entered into or the option expires. Because index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Fund bears the risk that the value of the securities it holds
will vary from the value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may
purchase and write (sell) put and call options only on debt securities, common
stocks, broadly-based stock indices (i.e., include stocks that are not limited
to issuers in any particular industry or similar industries), and the options on
futures contracts described below, subject to certain restrictions that are set
forth in the SAI.
As a fundamental policy, the Fund may write calls on securities only if
the calls are covered calls (i.e., the Fund must own the related investments or
other investments suitable for escrow arrangements).
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. When the Fund sells a futures contract, it
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy
and sell futures contracts relating to debt securities and futures contracts on
broadly-based stock indices and options thereon.
The Fund intends to use futures contracts and options thereon only to
attempt to hedge against market risks that could adversely affect the value of
its portfolio. The Fund intends to invest less than 5% of its total assets in
futures contracts.
Indexed Securities. The Fund may purchase and sell indexed securities,
which are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the United States and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
The value of these securities may be significantly affected by changes in
interest rates, the market's perception of the issuers and the creditworthiness
of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently on mortgage-backed securities
and that principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if the Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Accelerated prepayments on securities purchased by
the Fund at a premium also impose a risk of loss of principal because the
premium may not have been fully amortized at the time the principal is repaid in
full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association) is guaranteed by the
full faith and credit of the United States. This is not a guarantee against
market decline of the value of these securities or shares of the Fund. It is
possible that the availability and marketability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.
Policies and Restrictions: The Fund intends to invest less than 5% of
its total assets in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: The Fund intends to invest less than 5% of
its total assets in stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities, stripped
securities and mortgage-backed securities, involve special risks, including (i)
possible imperfect or no correlation between price movements of the portfolio
investments (held or intended to be purchased) involved in the transaction and
price movements of the instruments involved in the transaction, (ii) possible
lack of a liquid secondary market for any particular instrument at a particular
time, (iii) the need for additional portfolio management skills and techniques,
(iv) losses due to unanticipated market price movements, (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction, (vi) incorrect forecasts
by WRIMCO concerning interest rates or direction of price fluctuations of the
investment involved in the transaction, which may result in the strategy being
ineffective, (vii) loss of premiums paid by the Fund on options it purchases,
and (viii) the possible inability of the Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with such transactions and the possible inability of
the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments, including securities with
embedded derivatives, for hedging purposes to adjust the risk characteristics of
the Fund's portfolio of investments and may invest up to 5% of its total assets
in these instruments to adjust the return characteristics of the Fund's
portfolio of investments. An embedded derivative is a derivative that is part
of another financial instrument. Embedded derivatives typically, but not
always, are debt securities whose return of principal or interest, in part, is
determined by reference to something that is not intrinsic to the security
itself. The use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
the Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that the Fund has entered
into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate or
stock market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various interest
rate movements or stock market movements or the time span within which the
movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goals, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase a security if, as a result, more than 10% of its net assets would
consist of restricted securities.
The Fund may not purchase a security if, as a result, more than 10% of its
net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting securities or
any class of securities of an issuer, or if more than 5% of the Fund's total
assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
money only from banks, as a temporary measure or for extraordinary or emergency
purposes but only up to 5% of its total assets. The Fund does not intend to
borrow for temporary measures; however, it may borrow to cover redemptions or
settlements of securities transactions. See the SAI for further information on
the Fund's ability to borrow.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund may not
lend more than 10% of its assets at any one time, and such loans must be
on a collateralized basis in accordance with applicable regulatory
requirements.
Other Instruments may include warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, the Fund may invest
up to 5% of its net assets in warrants. The Fund does not intend to invest more
than 2% of its net assets in warrants that are not listed on the New York Stock
Exchange (the "NYSE") or American Stock Exchange. Warrants acquired in units or
attached to other securities are not considered for purposes of computing these
limitations.
As a fundamental policy, the Fund may buy shares of other investment
companies that do not redeem their shares only if it does so in a regular
transaction in the open market and only if not more than 10% of the Fund's total
assets would be invested in these shares. The Fund does not intend to invest
more than 5% of its assets in such securities.
As a fundamental policy, no more than 5% of the Fund's assets may be
invested in companies that have not been in continuous operation for at least
three years (including predecessor companies) other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- ----------------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- ----------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- ----------------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
o Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
o Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
o 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
o 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
o 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- ----------------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to
Minors Act ("UTMA").
- ----------------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- ----------------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class A share (price to buy one Class A share) is
the Fund's Class A net asset value ("NAV") plus the sales charge shown in the
table below.
Sales
Sales Charge
Charge as
as Approx.
PercentPercent
of of
Size of Offering Amount
Purchase Price Invested
- -----------------------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,0001.50 1.52
$1,000,000
to less
than
$2,000,0001.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding, with respect to that class, the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a dealer in bonds that offers a pricing service.
Short-term debt securities are valued at amortized cost, which approximates
market value. Other assets are valued at their fair value by or at the
direction of the Board of Directors.
The Fund is open for business each day the NYSE is open. The Fund
normally calculates the net asset values of its shares as of the later of the
close of business of the NYSE, normally 4 p.m. Eastern time, or the close of the
regular session of any other securities or commodities exchange on which an
option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the NYSE
is closed. Consequently, the NAV of Fund shares may be significantly affected
on days when the Fund does not price its shares and when you have no access to
the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of
Class A shares of any of the funds in the United Group, to the extent otherwise
permitted, except United Municipal Bond Fund, Inc., United Cash Management,
Inc., United Government Securities Fund, Inc. and United Municipal High Income
Fund, Inc., with the aggregate net asset value of Class A shares already held
("rights of accumulation") and by grouping all purchases of Class A shares made
during a thirteen-month period ("Statement of Intention"). Class A shares of
another fund purchased through a contractual plan may not be included unless the
plan has been completed. Purchases by certain related persons may be grouped.
Additional information and applicable forms are available from Waddell & Reed
account representatives.
Class A shares may be purchased at NAV by the Directors and officers of the
Fund, employees of Waddell & Reed, Inc., employees of their affiliates, account
representatives of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each such Director, officer, employee
and account representative. Purchases of Class A shares in certain retirement
plans and certain trusts for these persons may also be made at NAV. Purchases
of Class A shares in a 401(k) plan having 100 or more eligible employees and
purchases of Class A shares in a 457 plan having 100 or more eligible employees
may be made at NAV. Shares may also be issued at NAV in a merger, acquisition
or exchange offer made pursuant to a plan of reorganization to which the Fund is
a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates
$25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
a letter showing your account number, the account registration and stating
the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class
A NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint The written
Tenant instructions must be
signed by all persons
required to sign for
transactions, exactly
as their names appear
on the account.
Sole Proprietorship The written
instructions must be
signed by the
individual owner of
the business.
UGMA, UTMA The custodian must
sign the written
instructions
indicating capacity as
custodian.
Retirement Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
Conservator, Guardian The written
or Other Fiduciary instructions must be
signed by the person
properly authorized by
court order to act in
the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by Waddell
& Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you hold a certificate, it must be properly endorsed and sent to the Fund.
If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will give
you notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested amounts
must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc.
has available, the plan may have the right to make a loan to a plan participant
by redeeming Fund shares held by the plan. Principal and interest payments on
the loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in Class A shares of any of the funds
in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class A shares and buy Class A shares of other funds
in the United Group. You may exchange only into funds that are legally
registered for sale in your state of residence. Note that exchanges out of the
Fund may have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit and
will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses, and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the same
or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. Ordinarily, dividends are
distributed monthly from the Fund's net investment income, which includes
accrued interest, earned discount, dividends and other income earned on
portfolio assets less expenses. Net capital gains (and any net realized gains
from foreign currency transactions) ordinarily are distributed in December. The
Fund may make additional distributions if necessary to avoid Federal income or
excise taxes on certain undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class A shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class
A shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment
as a regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gain
over net short-term capital loss) that are distributed to its shareholders.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital gain,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. The Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year. Under certain circumstances, the Fund may elect to
permit shareholders to take a credit or deduction for foreign income taxes paid
by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within ninety days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day reinvestment
privilege or exchange privilege. See "About Your Account." In these cases, any
gain on the disposition of the Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United High Income Fund, Inc. is a mutual fund: an investment that
pools shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end, diversified management investment company
organized as a corporation under Maryland law on January 11, 1979.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to July 31, 1995, the Fund
offered only one class of shares to the public. Shares outstanding on that date
were designated as Class A shares, which are offered by this Prospectus. In
addition, the Fund offers Class Y shares through a separate prospectus. Class Y
shares are designed for institutional investors. Class Y shares are not subject
to a sales charge on purchases and are not subject to redemption fees. Class Y
shares are not subject to a Rule 12b-1 fee. Additional information about Class
Y shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's
Board of Directors. WRIMCO provides investment advice to the Fund and
supervises the Fund's investments. Waddell & Reed, Inc. and its predecessors
have served as investment manager to each of the registered investment companies
in the United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992, when
it assigned its duties as investment manager and assigned its professional staff
for investment management services to WRIMCO. WRIMCO has also served as
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and United Asset Strategy Fund, Inc. since it commenced
operations in March 1995.
Louise D. Rieke is primarily responsible for the day-to-day management of
the portfolio of the Fund. Ms. Rieke has held her Fund responsibilities since
January 1990. She is Vice President of WRIMCO and Vice President of Waddell &
Reed Asset Management Company, an affiliate of WRIMCO. She is Vice President of
the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. Ms. Rieke has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, WRIMCO,
since July 1986 and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since May 1971. Other members of WRIMCO's investment
management department provide input on market outlook, economic conditions,
investment research and other considerations relating to the Fund's
investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends. Waddell
& Reed Services Company also acts as agent ("Accounting Services Agent") in
providing bookkeeping and accounting services and assistance to the Fund and
pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .15 of 1% of its net assets. The
group fee is a pro rata participation based on the relative net asset size of
the Fund in the group fee computed each day on the combined net asset values of
all the funds in the United Group at the annual rates shown in the following
table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollarsFor Each
in millions)Level
- ------------ ---------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000.36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group
were approximately $14.0 billion as of March 31, 1996. Management fees for the
fiscal year ended March 31, 1996 were 0.56% of the Fund's average net
assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class A shares, the Fund pays the Shareholder Servicing Agent a monthly fee for
each Class A shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act
with respect to its Class A shares. Under the Plan, the Fund may pay monthly a
fee to Waddell & Reed, Inc. in an amount not to exceed .25% of the Fund's
average annual net assets of its Class A shares. The fee is to be paid to
reimburse Waddell & Reed, Inc. for amounts it expends in connection with the
provision of personal services to Class A shareholders and/or maintenance of
Class A shareholder accounts. In particular, the Service Plan and a related
Service Agreement between the Fund and Waddell & Reed, Inc. contemplate that
these expenditures may include costs and expenses incurred by Waddell & Reed,
Inc. and its affiliates in compensating, training and supporting registered
account representatives, sales managers and/or other appropriate personnel in
providing personal services to Class A shareholders and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders by
office personnel located at field sales offices; engaging in other activities
useful in providing personal services to Class A shareholders and/or the
maintenance of Class A shareholder accounts; and in compensating broker-dealers
who may regularly sell Class A shares, and other third parties, for providing
Class A shareholder services and/or maintaining Class A shareholder accounts.
The total expenses for the fiscal year ended March 31, 1996 for the
Fund's Class A shares were 0.85% of the average net assets of the Fund's Class A
shares.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. Portfolio turnover is usually
considered to be high if it exceeds 100%. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. An S&P corporate bond rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable MIS
rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's Ratings Services. An S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the debt rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS' familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
United High Income Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, Kansas Accounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United High Income Fund, Inc.
Class A Shares
PROSPECTUS
June 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1009(6-96)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated June 30, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
THE FUND MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS ISSUED BY DOMESTIC OR
FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS,"
WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER
RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUND" INCLUDED IN THIS
PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-INVESTMENT GRADE
DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND RATINGS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United High Income Fund, Inc.
Class Y Shares
This Fund seeks a high level of current income. As a secondary goal, the Fund
seeks capital growth when consistent with its primary goal. The Fund invests
primarily in a diversified portfolio of high-yield, high-risk, fixed-income
securities, the risks of which are, in the judgment of the Fund's investment
manager, consistent with the Fund's goals.
This Prospectus describes one class of shares of the Fund -- Class Y shares.
Prospectus
June 30, 1996
UNITED HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND......................................3
EXPENSES........................................................4
FINANCIAL HIGHLIGHTS............................................5
PERFORMANCE.....................................................6
Explanation of Terms ..........................................6
ABOUT WADDELL & REED............................................7
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND.....................8
Investment Goals and Principles ...............................8
Risk Considerations .........................................8
Securities and Investment Practices ...........................9
ABOUT YOUR ACCOUNT.............................................22
Buying Shares ................................................22
Minimum Investments ..........................................24
Adding to Your Account .......................................24
Selling Shares ...............................................24
Telephone Transactions .......................................26
Shareholder Services .........................................26
Personal Service ...........................................26
Reports ....................................................26
Exchanges ..................................................26
Dividends, Distributions and Taxes ...........................27
Distributions ..............................................27
Taxes ......................................................27
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................29
WRIMCO and Its Affiliates ....................................30
Breakdown of Expenses ........................................31
Management Fee .............................................31
Other Expenses .............................................32
APPENDIX A.....................................................33
DESCRIPTION OF BOND RATINGS ..................................33
DESCRIPTION OF PREFERRED STOCK RATINGS .......................36
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United High Income
Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United High Income Fund, Inc. (the "Fund") seeks, as a
primary goal, a high level of current income. As a secondary goal, the Fund
seeks capital growth when consistent with its primary goal. There is no
assurance that the Fund will achieve its goals. The Fund invests primarily in a
diversified portfolio of high-yield, high-risk, fixed-income securities, the
risks of which are, in the judgment of the Fund's investment manager, consistent
with the Fund's goals. See "About the Investment Principles of the Fund" for
further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class Y share of the Fund
is the net asset value of a Class Y share. There is no sales charge incurred
upon purchase of Class Y shares of the Fund. See "About Your Account" for
information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption procedures.
Risk Considerations: Investments in high-yield, high-risk securities ("junk
bonds") may entail risks that are different or more pronounced than those
involved in higher-rated securities. The value of the Fund's investments and
the income generated will vary from day to day, generally reflecting changes in
interest rates, market conditions and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments. See
"About the Investment Principles of the Fund" for information about the risks
associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).4
Management fees0.56%
12b-1 fees None
Other expenses 0.21%
Total Fund operating
expenses 0.77%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return5 and (2) redemption at the end of each time period:
1 year $ 8
3 years $25
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class Y shares of the Fund will
bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater or
lesser than those shown. For a more complete discussion of certain expenses and
fees, see "Breakdown of Expenses."
4Expense ratios are based on the management fees and other Fund-level
expenses of the Fund for the fiscal year ended March 31, 1996; and the other
expenses attributable to the Class Y shares that are anticipated for the
current year based on annualization of the Class Y expenses incurred during the
fiscal year ended March 31, 1996. Actual expenses may be greater or lesser
than those shown.
5Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP,
included in the SAI.
For a Class Y share outstanding throughout the period:
For the
period
from 1/4/96
through
3/31/96*
--------
Net asset value,
beginning of period $9.19
-----
Income from investment
operations:
Net investment
income .......... 0.20
Net realized and
unrealized loss
on investments... (0.10)
-----
Total from investment
operations ........ 0.10
-----
Less dividends
declared from net
investment income . (0.19)
-----
Net asset value,
end of period ..... $9.10
=====
Total return ....... 1.00%
Net assets, end of
period (000
omitted) ......... $2,149
Ratio of expenses
to average net
assets ............ 0.80%**
Ratio of net
investment income
to average net
assets ............ 8.55%**
Portfolio
turnover rate ..... 41.67%
*On July 31, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A
shares.
**Annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and distributions.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may be for periods other
than those required to be presented or may otherwise differ from standardized
total return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. The Fund's yield
is based on a 30-day period ending on a specific date and is computed by
dividing the Fund's net investment income per share earned during the period by
the Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The primary goal of the Fund is to earn a high level of current income. As
a secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed income securities, the
risks on which are, in the judgment of WRIMCO, consistent with the Fund's goals.
There is no assurance that the Fund will achieve its goals.
There are three main types of securities that the Fund owns: debt
securities, preferred stock and common stock. The Fund may also own convertible
securities. In general, the high income that the Fund seeks is paid by debt
securities in the lower rating categories of the established rating services or
unrated securities that are, in the opinion of WRIMCO, of similar quality to
rated securities in these categories; these are securities rated BBB or lower by
Standard & Poor's Ratings Services ("S&P") or Baa or lower by Moody's Investors
Service, Inc. ("MIS") and unrated securities. S&P and MIS ratings are described
in Appendix A.
WRIMCO may look at a number of factors in selecting securities for the
Fund's portfolio. These include an issuer's past, current and estimated future:
(i) financial strength; (ii) cash flow; (iii) management; (iv) borrowing
requirements; and (v) responsiveness to changes in interest rates and business
conditions. When WRIMCO believes that a full or partial temporary defensive
position is desirable, due to present or anticipated market or economic
conditions, WRIMCO may take any one or more of the following steps with respect
to up to all of the assets in the Fund's portfolio: (i) shortening the average
maturity of the Fund's debt portfolio; (ii) holding cash or cash equivalents
(short-term investments, such as commercial paper and certificates of deposit)
in varying amounts designed for defensive purposes; and (iii) emphasizing high-
grade debt securities. Going defensive in any one or more of these manners
might involve a reduction in the yield on the Fund's portfolio. As an
alternative to taking a temporary defensive position or in order to more quickly
participate in anticipated market changes or market conditions, the Fund may
invest in options and futures.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to
varying degrees of market risk, financial risk and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risks, you should
anticipate that the share price of the Fund will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of the Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Certain types of instruments in which the Fund may invest, and certain
strategies WRIMCO may employ in pursuit of the Fund's goals, involve special
risks. Lower-quality debt securities (commonly called "junk bonds") are
considered to be speculative and involve greater risk of default or price
changes due to changes in the issuer's creditworthiness. The market prices of
these securities may fluctuate more than higher-quality securities and may
decline significantly in periods of general economic difficulty. Foreign
securities and foreign currencies may involve risks relating to currency
fluctuations, political or economic conditions in the foreign country, and the
potentially less stringent investor protection and disclosure standards of
foreign markets. These factors could make foreign investments, especially those
in developing countries, more volatile.
The Fund can use various techniques to increase or decrease its exposure
to changing security prices, interest rates or other factors that affect
security values. These techniques may involve derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
stripped securities and mortgage-backed securities. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest and strategies WRIMCO may employ in
pursuit of the Fund's goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies and
restrictions unless it believes that doing so will help the Fund achieve its
goals. As a shareholder, you will receive annual and semiannual reports
detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without the
approval of the shareholders of the Fund. Operating policies may be changed by
the Board of Directors without the approval of the affected shareholders. The
goals of the Fund are fundamental policies. Unless otherwise indicated, the
types of securities and other assets in which the Fund may invest and other
policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase, or otherwise voluntarily acquire, any common stocks if, as a result,
more than 20% of its total assets would consist of common stocks.
The Fund does not intend to invest more than 4% of its total assets in non-
dividend-paying common stocks.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which
the Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, the
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk, corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly-leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by the
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by S&P and C by MIS). Debt securities rated D by S&P or C by MIS are in payment
default or are regarded as having extremely poor prospects of ever attaining any
real investment standing. In addition, the Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security to be
equivalent to securities having that rating.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit ratings.
Credit ratings evaluate the safety of principal and interest payments, not
market value risk. Credit ratings for individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has been
changed.
Policies and Restrictions: At least 80% of the Fund's total assets will be
invested to seek a high level of current income.
Debt Holdings, by Rating. During the fiscal year ended March 31, 1996,
the percentage of the assets of the Fund invested in debt securities in each of
the rating categories of S&P and the corporate debt securities not rated by an
established rating service, determined on a dollar-weighted average, were as
follows:
Percentage of
Rated Assets of
by S&P the Fund
AAA 1.7%
AA 0.0
A 2.4
BBB 0.6
BB 19.5
B 56.8
CCC 3.8
CC 0.0
C 0.0
D 0.0
Unrated (Equivalent to)
AAA 0.0
AA 0.0
A 0.0
BBB 0.1
BB 0.2
B 3.0
CCC 0.4
CC 0.0
C 0.0
D 0.7
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in the Fund's portfolio at
the end of each month in the thirteen-month period ended with its last fiscal
year, averaged over its last fiscal year. The rating used for each security is
that security's rating as of the end of each month and, as ratings may change
over time, does not necessarily indicate past or future ratings of any
particular security or the ratings of securities in the portfolio in general.
Asset composition of the Fund by rating categories at any particular time does
not necessarily indicate future asset composition by rating categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A.
The Fund may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be of
equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase an unlimited amount of
foreign securities. The Fund may not hold foreign currency except in connection
with the purchase or sale of such foreign securities. The Fund will not invest
more than 25% of its total assets in securities issued by the government of any
one foreign country.
Options, Futures and Other Strategies. The Fund may use certain options
and indexed securities to attempt to enhance income or yield or may attempt to
reduce the overall risk of its investments by using certain options, futures
contracts and certain other strategies described herein. The strategies
described below may be used in an attempt to manage certain risks of the Fund's
investments that can affect fluctuation in its net asset value.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right to
buy, and obligates the writer to sell, the underlying investment at the agreed
upon exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying investment at
the agreed upon exercise price during the option period. Purchasers of options
pay an amount, known as a premium, to the option writer in exchange for the
right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities, or cash in the case of an option on an index, subject to the
call or the collateral underlying the put until a closing purchase transaction
can be entered into or the option expires. Because index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Fund bears the risk that the value of the securities it holds
will vary from the value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may
purchase and write (sell) put and call options only on debt securities, common
stocks, broadly-based stock indices (i.e., include stocks that are not limited
to issuers in any particular industry or similar industries), and the options on
futures contracts described below, subject to certain restrictions that are set
forth in the SAI.
As a fundamental policy, the Fund may write calls on securities only if
the calls are covered calls (i.e., the Fund must own the related investments or
other investments suitable for escrow arrangements).
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. When the Fund sells a futures contract, it
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed upon price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy
and sell futures contracts relating to debt securities and futures contracts on
broadly-based stock indices and options thereon.
The Fund intends to use futures contracts and options thereon only to
attempt to hedge against market risks that could adversely affect the value of
its portfolio. The Fund intends to invest less than 5% of its total assets in
futures contracts.
Indexed Securities. The Fund may purchase and sell indexed securities,
which are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the United States and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations and stripped mortgage-backed securities.
The value of these securities may be significantly affected by changes in
interest rates, the market's perception of the issuers and the creditworthiness
of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently on mortgage-backed securities
and that principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if the Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Accelerated prepayments on securities purchased by
the Fund at a premium also impose a risk of loss of principal because the
premium may not have been fully amortized at the time the principal is repaid in
full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association) is guaranteed by the
full faith and credit of the United States. This is not a guarantee against
market decline of the value of these securities or shares of the Fund. It is
possible that the availability and marketability (i.e., liquidity) of these
securities could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit.
Policies and Restrictions: The Fund intends to invest less than 5% of
its total assets in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: The Fund intends to invest less than 5% of
its total assets in stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities, stripped
securities and mortgage-backed securities, involve special risks, including (i)
possible imperfect or no correlation between price movements of the portfolio
investments (held or intended to be purchased) involved in the transaction and
price movements of the instruments involved in the transaction, (ii) possible
lack of a liquid secondary market for any particular instrument at a particular
time, (iii) the need for additional portfolio management skills and techniques,
(iv) losses due to unanticipated market price movements, (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction, (vi) incorrect forecasts
by WRIMCO concerning interest rates or direction of price fluctuations of the
investment involved in the transaction, which may result in the strategy being
ineffective, (vii) loss of premiums paid by the Fund on options it purchases,
and (viii) the possible inability of the Fund to purchase or sell a portfolio
security at a time when it would otherwise be favorable for it to do so, or the
possible need for the Fund to sell a portfolio security at a disadvantageous
time, due to the need for the Fund to maintain "cover" or to segregate
securities in connection with such transactions and the possible inability of
the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments, including securities with
embedded derivatives, for hedging purposes to adjust the risk characteristics of
the Fund's portfolio of investments and may invest up to 5% of its total assets
in these instruments to adjust the return characteristics of the Fund's
portfolio of investments. An embedded derivative is a derivative that is part
of another financial instrument. Embedded derivatives typically, but not
always, are debt securities whose return of principal or interest, in part, is
determined by reference to something that is not intrinsic to the security
itself. The use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
the Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that the Fund has entered
into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate or
stock market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various interest
rate movements or stock market movements or the time span within which the
movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goals, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase a security if, as a result, more than 10% of its net assets would
consist of restricted securities.
The Fund may not purchase a security if, as a result, more than 10% of its
net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not
buy a security if, as a result, it would own more than 10% of the voting
securities or any class of securities of an issuer, or if more than 5% of the
Fund's total assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
money only from banks, as a temporary measure or for extraordinary or emergency
purposes but only up to 5% of its total assets. The Fund does not intend to
borrow for temporary measures; however, it may borrow to cover redemptions or
settlements of securities transactions. See the SAI for further information on
the Fund's ability to borrow.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund may not
lend more than 10% of its assets at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, the Fund may invest
up to 5% of its net assets in warrants. The Fund does not intend to invest more
than 2% of its net assets in warrants that are not listed on the New York Stock
Exchange (the "NYSE") or American Stock Exchange. Warrants acquired in units or
attached to other securities are not considered for purposes of computing these
limitations.
As a fundamental policy, the Fund may buy shares of other investment
companies that do not redeem their shares only if it does so in a regular
transaction in the open market and only if not more than 10% of the Fund's total
assets would be invested in these shares. The Fund does not intend to invest
more than 5% of its assets in such securities.
As a fundamental policy, no more than 5% of the Fund's assets may be
invested in companies that have not been in continuous operation for at least
three years (including predecessor companies) other than securities issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares
are available for purchase by:
participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has 100
or more eligible employees and holds the shares in an omnibus account on the
Fund's records;
banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
certain retirement plans and trusts for employees and account representatives
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share) is
the Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are sold
without a sales charge.
To purchase by wire, you must first obtain an account number by calling
1-800-366-2520, then mail a completed application to Waddell & Reed, Inc., P. O.
Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding, with respect to that class, the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a dealer in bonds that offers a pricing service.
Short-term debt securities are valued at amortized cost, which approximates
market value. Other assets are valued at their fair value by or at the
direction of the Board of Directors.
The Fund is open for business each day the NYSE is open. The Fund
normally calculates the net asset values of its shares as of the later of the
close of business of the NYSE, normally 4 p.m. Eastern time, or the close of the
regular session of any other securities or commodities exchange on which an
option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the NYSE
is closed. Consequently, the NAV of Fund shares may be significantly affected
on days when the Fund does not price its shares and when you have no access to
the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
The Fund does not issue certificates representing Class Y shares of the Fund.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first twelve
months)
For other investors: Any
amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell &
Reed, Inc. Mail the check along with a letter showing your account number, the
account registration and stating the fund whose shares you wish to purchase, to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by Waddell
& Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will give
you notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account with
the Fund. Call 913-236-2000 if you need copies of annual or semiannual reports
or historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of the Fund may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. Ordinarily, dividends are
distributed monthly from the Fund's net investment income, which includes
accrued interest, earned discount, dividends and other income earned on
portfolio assets less expenses. Net capital gains (and any net realized gains
from foreign currency transactions) ordinarily are distributed in December. The
Fund may make additional distributions if necessary to avoid Federal income or
excise taxes on certain undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class Y shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class
Y shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) and net capital gains (the
excess of net long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital gain,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. The Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year. Under certain circumstances, the Fund may elect to
permit shareholders to take a credit or deduction for foreign income taxes paid
by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the United Group generally will have similar tax consequences. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares (regardless of class) at a loss, part or all of that
loss will not be deductible and will increase the basis of the newly purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United High Income Fund, Inc. is a mutual fund: an investment that
pools shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end, diversified management investment company
organized as a corporation under Maryland law on January 11, 1979.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Fund has issued and outstanding Class A shares
which are offered by Waddell & Reed, Inc. through a separate prospectus. Prior
to July 31, 1995, the Fund offered only one class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Class A
shares are subject to a sales charge on purchases but are not subject to
redemption fees. Class A shares are subject to a Rule 12b-1 fee at an annual
rate of up to 0.25% of the Fund's average net assets attributable to Class A
shares. Additional information about Class A shares may be obtained by calling
913-236-2000 or by writing to Waddell & Reed, Inc. at the address on the inside
back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's
Board of Directors. WRIMCO provides investment advice to the Fund and
supervises the Fund's investments. Waddell & Reed, Inc. and its predecessors
have served as investment manager to each of the registered investment companies
in the United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992, when
it assigned its duties as investment manager and assigned its professional staff
for investment management services to WRIMCO. WRIMCO has also served as
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and United Asset Strategy Fund, Inc. since it commenced
operations in March 1995.
Louise D. Rieke is primarily responsible for the day-to-day management of
the portfolio of the Fund. Ms. Rieke has held her Fund responsibilities since
January 1990. She is Vice President of WRIMCO and Vice President of Waddell &
Reed Asset Management Company, an affiliate of WRIMCO. She is Vice President of
the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. Ms. Rieke has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, WRIMCO,
since July 1986 and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since May 1971. Other members of WRIMCO's investment
management department provide input on market outlook, economic conditions,
investment research and other considerations relating to the Fund's
investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends. Waddell
& Reed Services Company also acts as agent ("Accounting Services Agent") in
providing bookkeeping and accounting services and assistance to the Fund and
pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .15 of 1% of its net assets. The
group fee is a pro rata participation based on the relative net asset size of
the Fund in the group fee computed each day on the combined net asset values of
all the funds in the United Group at the annual rates shown in the following
table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollarsFor Each
in millions)Level
- -------------------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000.36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group
were approximately $14.0 billion as of March 31, 1996. Management fees for the
fiscal year ended March 31, 1996 were 0.56% of the Fund's average net
assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class Y shares, the Fund pays the Shareholder Servicing Agent a monthly fee
based on the average daily net assets of the class for the preceding month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. Portfolio turnover is usually
considered to be high if it exceeds 100%. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. An S&P corporate bond rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable MIS
rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's Ratings Services. An S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the debt rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS' familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
United High Income Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent AccountantsAgent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, KansasAccounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United High Income Fund, Inc.
Class Y Shares
PROSPECTUS
June 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1009-Y(6-96)
printed on recycled paper
<PAGE>
UNITED HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
June 30, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
("Prospectus") for the Class A shares or the Class Y shares, as applicable, of
United High Income Fund, Inc. (the "Fund") dated June 30, 1996, which may be
obtained from the Fund or its underwriter, Waddell & Reed, Inc., at the address
or telephone number shown above.
TABLE OF CONTENTS
Performance Information ............................ 2
Goals and Investment Policies ...................... 4
Investment Management and Other Services ........... 27
Purchase, Redemption and Pricing of Shares ......... 31
Directors and Officers ............................. 46
Payments to Shareholders ........................... 51
Taxes .............................................. 53
Portfolio Transactions and Brokerage ............... 56
Other Information .................................. 59
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time
to time publish the Fund's total return information, yield information and/or
performance information in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Standardized total return information is calculated by assuming an initial
$1,000 investment and, for Class A shares, from which the maximum sales load of
5.75% is deducted. All dividends and distributions are assumed to be reinvested
in shares of the applicable class at net asset value for the class as of the day
the dividend or distribution is paid. No sales load is charged on reinvested
dividends or distributions on Class A shares. The formula used to calculate the
total return for a particular class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that class.
The average annual total return quotations for Class A shares as of March
31, 1996, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from April 1, 1995 to
March 31, 1996: 7.60% 14.16%
Five-year period from April 1, 1989 to
March 31, 1996: 12.82% 14.16%
Ten-year period from April 1, 1986 to
March 31, 1996: 6.87% 7.50%
Prior to July 31, 1995, the Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Fund have been available to certain
institutional investors.
The aggregate total return quotations for Class Y shares as of March 31,
1996, which is the most recent balance sheet included in this SAI, for the
period shown were as follows:
Period from inception* to
March 31, 1996: 1.00%
*United High Income Fund commenced selling Class Y shares on January 4,
1996.
The Fund may also quote unaveraged or cumulative total return for a class
which reflects the change in value of an investment in that class over a stated
period of time. Cumulative total returns will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Yield
A yield quoted for a class of the Fund is computed by dividing the net
investment income per share of that class earned during the period for which the
yield is shown by the maximum offering price per share of that class on the last
day of that period according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of the Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day
of the period.
The yield for Class A shares of the Fund computed according to the
formula for the 30-day period ended on March 31, 1996, the date of the most
recent balance sheet included in this SAI, is 7.45%. The yield for Class Y
shares of the Fund computed according to the formula for the 30-day period ended
on March 31, 1996, the date of the most recent balance sheet included in this
SAI, is 7.94%.
Change in yields primarily reflect different interest rates received by the
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses of
the applicable class.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. Each class of the Fund may also compare its performance to that of
other selected mutual funds or selected recognized market indicators such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average.
Performance information may be quoted numerically or presented in a table, graph
or other illustration.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or
less than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Securities -- General
The Fund may invest in securities including common stock, preferred stock
and debt securities, as described in the Prospectus. These securities may
include the following described securities from time to time.
The Fund may purchase debt securities whose principal amount at maturity is
dependent upon the performance of a specified equity security. The issuer of
such debt securities, typically an investment banking firm, is unaffiliated with
the issuer of the equity security to whose performance the debt security is
linked. Equity-linked debt securities differ from ordinary debt securities in
that the principal amount received at maturity is not fixed, but is based on the
price of the linked equity security at the time the debt security matures. The
performance of equity-linked debt securities depends primarily on the
performance of the linked equity security and may also be influenced by interest
rate changes. In addition, although the debt securities are typically adjusted
for diluting events such as stock splits, stock dividends and certain other
events affecting the market value of the linked equity security, the debt
securities are not adjusted for subsequent issuances of the linked equity
security for cash. Such an issuance could adversely affect the price of the
debt security. In addition to the equity risk relating to the linked equity
security, such debt securities are also subject to credit risk with regard to
the issuer of the debt security. In general, however, such debt securities are
less volatile than the equity securities to which they are linked.
The Fund may also invest in a type of convertible preferred stock that pays
a cumulative, fixed dividend that is senior to, and expected to be in excess of,
the dividends paid on the common stock of the issuer. At the mandatory
conversion date, the preferred stock is converted into not more than one share
of the issuer's common stock at the "call price" that was established at the
time the preferred stock was issued. If the price per share of the related
common stock on the mandatory conversion date is less than the call price, the
holder of the preferred stock will nonetheless receive only one share of common
stock for each share of preferred stock (plus cash in the amount of any accrued
but unpaid dividends). At any time prior to the mandatory conversion date, the
issuer may redeem the preferred stock upon issuing to the holder a number of
shares of common stock equal to the call price of the preferred stock in effect
on the date of redemption divided by the market value of the common stock, with
such market value typically determined one or two trading days prior to the date
notice of redemption is given. The issuer must also pay the holder of the
preferred stock cash in an amount equal to any accrued but unpaid dividends on
the preferred stock. This convertible preferred stock is subject to the same
market risk as the common stock of the issuer, except to the extent that such
risk is mitigated by the higher dividend paid on the preferred stock. The
opportunity for equity appreciation afforded by an investment in such
convertible preferred stock, however, is limited, because in the event the
market value of the issuer's common stock increases to or above the call price
of the preferred stock, the issuer may (and would be expected to) call the
preferred stock for redemption at the call price. This convertible preferred
stock is also subject to credit risk with regard to the ability of the issuer to
pay the dividend established upon issuance of the preferred stock. Generally,
convertible preferred stock is less volatile than the related common stock of
the issuer.
Specific Securities and Investment Practices
Common Stocks
As a fundamental policy, the Fund will not purchase, or otherwise
voluntarily acquire, any common stocks unless, after such purchase or
acquisition, not more than 20% of the value of its total assets would be
invested in common stocks. This 20% limit includes common stocks acquired on
conversion of convertible securities, on exercise of warrants or call options,
or in any other voluntary manner. It does not include premiums paid or received
in connection with put or call options, or the amount of any margin deposits as
to options or futures contracts. If the Fund is invested up to 20% in common
stocks, it may still purchase or sell futures and options relating to common
stocks. The common stocks that the Fund purchases will be selected to try to
achieve either a combination of the Fund's primary and secondary goals, in which
case they will be dividend-paying, or its secondary goal, in which case they may
not be dividend-paying; however, the Fund does not intend to invest more than 4%
of its total assets in non-dividend-paying common stocks.
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the
Resolution Funding Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the instrumentality and not by
the Treasury. If the securities are not backed by the full faith and credit of
the United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert a
claim against the United States in the event that the agency or instrumentality
does not meet its commitment.
U.S. Government Securities may include mortgage-backed securities of the
Government National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae"). These mortgage-backed securities include "pass-
through" securities and "participation certificates." Another type of mortgage-
backed security is a collateralized mortgage obligation ("CMO"). See "Mortgage-
Backed Securities." Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury security and selling them as
individual securities. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financing Corporation (FICO) can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued by
the U.S. Government, a government agency or a corporation in zero coupon form.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Some
mortgage-backed securities, such as collateralized mortgage obligations, make
payments of both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with interests
sold in the pool; the assembly is made by an "issuer," such as a mortgage
banker, commercial bank or savings and loan association, which assembles the
mortgages in the pool and passes through payments of principal and interest for
a fee payable to it. Payments of principal and interest by individual
mortgagors are passed through to the holders of the interest in the pool.
Monthly or other regular payments on pass-through securities and participation
certificates include payments of principal (including prepayments on mortgages
in the pool) rather than only interest payments.
The Fund may purchase mortgage-backed securities issued by both
government and non-government entities such as banks, mortgage lenders, or other
financial institutions. Other types of mortgage-backed securities will likely
be developed in the future, and the Fund may invest in them if Waddell & Reed
Investment Management Company ("WRIMCO"), the Fund's investment manager,
determines they are consistent with the Fund's goals and investment
policies.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment rates
tend to increase, which tends to reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value.
Foreign Securities and Currency
The Fund may purchase foreign securities without limitation. The Fund will
not speculate in foreign currencies, but may briefly hold foreign currencies in
connection with the purchase or sale of foreign securities.
WRIMCO believes that there are investment opportunities as well as risks in
investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Individual foreign companies may
also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. WRIMCO believes that the Fund's ability to invest a
substantial portion of its assets abroad might enable it to take advantage of
these differences and strengths where they are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage).
The Fund may bear a transaction charge in connection with the exchange of
currency. There may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock
markets have substantially less volume than the New York Stock Exchange (the
"NYSE") and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government regulation of stock exchanges, brokers and listed companies than
in the United States. In addition, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments that could adversely affect
investments in securities of issuers located in those countries. If it should
become necessary, the Fund would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a U.S. issuer.
Restricted Securities
Restricted securities are subject to legal or contractual restrictions on
resale because they are not registered under the Securities Act of 1933, as
amended (the "1933 Act"). Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the 1933 Act, or in a registered public offering. Where registration is
required, the Fund may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent the Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which the Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments" below.
Lending Securities
One of the ways in which the Fund may try to realize income is by lending
its securities. If the Fund does this, the borrower pays the Fund an amount
equal to the dividends or interest on the securities that the Fund would have
received if it had not loaned the securities. The Fund also receives additional
compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash, U.S. Government Securities or bank letters
of credit, at least equal in value to the market value of the securities loaned
on each day that the loan is outstanding. If the market value of the loaned
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities loaned.
If the market value of the securities decreases, the borrower is entitled to
return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that the Fund may accept as collateral are agreements
by banks (other than the borrowers of the Fund's securities), entered into at
the request of the borrower and for its account and risk, under which the banks
are obligated to pay to the Fund, while the letter is in effect, amounts
demanded by the Fund if the demand meets the terms of the letter. The Fund's
right to make this demand secures the borrower's obligations to it. The terms
of any such letters and the creditworthiness of the banks providing them (which
might include the Fund's custodian bank) must be satisfactory to the Fund.
Under the Fund's current securities lending procedures, the Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. The Fund will make loans only under rules of the NYSE, which
presently require the borrower to give the securities back to the Fund within
five business days after the Fund gives notice to do so. If the Fund loses its
voting rights on securities loaned, it will have the securities returned to it
in time to vote them if a material event affecting the investment is to be voted
on. The Fund may pay reasonable finder's, administrative and custodian fees in
connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to (i) whom securities may be loaned, (ii) the investment of cash collateral, or
(iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 10%
of its net assets to be invested in illiquid securities, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or broker-
dealer) agrees, at the time of purchase, that it will repurchase the security at
a specified time and price. The amount by which the resale price is greater
than the purchase price reflects an agreed-upon market interest rate effective
for the period of the agreement. The return on the securities subject to the
repurchase agreement may be more or less than the return on the repurchase
agreement.
The majority of the repurchase agreements in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays and
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans, i.e., the
value of the underlying securities, which will be held by the Fund's custodian
bank or by a third party that qualifies as a custodian under Section 17(f) of
the Investment Company Act of 1940, as amended (the "1940 Act"), is and, during
the entire term of the agreement, will remain at least equal to the value of the
loan, including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase any securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis. The
securities so purchased or sold by the Fund are subject to market fluctuation;
their value may be less or more when delivered than the purchase price paid or
received. For example, delivery to the Fund and payment by the Fund in the case
of a purchase by it, or delivery by the Fund and payment to it in the case of a
sale by the Fund, may take place a month or more after the date of the
transaction. The purchase or sale price is fixed on the transaction date. The
Fund will enter into when-issued or delayed-delivery transactions in order to
secure what is considered to be an advantageous price and yield at the time of
entering into the transaction. No interest accrues to the Fund until delivery
and payment is completed. When the Fund makes a commitment to purchase
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of the securities in determining
its net asset value per share. The securities so sold by the Fund on a delayed-
delivery basis are also subject to market fluctuation; their value when the Fund
delivers them may be more than the purchase price the Fund receives. When the
Fund makes a commitment to sell securities on a delayed basis, it will record
the transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that, the Fund may not invest more than 10%
of its net assets in illiquid investments. Investments currently considered to
be illiquid include: (i) repurchase agreements not terminable within seven
days; (ii) restricted securities not determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors; (iii) securities for
which market quotations are not readily available; and (iv) over-the-counter
("OTC") options and their underlying collateral. The assets used as cover for
OTC options written by the Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
Indexed Securities
The Fund may purchase securities whose prices are indexed to the prices of
other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. Gold-
indexed securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to rise
and fall together with gold prices. Currency-indexed securities typically are
short-term to intermediate-term debt securities whose maturity values or
interest rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S. dollar-
denominated securities of equivalent issuers. Currency-indexed securities may
be positively or negatively indexed; that is, their maturity value may increase
when the specified currency value increases, resulting in a security that
performs similarly to a foreign-denominated instrument, or their maturity value
may decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values of a
number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations,
and certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Warrants
As a fundamental policy, the Fund may not invest more than 5% of its net
assets, valued at the lower of cost or market, in warrants. The Fund has
undertaken to certain state securities commissions that not more than 2% of the
Fund's net assets may be invested in warrants that are not listed on the NYSE or
the American Stock Exchange. Warrants acquired in units or attached to other
securities are not considered for purposes of computing these limitations.
Warrants are options to purchase equity securities at specific prices
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Warrants have no voting
rights, receive no dividends and have no rights with respect to the assets of
the issuer. Warrants are highly volatile and, therefore, more susceptible to a
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
Securities of Other Investment Companies
In order to comply with regulations of the State of Ohio, for so long as
such regulations are in effect and applicable to the Fund, the Fund will not
invest in securities of other investment companies, except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
the purchase other than the customary broker's commission, or except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
Real Estate
The Fund has an operating policy, which may be changed without shareholder
approval, which provides that the Fund may not invest in real estate or any non-
liquid interest in real estate trusts. The Fund may, however, buy obligations
or instruments which it may otherwise buy even though the issuer invests in real
estate or interests in real estate.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain options to
attempt to enhance income or yield or may attempt to reduce overall risk of its
investments by using certain options and futures contracts (sometimes referred
to as "futures"). Options and futures are sometimes referred to collectively as
"Financial Instruments." The Fund's ability to use a particular Financial
Instrument may be limited by its investment limitations or operating policies.
See "Investment Restrictions."
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that the
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which the Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several exchanges upon
which they are traded, the Commodity Futures Trading Commission (the "CFTC") and
various state regulatory authorities. In addition, the Fund's ability to use
Financial Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and
in the Prospectus, WRIMCO expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts and
other similar or related techniques. These new opportunities may become
available as WRIMCO develops new techniques, as regulatory authorities broaden
the range of permitted transactions and as new options, futures contracts,
options on futures contracts or other techniques are developed. WRIMCO may
utilize these opportunities to the extent that they are consistent with the
Fund's goals and permitted by the Fund's investment limitations and applicable
regulatory authorities. The Fund's Prospectus or this SAI will be supplemented
to the extent that new products or techniques involve materially different risks
than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities and interest rate
markets, which requires different skills than predicting changes in the prices
of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match the Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. The Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in the Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because WRIMCO projected a decline in the
price of a security in the Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss. In either such case, the
Fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If the Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time. The Fund's ability to close out a position
in a Financial Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("counterparty")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities or other options or futures contracts, or (2)
cash, receivables and short-term debt securities, with a value sufficient at all
times to cover its potential obligations to the extent not covered as provided
in (1) above. The Fund will comply with SEC guidelines regarding cover for
these instruments and will, if the guidelines so require, set aside cash, U.S.
Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount as determined
daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. The Fund may purchase call options ("calls") and write (i.e.,
sell) calls only if: (i) the investments to which the call relates (the
"related investments") are (a) debt securities, (b) common stocks, or (c)
"broadly-based" stock indices (i.e., include stocks that are not limited to
issuers in any particular industry or similar industries); and (ii) in the case
of calls written by the Fund, such calls are (except for calls on stock indices
and futures) covered, i.e., the Fund owns the related investments (or other
investments suitable for escrow arrangements) while the call is outstanding.
The Fund may purchase put options ("puts") or write (i.e., sell) puts only if
the related investment is one of those listed above as to calls. The Fund may
also purchase and sell the options on futures contracts described below. The
above limitations on the puts and calls the Fund may write or purchase are
fundamental policies, i.e., rules that may only be changed by a shareholder
vote. The Fund has no fundamental policies as to percentage limitations on its
purchase and sale of options; however, the Fund intends to invest less than 5%
of its total assets in options. In order to comply with regulations of the
state of California, the aggregate value of the obligations underlying puts
written by the Fund may not exceed 25% of net assets at the time the option is
sold.
The purchase of call options serves as a long hedge, and the purchase of
put options serves as a short hedge. Writing put or call options can enable the
Fund to enhance income or yield by reason of the premiums paid by the purchasers
of such options. However, if the market price of the security underlying a put
option declines to less than the exercise price of the option, minus the premium
received, the Fund would expect to suffer a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value.
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security depreciates to a
price lower than the exercise price of the put option, it can be expected that
the put option will be exercised and the Fund will be obligated to purchase the
security at more than its market value. If the put option is an OTC option, the
securities or other assets used as cover would be considered illiquid to the
extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
A type of put that the Fund may purchase is an "optional delivery standby
commitment," which is entered into by parties selling debt securities to the
Fund. An optional delivery standby commitment gives the Fund the right to sell
the security back to the seller on specified terms. This right is provided as
an inducement to purchase the security.
Risks of Options on Securities. The Fund is authorized to purchase and
sell both listed and OTC options. Exchange markets for options on debt
securities exist, but these instruments are primarily traded on the OTC market.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its counterparty
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when the Fund purchases an OTC option, it relies on the counterparty from
whom it purchased the option to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction. WRIMCO will evaluate the ability to
enter into closing purchase transactions in unlisted options prior to writing
them.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options only with major dealers
in unlisted options, there is no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration.
WRIMCO will evaluate the ability to enter into closing purchase transactions on
unlisted options prior to writing them. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Stock Indices. The Fund is permitted to write and purchase
options on broadly-based stock indices. Broadly-based stock indices include
stocks that are not limited to issuers in any particular industry or similar
industries. The Fund may write options on stock indices to generate income.
The Fund may also purchase calls on stock indices to hedge against anticipated
increases in the price of securities it wishes to acquire and purchase puts on
stock indices to hedge against anticipated declines in the market value of its
portfolio securities.
Puts and calls on stock indices are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and gain
or loss depends on changes in the broad-based index in question rather than on
price movements in individual securities or futures contracts. When the Fund
writes a call on a stock index, it receives a premium and agrees that, prior to
the expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the stock index
upon which the call is based is greater than the exercise price of the call.
The amount of cash is equal to the difference between the closing price of the
index and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on a stock index, it pays a premium and
has the same rights as to a writer of such call as are indicated above. When
the Fund buys a put on a stock index, it pays a premium and has the right, prior
to the expiration date, to require the seller of 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 stock index upon which the put is based is less than the exercise
price of the put, which amount of cash is determined by the multiplier, as
described above for calls. When the Fund writes a put on a stock index, it
receives a premium and the purchaser has the right, prior to the expiration
date, to require the Fund to deliver to it an amount of cash equal to the
difference between the closing level of the stock index and the exercise price
times the multiplier if the closing level is less than the exercise price.
Risks of Options on Stock Indices. The risks of investment in options on
stock indices may be greater than options on securities. Because stock index
options are settled in cash, when the Fund writes a call on a stock index it
cannot provide in advance for its potential settlement obligations by acquiring
and holding the underlying securities. The Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of stocks similar
to those on which the underlying index is based. However, the Fund cannot, as a
practical matter, acquire and hold a portfolio containing exactly the same
stocks as underlie the index and, as a result, bears a risk that the value of
the securities held will vary from the value of the index.
Even if the Fund could assemble a stock portfolio that exactly reproduced
the composition of the underlying index, it still would not be fully covered
from a risk standpoint because of the "timing risk" inherent in writing index
options. When an index option is exercised, the amount of cash that the holder
is entitled to receive is determined by the difference between the exercise
price and the closing index level on the date when the option is exercised. As
with other kinds of options, the Fund as the call writer will not learn that it
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds stocks that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those stocks against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its stock portfolio.
This "timing risk" is an inherent limitation on the ability of index call
writers to cover their risk exposure by holding stock positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
Futures Contracts and Options Thereon. The Fund may buy and sell
futures contracts, but only futures contracts relating to debt securities ("Debt
Futures") and futures contracts on broadly-based stock indices (i.e., include
stocks that are not limited to issuers in any particular industry or similar
industries) ("Stock Index Futures"), and may also buy and sell options on Debt
Futures and Stock Index Futures. The limitation on buying and selling futures
contracts and options on futures contracts to the futures described above is a
fundamental policy that may only be changed by a shareholder vote. The Fund has
no other fundamental policies as to its use of futures and options thereon and,
thus, no fundamental policy as to a percentage limitation thereon; see below,
however, as to limitations relating to the CFTC. The Fund intends to invest
less than 5% of its total assets in futures contracts.
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve as
a limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of the
Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average duration
of the Fund's fixed-income portfolio, the Fund may sell a futures contract or a
call option thereon, or purchase a put option on that futures contract. If
WRIMCO wishes to lengthen the average duration of the Fund's fixed-income
portfolio, the Fund may buy a futures contract or a call option thereon, or sell
a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial margin"
consisting of cash or U.S. Government Securities in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing a
call or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions in
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. The Fund intends to enter into futures and options on futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. In such event, it may not be possible
to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or options on
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
As an operating policy, to the extent that the Fund enters into futures
contracts or options on futures contracts, in each case other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money" at the time of purchase) will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any contracts the Fund has entered into. (In
general, a call option on a futures contract is "in-the-money" if the value of
the underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of the Fund's assets that are at risk
in futures contracts and options on futures contracts.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to the differences in the natures of those markets, are subject to
the following factors, which may create distortions. First, all participants in
the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
future contracts through offsetting transactions, which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest or stock market trends by
WRIMCO may still not result in a successful transaction. WRIMCO may be
incorrect in its expectations as to the extent of various interest rate
movements or stock market movements or the time span within which the movements
take place.
Stock Index Futures. The risk of imperfect correlation between
movements in the price of Stock Index Futures and movements in the price of the
securities that are the subject of the hedge increases as the composition of the
Fund's common stock portfolio diverges from the common stocks included in the
applicable index. The price of the Stock Index Future may move more than or
less than the price of the securities being hedged. If the price of the Stock
Index Future moves less than the price of the securities that are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the futures contract. If the price of the futures
contract moves more than the price of the securities, the Fund will experience
either a loss or a gain on the future that will not be completely offset by
movements in the price of the securities that are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of the Stock Index Futures,
the Fund may buy or sell Stock Index Futures in a greater dollar amount than the
dollar amount of the securities being hedged if the historical volatility of the
prices of such securities being hedged is more than the historical volatility of
the prices of the securities included in the index. It is also possible that,
where the Fund has sold Stock Index Futures to hedge its common stocks against
decline in the market, the market may advance and the value of securities held
in the portfolio may decline. If this occurred, the Fund would lose money on
the futures contracts and also experience a decline in value in its portfolio
securities. However, while this could occur for a very brief period or to a
very small degree, over time the value of a diversified portfolio of securities
will tend to move in the same direction as the market indices upon which the
futures are based.
Where Stock Index Futures are purchased to hedge against a possible
increase in the price of securities before the Fund is able to invest in them in
an orderly fashion, it is possible that the market may decline instead. If the
Fund then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize loss on
the futures contracts that is not offset by a reduction in the price of the
common stocks it had anticipated purchasing.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures contracts, to adjust the risk
and return characteristics of its overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate.
Once the Fund has received an exercise notice on an option it has written, it
cannot effect a closing transaction in order to terminate its obligation under
the option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and, together with certain
restrictions described in the Prospectus, cannot be changed without shareholder
approval. Under these additional restrictions, the Fund may not:
(i) Buy commodities or commodity contracts or invest in mineral related
programs or leases; however, it may buy and sell any of the financial
instruments that it may use as permitted by any other fundamental
policy, whether or not any such financial instrument is considered to be
a commodity or a commodity contract;
(ii) Buy the securities of any company if it would then own more than 10% of
its voting securities or any class of its securities of that company; or
buy the securities of any company if more than 5% of the Fund's total
assets (valued at market value) would then be invested in that company;
or buy the securities of companies in any one industry if more than 25%
of the Fund's total assets would then be in companies in that industry;
(iii) Buy shares of other investment companies that redeem their shares. The
Fund can buy shares of investment companies that do not redeem their
shares if it does so in a regular transaction in the open market and
then does not have more than one tenth (i.e., 10%) of its total assets
in these shares. The Fund may also buy these shares as part of a merger
or consolidation;
(iv) Invest for the purpose of exercising control or management of other
companies;
(v) Buy or continue to hold securities if the Fund's Directors or officers
or certain others own too much of the same securities; if any one of
these people owns more than one two-hundredths (i.e., .5 of 1%) of the
shares of a company and if the people who own that much or more own one
twentieth (i.e., 5%) of that company's shares, the Fund cannot buy that
company's shares or continue to own them;
(vi) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(vii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions; however, the Fund may make margin
deposits in connection with any of the financial instruments it may use
as permitted by any of its other fundamental policies;
(viii) Engage in the underwriting of securities, except to the extent it may be
deemed to be an underwriter in connection with the sale of restricted
securities. The Fund will not purchase restricted securities if as a
result of such purchase more than 10% of its net assets would be
invested in such securities;
(ix) Hold securities unless they are securities of a company that has been in
continuous operation for at least three years, including the operations
of predecessor companies, or are securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities. However,
the Fund may buy securities not meeting this test if it does not then
have more than 5% of its total assets so invested;
(x) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets; this does not prohibit the escrow
arrangements contemplated by the writing of covered call options. The
Fund may borrow money from banks, as a temporary measure or for
extraordinary or emergency purposes but only up to 5% of its total
assets; or
(xi) Make loans other than certain limited types of loans; the Fund may buy
debt securities which have been sold to the public; it may also buy
other obligations customarily acquired by institutional investors; this
can be considered to be making loans. The Fund may also enter into
repurchase agreements (see "Repurchase Agreements" above) and lend its
securities (see "Lending Securities" above).
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The Fund's portfolio turnover rate for the fiscal years ended March 31,
1996 and 1995 was 41.67% and 18.94%, respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to TMK/United Funds, Inc. since that
fund's inception, until January 8, 1992 when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for Waddell & Reed Funds,
Inc. since its inception in September 1992 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995. Waddell & Reed, Inc. serves as
principal underwriter for the investment companies in the United Group of Mutual
Funds and Waddell & Reed Funds, Inc. and serves as distributor for TMK/United
Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Fund pays WRIMCO a fee as described in the Prospectus. The management fees paid
by the Fund to WRIMCO during the Fund's fiscal years ended March 31, 1996, 1995
and 1994 were $5,455,292, $5,368,151 and $5,853,860, respectively.
For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, for the Class A shares, the
Fund pays the Agent a monthly fee of $1.3125 ($1.0208 prior to April 1, 1996)
for each shareholder account that was in existence at any time during the prior
month, plus $0.30 for each account on which a dividend or distribution, of cash
or shares, had a record date in that month. For Class Y shares, the Fund pays
the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average daily
net assets of that class for the preceding month. The Fund also pays certain
out-of-pocket expenses of the Agent, including long distance telephone
communications costs; microfilm and storage costs for certain documents; forms,
printing and mailing costs; and costs of legal and special services not provided
by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended March 31,1996, 1995
and 1994 were $85,000, $85,000 and $97,500, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay by requiring WRIMCO to reduce its fee to the extent any
included expenses exceed 2.5% of the Fund's first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of any
remaining average net assets during a fiscal year. The limit does not include
interest, taxes, brokerage commissions and extraordinary expenses such as
litigation that usually do not arise in the normal operations of a mutual fund.
The Fund's other expenses, including its management fee, are included. The Fund
will notify shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares and
thus sells shares only for purchase orders received. Under this agreement,
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 Class A shares for the fiscal years ended March 31,
1996, 1995 and 1994 were $1,968,791, $2,029,557 and $3,306,458, respectively,
and the amounts retained by Waddell & Reed, Inc. were $856,803, $862,457 and
$1,443,693, respectively.
A major portion of the sales charge for Class A shares is paid to account
representatives and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may
compensate its account representatives as to purchases for which there is no
sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Service Plan for Class A shares (the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay Waddell & Reed,
Inc., the principal underwriter for the Fund, a fee not to exceed .25% of the
Fund's average annual net assets attributable to Class A shares, paid monthly,
to reimburse Waddell & Reed, Inc. for its costs and expenses in connection with
the provision of personal services to Class A shareholders of the Fund and/or
maintenance of Class A shareholder accounts.
The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders of the Fund and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders of
the Fund by office personnel located at field sales offices; engaging in other
activities useful in providing personal service to Class A shareholders of the
Fund and/or maintenance of Class A shareholder accounts; and in compensating
broker-dealers who may regularly sell Class A shares of the Fund, and other
third parties, for providing shareholder services and/or maintaining shareholder
accounts with respect to Class A shares. Service fees in the amount of
$1,122,736 were paid (or accrued) by the Fund with respect to Class A shares for
the fiscal year ended March 31, 1996.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by the affected shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding Class A shares of the Fund, and (iv)
while the Plan remains in effect, the selection and nomination of the Directors
who are Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, the Custodian is responsible for holding the Fund's cash and
securities. Price Waterhouse LLP, Kansas City, Missouri, the Fund's independent
accountants, audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of the Fund is the value
of the assets of that class, less the liabilities of that class, divided by the
total number of outstanding shares of that class.
Class A shares of the Fund are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup as of
March 31, 1996 was as follows:
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ................................ $9.09
Add: selling commission (5.75% of offering
price) ................................... .55
-----
Maximum offering price per Class A share
(Class A net asset value per share divided
by 94.25%) ............................... $9.64
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class Y share is its net asset value next determined
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
receives and accepts your order at its principal business office at the address
shown on the cover of this SAI. You will be sent a confirmation after your
purchase which will indicate how many shares you have purchased. Shares are
normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily computed
daily on each day that the NYSE is open for trading as of the later of the close
of the regular session of the NYSE (ordinarily, 4:00 p.m. Eastern time) or the
close of the regular session of any domestic securities or commodities exchange
on which an option or future held by the Fund is traded. The NYSE annually
announces the days on which it will not be open for trading. The most recent
announcement indicates that the NYSE will not be open on the following days:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. However, it is possible that the
NYSE may close on other days. The net asset value will change every business
day, since the value of the assets and the number of shares outstanding change
every day.
The securities in the portfolio of the Fund, except as otherwise noted,
that are listed or traded on a stock exchange are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations), which provides information on bid and asked prices quoted
by major dealers in such stocks. Bonds, other than convertible bonds, are
valued using a pricing system provided by a major dealer in bonds. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities and other assets are valued at amortized
cost, which approximates market. When market quotations are not readily
available, securities and other assets are valued at fair value as determined in
good faith under procedures established by and under the general supervision and
responsibility of the Board of Directors.
Options and futures purchased and held by the Fund are valued at the
last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session for option trading
on national securities exchanges is 4:10 p.m. Eastern time and the close of the
regular session of commodities exchanges is 4:15 p.m. Eastern time. Futures
contracts will be valued by reference to established futures exchanges. The
value of a futures contract purchased by the Fund will be either the closing
purchase price of the contract or the bid price. Conversely, the value of a
futures contract sold by the Fund will be either the closing price or the asked
price.
When the Fund writes a put or call, an amount equal to the premium
received is included in the Fund's Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability section.
The deferred credit is "marked-to-market" (that is, treated as sold for its fair
market value) to reflect the current market value of the put or call. If a call
the Fund wrote is exercised, the proceeds received on the sale of the related
investment are increased by the amount of the premium the Fund received. If the
Fund exercised a call it purchased, the amount paid to purchase the related
investment is increased by the amount of the premium paid. If a put written by
the Fund is exercised, the amount that the Fund pays to purchase the related
investment is decreased by the amount of the premium it received. If the Fund
exercises a put it purchased, the amount received from the sale of the related
investment is reduced by the amount of the premium it paid. If a put or call
written by the Fund expires, it has a gain in the amount of the premium; if it
enters into a closing purchase transaction, it will have a gain or loss
depending on whether the premium was more or less than the cost of the closing
transaction.
Foreign currency exchange rates are generally determined prior to the close
of trading of the regular session of the NYSE. Occasionally events affecting
the value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the regular session of trading on
the NYSE, which events will not be reflected in a computation of the Fund's net
asset value on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period,
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of the Fund conducted on a spot (i.e., cash) basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Fund's Board of Directors. They
are accounted for in the same manner as exchange-listed puts.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A $50
minimum initial investment also pertains to accounts for which an investor has
arranged, at the time of initial investment, to make subsequent purchases for
the account by having regular monthly withdrawals of $25 or more made from a
bank account. A minimum initial investment of $25 is applicable to purchases
made through payroll deduction for or by employees of WRIMCO, Waddell & Reed,
Inc., their affiliates, or certain retirement plan accounts. Except with
respect to certain exchanges and automatic withdrawals from a bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges for
Shares of Other Funds in the United Group."
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. For the
purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in
a Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
("UTMA") account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), Section 457 of the Internal Revenue
Code of 1986, as amended (the "Code"), salary reduction plan account
provided that such purchases are subject to a sales charge (see "Net Asset
Value Purchases"), tax sheltered annuity account ("TSA") or Keogh plan
account, provided that the individual and spouse are the only participants
in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there is
more than one participant where one or more of the participants is other than
the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee benefit
plan of an incorporated business will be grouped. A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code. All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping may
be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 of Class A shares is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that the
purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His wife,
W, now wishes to invest $20,000 in Class A shares of the Fund. W's
purchase will be combined with H's existing account and will be
entitled to a reduced sales charge of 4.75%. H's original purchase
was subject to a full sales charge and the reduced charge does not
apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan may be combined with the additional
purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by Waddell & Reed, Inc. Each purchase made from time to time under the
Statement of Intention is treated as if the purchaser were buying at one time
the total amount which he or she intends to invest. The sales charge applicable
to all purchases of Class A shares made under the terms of the Statement of
Intention will be the sales charge in effect on the beginning date of the 13-
month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement of
Intention is accepted by Waddell & Reed, Inc. of $15,000; H's wife, W,
has an account in her own name invested in another fund in the United
Group which charges the same sales load as the Fund, with a net asset
value as of the date of acceptance of the Statement of $10,000; H
needs to invest $75,000 in Class A shares over the 13-month period in
order to qualify for the reduced sales load applicable to a purchase
of $100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan will be taken into account in
determining the amount which must be invested under the Statement of Intention
only if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement of Intention. An
amount equal to 5% of the purchase required under the Statement of Intention
will be held "in escrow." If a purchaser does not, during the period covered by
the Statement of Intention, invest the amount required to qualify for the
reduced sales charge under the terms of the Statement of Intention, he or she
will be responsible for payment of the sales charge applicable to the amount
actually invested. The additional sales charge owed on purchases of Class A
shares made under a Statement of Intention which is not completed will be
collected by redeeming part of the shares purchased under the Statement of
Intention and held "in escrow" unless the purchaser makes payment of this amount
to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for
payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell
& Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of Intention will be deducted in computing the aggregate purchases
under the Statement of Intention.
Statements of Intention are not available for purchases made under an
SEP where the employer has elected to have all purchases under the SEP
grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a sales
charge. A purchase of, or shares held, in any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group have shares that are subject to
a maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United Retirement
Shares, Inc., United High Income Fund, Inc., United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc., United High Income Fund II, Inc. and United
Asset Strategy Fund, Inc. The following funds in the United Group have shares
that are subject to a "reduced" sales charge as described in the prospectus of
each fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of obtaining
the lower sales charge which applies to large purchases, purchases in a fund in
the United Group of shares that are subject to a full sales charge may not be
grouped with purchases of shares in a fund in the United Group that are subject
to a reduced sales charge; conversely, purchases of shares in a fund with a
reduced sales charge may not be grouped or combined with purchases of shares of
a fund that are subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be purchased
at net asset value by the Directors and officers of the Fund, employees of
Waddell & Reed, Inc., employees of their affiliates, account representatives of
Waddell & Reed, Inc. and the spouse, children, parents, children's spouses and
spouse's parents of each such Director, officer, employee and account
representative. "Child" includes stepchild; "parent" includes stepparent.
Purchases of Class A shares in an IRA sponsored by Waddell & Reed, Inc.
established for any of these eligible purchasers may also be at net asset value.
Purchases in any tax qualified retirement plan under which the eligible
purchaser is the sole participant may also be made at net asset value. Trusts
under which the grantor and the trustee or a co-trustee are each an eligible
purchaser are also eligible for net asset value purchases of Class A shares.
"Employees" includes retired employees. A retired employee is an individual
separated from service from Waddell & Reed, Inc. or affiliated companies with a
vested interest in any Employee Benefit Plan sponsored by Waddell & Reed, Inc.
or its affiliated companies. "Account representatives" includes retired account
representatives. A "retired account representative" is any account
representative who was, at the time of separation from service from Waddell &
Reed, Inc., a Senior Account Representative. A custodian under the UGMA or UTMA
purchasing for the child or grandchild of any employee or account representative
may purchase Class A shares at net asset value whether or not the custodian
himself is an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for Class A shares, there are
a number of instances in which the Fund's Class A shares are sold or issued on a
basis other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The reasons
for these quantity discounts are, in general, that (i) they are traditional and
have long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts, (ii)
certain quantity discounts are required by rules of the National Association of
Securities Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and distributions), and (iii) they are designed to
avoid an unduly large dollar amount of sales charge on substantial purchases in
view of reduced selling expenses. Quantity discounts are made available to
certain related persons for reasons of family unity and to provide a benefit to
tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted by the 1940 Act from the otherwise applicable restrictions as to what
sales charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing Class A shareholders
adversely affected since, in each case, the Fund receives the net asset value
per share of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). The Service is
available not only for Class A shares of the Fund but also for Class A shares of
any of the funds in the United Group. It would be a disadvantage to an investor
to make additional purchases of Class A shares while a withdrawal program is in
effect as this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
Class A shares which you still own of any of the funds in the United Group; or,
you must own Class A shares having a value of at least $10,000. The value for
this purpose is not the net asset value but the value at the offering price,
i.e., the net asset value plus the sales charge.
To start the Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the account (you fix
the percentage); or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a fixed number of shares (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of its service.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for
the Service are paid in additional Class A shares. All payments are made by
redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments under the Service exceed dividends and distributions, the
number of Class A shares you own will decrease. When all of the shares in your
account are redeemed, you will not receive any further payments. Thus, the
payments are not an annuity or an income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. For
example, if you started out with a $50 monthly payment, you could change to a
$200 quarterly payment. You can at any time redeem part or all of the shares in
your account; if you redeem all of the shares, the Service is terminated. The
Fund can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges
Once a sales charge has been paid on shares of a fund in the United Group,
these shares and any shares added to them from reinvestment of dividends or
distributions may be freely exchanged for corresponding shares of another fund
in the United Group. The shares you exchange must be worth at least $100 or you
must already own shares of the fund in the United Group into which you want to
exchange.
You may exchange corresponding shares you own in another fund in the United
Group for Class A shares of the Fund without charge if (i) a sales charge was
paid on these shares, or (ii) the shares were received in exchange for shares
for which a sales charge was paid, or (iii) the shares were acquired from
reinvestment of dividends and distributions paid on such shares. There may have
been one or more such exchanges so long as a sales charge was paid on the shares
originally purchased. Also, shares acquired without a sales charge because the
purchase was $2 million or more will be treated the same as shares on which a
sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Class A shares of these funds may be exchanged for Class A
shares of the Fund only if (i) you have received those shares as a result of one
or more exchanges of shares on which a sales charge was originally paid, or (ii)
the shares have been held from the date of the original purchase for at least
six months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of Class A shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any other
fund in the United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must own
Class A shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange is
$100, which may be allocated among the Class A shares of different funds in the
United Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
You may redeem your Class A shares of the Fund and use the proceeds to
purchase Class Y shares of the Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
fund in the United Group.
General Exchange Information
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your exchange request is received in good order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be set
up as a funding vehicle for a retirement plan. For individual taxpayers meeting
certain requirements, Waddell & Reed, Inc. offers prototype documents for the
following retirement plans. All of these plans involve investment in shares of
the Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures. Redemption
payments are made within seven days unless delayed because of emergency
conditions determined by the SEC, when the NYSE is closed other than for
weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemption of shares of the Fund may be made
in portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege for
Class A shares under which, if you redeem your Class A shares and then decide it
was not a good idea, you may reinvest. If Class A shares of the Fund are then
being offered, you can put all or part of your redemption payment back into
Class A shares of the Fund without any sales charge at the net asset value next
determined after you have returned the amount. Your written request to do this
must be received within 30 days after your redemption request was received. You
can do this only once as to Class A shares of the Fund. You do not use up this
privilege by redeeming Class A shares to invest the proceeds at net asset value
in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board of Directors has no intent to compel redemptions in the foreseeable
future. If it should elect to compel redemptions, shareholders who are affected
will receive prior written notice and will be permitted 60 days to bring their
accounts up to the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wise is a member of the Fund's Board of Directors. The other
persons are officers but not Board members. For purposes of this section, the
term "Fund Complex" includes each of the registered investment companies in the
United Group of Mutual Funds, Waddell & Reed Funds, Inc. and TMK/United Funds,
Inc. Each of the Fund's Directors is also a Director of each of the other funds
in the Fund Complex and each of its officers is also an officer of one or more
of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corporation; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Professor of Marketing,
College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Retired.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Chairman, Gilliland & Hayes, P.A., a
law firm; formerly, President, Gilliland & Hayes, P.A.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired
as Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; 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 WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
John M. Holliday
Vice President of the Fund and eight other funds in the Fund Complex;
Senior Vice President of WRIMCO and Waddell & Reed Asset Management Company;
formerly, Senior Vice President of Waddell & Reed, Inc.
Louise D. Rieke
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of WRIMCO; Vice President of Waddell & Reed Asset Management Company;
formerly, Vice President of Waddell & Reed, Inc.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund Complex; Vice
President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be deemed to
be "interested persons" (as defined in the 1940 Act) of its underwriter, Waddell
& Reed, Inc., or of WRIMCO. The Directors who may be deemed to be "interested
persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no authority
or responsibility with respect to management of the Fund. Mr. Leslie S. Wright
retired as a Director of the Fund and of each of the funds in the Fund Complex
effective April 1, 1996, and has elected a position as Director Emeritus.
During the Fund's fiscal year ended March 31, 1996, Mr. Wright received total
compensation for his service as a Director of $42,000 from the Fund Complex and
aggregate compensation from the Fund of $2,919.
As of April 1, 1996, the funds in the United Group, TMK/United Funds, Inc.
and Waddell & Reed Funds, Inc. pay to each Director a total of $44,000 per year,
plus $1,000 for each meeting of the Board of Directors attended (prior to April
1, 1996, the funds in the United Group (with the exception of United Asset
Strategy Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. paid
to each Director a fee of $40,000 per year, plus $1,000 for each meeting of the
Board of Directors attended) and $500 for each committee meeting attended which
is not in conjunction with a Board of Directors meeting, other than Directors
who are affiliates of Waddell & Reed, Inc. The fees to the Directors who
receive them are divided among the funds in the United Group, TMK/United Funds,
Inc. and Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended March 31, 1996, the Fund's Directors
received the following fees for service as a director:
Compensation Table
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 3,189 0 46,000
Dodds I. Buchanan 3,189 0 46,000
Jay B. Dillingham 3,189 0 46,000
Linda Graves 1,587 0 24,000
John F. Hayes 3,189 0 46,000
Glendon E. Johnson 3,189 0 46,000
William T. Morgan 3,189 0 46,000
Doyle Patterson 3,189 0 46,000
Eleanor B. Schwartz 1,587 0 24,000
Frederick Vogel III 3,189 0 46,000
Paul S. Wise 3,189 0 46,000
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 1996, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date, no
person owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is the Fund's net investment income, which
is derived from the dividends, interest and earned discount on the securities it
holds, less expenses (which will vary by class). The second source is realized
capital gains, which are derived from the proceeds received from the sale of
securities at a price higher than the Fund's tax basis (usually cost) in such
securities; these gains can be either long-term or short-term, depending on how
long the Fund has owned the securities before it sells them. The third source
is net realized gains from foreign currency transactions. The payments made to
shareholders from net investment income, net short-term capital gains and net
realized gains from certain foreign currency transactions are called dividends.
Payments, if any, from long-term capital gains are called distributions.
The Fund pays distributions only if it has net capital gains (the excess
of net long-term capital gains over net short-term capital losses). It may or
may not have such gain, depending on whether or not securities are sold and at
what price. If the Fund has net realized capital gains, it will ordinarily pay
distributions once each year, in the latter part of the fourth calendar quarter.
Even if the Fund has capital gains for a year, the Fund does not pay out the
gains if it has applicable prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the same class as that with respect to which
they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares of
the Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the Board of
Directors.
Even if you get dividends and distributions on Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of the
Fund at net asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months (i) options,
futures contracts or forward contracts or (ii) foreign currencies (or options,
futures contracts or forward contracts thereon) that are not directly related to
the Fund's principal business of investing in securities (or in options and
futures with respect to securities) ("Short-Short Limitation"); (3) at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
Securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
outstanding voting securities of the issuer; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government Securities or
the securities of other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by you on
December 31 of that year even if they are paid by the Fund during the following
January. Accordingly, those dividends and distributions will be taxed to
shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors also should
be aware that if shares are purchased shortly before the record date for a
dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gains net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of a debt security denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its
shareholders.
Income from Options, Futures and Currencies
The use of hedging strategies, such as writing (selling) and purchasing
options and futures, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses the
Fund realizes in connection therewith. Income from foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and income
from transactions in options and futures derived by the Fund with respect to its
business of investing in securities or foreign currencies, will qualify as
permissible income under the Income Requirement. However, income from the
disposition of options and futures will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition of
foreign currencies that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the Short-Short Limitation if they are held
for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of certain options and futures beyond the time when it otherwise
would be advantageous to do so, in order for the Fund to continue to qualify as
a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gain. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it received for the option it wrote and the premium it paid for the
option it bought. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term capital gain. If
such an option is exercised and the Fund thus sells the securities subject to
the option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many options
that it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at the end
of each taxable year, other than section 1256 contracts that are part of a
"mixed straddle" with respect to which the Fund has made an election not to have
the following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gain or loss recognized on these deemed sales, and 60% of any
net realized gain or loss from any actual sales of section 1256 contracts, are
treated as long-term capital gains or losses, and the balance is treated as
short-term capital gains or losses. Section 1256 contracts also may be marked-
to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the taxation
of options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If the Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Fund are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
The Fund may acquire zero coupon or other securities issued with
original issue discount. As the holder of those securities, the Fund must
include in its income the original issue discount that accrues on the securities
during the taxable year, even if the Fund receives no corresponding payment on
the securities during the year. Similarly, the Fund must include in its gross
income securities it receives as "interest" on payment-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any original issue discount and other non-cash
income, in order to qualify for treatment as a RIC and to avoid imposition of
the Excise Tax, it may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from the Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. The Fund may
realize capital gains or losses from those sales, which would increase or
decrease its investment company taxable income and/or net capital gains. In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce the Fund's ability to sell other securities, or certain
options or futures, held for less than three months that it might wish to sell
in the ordinary course of its portfolio management.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange the purchase and sale of securities for the portfolio of the Fund.
Transactions in securities other than those for which an exchange is the primary
market are generally done with dealers acting as principals or market makers.
Brokerage commissions are paid primarily for effecting transactions in
securities traded on an exchange and otherwise only if it appears likely that a
better price or execution can be obtained. The individual who manages the Fund
may manage other advisory accounts with similar investment objectives. It can
be anticipated that the manager will frequently place concurrent orders for all
or most accounts for which the manager has responsibility. Transactions
effected pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each fund or
advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other funds and accounts over which WRIMCO or its affiliates
have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may
be higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations, WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the Fund and other funds managed by WRIMCO
or its affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO or its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research, which may be supplied by a third party at the
instance of a broker, includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider sales
of shares of the Fund and other funds managed by WRIMCO and its affiliates as a
factor in the selection of brokers to execute portfolio transactions. WRIMCO
intends to allocate brokerage on the basis of this factor only if the sale is $2
million or more and there is no sales charge. This results in the consideration
only of sales which by their nature would not ordinarily be made by Waddell &
Reed, Inc.'s direct sales force and is done in order to prevent the direct sales
force from being disadvantaged by the fact that it cannot participate in Fund
brokerage.
During the Fund's fiscal years ended March 31,1996, 1995 and 1994, it
paid brokerage commissions of $56,731, $53,290 and $55,516, respectively. These
figures do not include principal transactions or spreads or concessions on
principal transactions, i.e., those in which the Fund sells securities to a
broker-dealer firm or buys from a broker-dealer firm securities owned by it.
During the Fund's fiscal year ended March 31, 1996, the transactions,
other than principal transactions, which were directed to broker-dealers who
provided research as well as execution totaled $13,931,382 on which $44,804 in
brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling with Other Funds
The Fund and one or more of the other funds in the United Group, Waddell
& Reed Funds, Inc. and TMK/United Funds, Inc. or accounts over which Waddell &
Reed Asset Management Company exercises investment discretion frequently buy or
sell the same securities at the same time. If this happens, the amount of each
purchase or sale is divided. This is done on the basis of the amount of
securities each fund or account wanted to buy or sell. Sharing in large
transactions could affect the price the Fund pays or receives or the amount it
buys or sells. However, sometimes a better negotiated commission is
available.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class Y. Prior to
July 31, 1995, the Fund offered only one class of shares to the public. Shares
outstanding on that date were designated as Class A shares. Each class
represents an interest in the same assets of the Fund and differ as follows:
each class of shares has exclusive voting rights on matters pertaining to
matters appropriately limited to that class; Class A shares are subject to an
initial sales charge and to an ongoing service fee; each class may bear
differing amounts of certain class-specific expenses; and each class has a
separate exchange privilege. The Fund does not anticipate that there will be
any conflicts between the interests of holders of the different classes of
shares of the Fund by virtue of those classes. On an ongoing basis, the Board
of Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of the Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two classes, dividends and liquidation proceeds of Class A
shares are expected to be lower than for Class Y shares of the Fund. Each
fractional share of a class has the same rights, in proportion, as a full share
of that class.
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Shares Value
COMMON AND PREFERRED STOCKS AND WARRANTS
Amusement and Recreation Services - 0.28%
Fitzgeralds Gaming Corporation,
Warrants (A)* ....................... 14,000 $ 140,000
Trump Hotels & Casino Resorts, Inc.* . 87,500 2,559,375
Total ............................... 2,699,375
Business Services - 0.09%
Chancellor Communications Corporation,
Class A* ............................ 40,000 892,480
Communication - 0.69%
American Radio Systems Corporation* .. 63,000 2,126,250
Heartland Wireless Communications,
Inc., Warrants (A)* ................. 12,000 54,000
Infinity Broadcasting Corporation,
Class A* ............................ 101,250 4,391,719
IntelCom Group Inc., Warrants (A)* ... 20,625 165,000
Total ............................... 6,736,969
Electric, Gas and Sanitary Services - 0.20%
Consolidated Hydro, Inc., Preferred* . 3,000 405,000
Consolidated Hydro, Inc., Warrants (A)* 5,400 5
EUA Contingent Interest Certificates* 9,500 10
El Paso Electric Company, Preferred* . 15,000 1,548,750
Total ............................... 1,953,765
General Building Contractors - 1.00%
NVR L.P., Warrants* .................. 11,871 12,607
Walter Industries, Inc.* ............. 710,990 9,776,112
Total ............................... 9,788,719
Health Services - 0.17%
Beverly Enterprises, Inc.* ........... 150,000 1,650,000
Holding and Other Investment Offices - 0.31%
LTC Properties, Inc. ................. 100,000 1,625,000
National Health Investors, Inc. ...... 41,630 1,352,975
Total ............................... 2,977,975
Industrial Machinery and Equipment - 0.17%
Bell & Howell Holdings Company* ...... 50,000 1,637,500
Lumber and Wood Products - 1.17%
Triangle Pacific Corp.* .............. 660,844 11,357,926
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Shares Value
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
Printing and Publishing - 0.68%
Advanstar Holdings, Inc. (B)* ........ 75,625 $ 1,285,625
Advanstar Holdings, Inc.,
Warrants (A)* ....................... 1,750 1,750
K-III Communications Corporation,
Preferred (A)* ...................... 35,000 3,438,750
World Color Press, Inc.* ............. 100,000 1,900,000
Total ............................... 6,626,125
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 4.76% $ 46,320,834
(Cost: $56,778,239)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 3.69%
AMF Group Inc.:
0.0%, 3-15-2006 (A)(C) .............. $ 5,250 2,861,250
10.875%, 3-15-2006 (A) .............. 3,250 3,233,750
Argosy Gaming Company, Convertible,
12.0%, 6-1-2001 ..................... 3,000 2,692,500
California Hotel Finance Corporation,
11.0%, 12-1-2002 .................... 5,000 5,287,500
Harrah's Operating Company, Inc.,
10.875%, 4-15-2002 .................. 2,000 2,150,000
Players International, Inc.,
10.875%, 4-15-2005 .................. 4,000 4,050,000
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................. 4,000 4,080,000
Rio Hotel & Casino, Inc.,
10.625%, 7-15-2005 .................. 5,000 5,275,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 .................... 5,500 6,297,500
Total ............................... 35,927,500
Building Materials and Garden Supplies - 0.60%
Orchard Supply Hardware Stores Corporation,
9.375%, 2-15-2002 ................... 6,000 5,820,000
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Business Services - 2.38%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 (A) ............... $ 4,250 $ 4,345,625
Heritage Media Corporation,
8.75%, 2-15-2006 .................... 4,500 4,286,250
Lamar Advertising Company,
11.0%, 5-15-2003 .................... 2,000 2,110,000
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ................... 7,000 7,070,000
Scotsman Group, Inc.,
9.5%, 12-15-2000 .................... 3,500 3,587,500
Shared Technologies Fairchild
Communications Corp.,
0.0%, 3-1-2006 (A)(C) ............... 2,500 1,775,000
Total ............................... 23,174,375
Chemicals and Allied Products - 2.52%
Chattem, Inc.,
12.75%, 6-15-2004 ................... 4,500 4,398,750
LaRoche Industries Inc.,
13.0%, 8-15-2004 .................... 2,000 2,140,000
Revlon Worldwide Corporation,
0.0%, 3-15-98 ....................... 7,000 5,460,000
UCC Investors Holding, Inc.:
10.5%, 5-1-2002 ..................... 9,000 9,405,000
0.0%, 5-1-2005 (C) .................. 4,000 3,160,000
Total ............................... 24,563,750
Communication - 20.71%
Adelphia Communications Corporation,
12.5%, 5-15-2002 .................... 6,500 6,841,250
Allbritton Communications Company,
9.75%, 11-30-2007 (A)_............... 4,500 4,241,250
American Radio Systems Corporation,
9.0%, 2-1-2006 ...................... 3,750 3,675,000
Arch Communications Group, Inc.,
0.0%, 3-15-2008 (C) ................. 9,500 5,438,750
Argyle Television Operations, Inc.,
9.75%, 11-1-2005 .................... 10,000 9,600,000
Brooks Fiber Properties, Inc.,
0.0%, 3-1-2006 (A)(C) ............... 5,500 3,190,000
Cablevision Industries Corporation,
9.25%, 4-1-2008 ..................... 5,000 5,400,000
Cablevision Systems Corporation,
10.75%, 4-1-2004 .................... 3,500 3,692,500
Centennial Cellular Corp.,
10.125%, 5-15-2005 .................. 3,000 3,030,000
Century Communications Corporation,
11.875%, 10-15-2003 ................. 6,500 6,955,000
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
COMCAST CELLULAR CORPORATION,
0.0%, 3-5-2000 ...................... $ 6,300 $ 4,536,000
COMCAST CORPORATION,
9.5%, 1-15-2008 ..................... 8,000 8,100,000
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (C) ................ 9,000 5,197,500
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................. 2,500 2,725,000
8.875%, 9-15-2005 ................... 8,500 9,180,000
8.3%, 5-15-2006 (A) ................. 5,500 5,678,750
11.0%, 6-1-2007 ..................... 3,800 4,332,000
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (C) ................ 3,500 2,047,500
EZ Communications, Inc.,
9.75%, 12-1-2005 .................... 4,500 4,466,250
Granite Broadcasting Corporation:
10.375%, 5-15-2005 .................. 2,500 2,528,125
9.375%, 12-1-2005 (A) ............... 3,000 2,835,000
Heartland Wireless Communications, Inc.,
13.5%, 4-15-2003 .................... 2,000 2,220,000
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................. 9,000 9,540,000
IntelCom Group Inc.,
0.0%, 9-15-2005 (C) ................. 6,250 4,000,000
InterCel, Inc., Units,
0.0%, 2-1-2006 (C)(D) ............... 50 3,025,000
International CableTel Incorporated,
0.0%, 2-1-2006 (A)(C) ............... 10,750 6,073,750
MFS Communications Company, Inc.:
0.0%, 1-15-2004 (C) ................. 6,750 5,130,000
0.0%, 1-15-2006 (C) ................. 7,500 4,650,000
Marcus Cable Operating Company,
0.0%, 8-1-2004 (C) .................. 10,000 7,250,000
Metrocall, Inc.,
10.375%, 10-1-2007 .................. 5,500 5,610,000
NEXTEL Communications, Inc.,
0.0%, 8-15-2004 (C) ................. 5,000 2,925,000
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 (A) .............. 4,000 4,060,000
Rogers Cantel Mobile Communications Inc.,
10.75%, 11-1-2001 ................... 2,500 2,612,500
Rogers Communications Inc.,
9.125%, 1-15-2006 ................... 7,500 7,256,250
Sullivan Broadcasting Company, Inc.,
10.25%, 12-15-2005 .................. 1,000 990,000
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 .................... 10,000 9,980,000
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
USA Mobile Communications, Inc. II,
9.5%, 2-1-2004 ...................... $ 2,000 $ 1,940,000
United International Holdings, Inc.,
0.0%, 11-15-99 ...................... 5,000 3,231,250
Viacom International, Inc.:
10.25%, 9-15-2001 ................... 3,000 3,322,500
8.0%, 7-7-2006 ...................... 15,000 14,212,500
Total ............................... 201,718,625
Eating and Drinking Places - 0.70%
Foodmaker, Inc.,
9.25%, 3-1-99 ....................... 7,000 6,825,000
Electric, Gas and Sanitary Services - 0.52%
El Paso Electric Company,
9.4%, 5-1-2011 ...................... 5,000 5,062,500
Electronic and Other Electric Equipment - 2.36%
A+ Network, Inc.,
11.875%, 11-1-2005 .................. 5,000 5,100,000
Communications & Power Industries,
Inc.,
12.0%, 8-1-2005 ..................... 4,000 4,150,000
Exide Corporation:
10.75%, 12-15-2002 .................. 1,500 1,541,250
0.0%, 12-15-2004 (C) ................ 4,000 3,200,000
10.0%, 4-15-2005 .................... 5,000 5,087,500
Harmon Industries, Inc.,
12.0%, 8-1-2002 ..................... 3,500 3,867,500
Total ............................... 22,946,250
Fabricated Metal Products - 1.74%
American Safety Razor Company,
9.875%, 8-1-2005 .................... 1,000 1,026,250
Nortek, Inc.,
9.875%, 3-1-2004 .................... 7,000 6,580,000
Silgan Corporation,
0.0%, 12-15-2002 (C) ................ 9,500 9,310,000
Total ............................... 16,916,250
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Kindred Products - 1.79%
Dr Pepper Holdings, Inc.,
0.0%, 2-15-2003 (C) ................. $ 3,500 $ 2,975,000
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ................... 3,500 3,342,500
Specialty Foods Corporation:
10.25%, 8-15-2001 ................... 4,000 3,620,000
11.125%, 10-1-2002 .................. 2,000 1,870,000
11.25%, 8-15-2003 ................... 7,000 5,670,000
Total ............................... 17,477,500
Food Stores - 6.47%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 .................... 5,000 4,425,000
Bruno's Inc.,
10.5%, 8-1-2005 ..................... 8,500 8,160,000
Dominick's Finer Foods, Inc.,
10.875%, 5-1-2005 ................... 5,000 5,262,500
Jitney-Jungle Stores of America, Inc.,
12.0%, 3-1-2006 ..................... 3,000 2,970,000
Kroger Co. (The):
9.75%, 2-15-2004 .................... 10,000 10,700,000
9.25%, 1-1-2005 ..................... 3,000 3,210,000
P & C Food Markets, Inc.,
11.5%, 10-15-2001 ................... 5,000 5,100,000
Penn Traffic Company:
8.625%, 12-15-2003 .................. 6,500 5,915,000
10.375%, 10-1-2004 .................. 8,500 8,372,500
Safeway Inc.,
10.0%, 12-1-2001 .................... 8,000 8,880,000
Total ............................... 62,995,000
Furniture and Fixtures - 1.26%
Knoll Group, Inc. (The),
10.875%, 3-15-2006 (A) .............. 4,500 4,590,000
Lear Seating Corp.,
8.25%, 2-1-2002 ..................... 8,000 7,680,000
Total ............................... 12,270,000
General Building Contractors - 1.89%
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ...................... 4,000 3,840,000
Del Webb Corporation:
9.75%, 3-1-2003 ..................... 5,500 5,568,750
9.0%, 2-15-2006 ..................... 2,000 1,920,000
NVR L.P.,
11.0%, 4-15-2003 .................... 3,500 3,535,000
U.S. Home Corporation,
9.75%, 6-15-2003 .................... 3,500 3,570,000
Total ............................... 18,433,750
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Health Services - 5.38%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (A) ................. $ 5,000 $ 5,150,000
Abbey Healthcare Group Incorporated,
9.5%, 11-1-2002 ..................... 2,000 2,112,500
Assisted Living Concepts, Inc., Convertible,
7.0%, 7-31-2005 (A) ................. 1,000 1,290,000
Multicare Companies, Inc. (The),
12.5%, 7-1-2002 ..................... 5,398 6,018,770
Quorum Health Group, Inc.:
11.875%, 12-15-2002 ................. 7,000 7,752,500
8.75%, 11-1-2005 .................... 4,500 4,522,500
Regency Health Services, Inc.,
9.875%, 10-15-2002 .................. 4,000 4,060,000
Tenet Healthcare Corporation:
9.625%, 9-1-2002 .................... 14,000 15,015,000
10.125%, 3-1-2005 ................... 6,000 6,420,000
Total ............................... 52,341,270
Holding and Other Investment Offices - 3.74%
Jordan Industries, Inc.,
10.375%, 8-1-2003 ................... 10,500 9,712,500
LTC Properties, Inc., Convertible:
8.5%, 1-1-2000 ...................... 3,000 3,015,000
8.5%, 1-1-2001 ...................... 3,000 3,120,000
MacAndrews & Forbes Group, Incorporated:
12.25%, 7-1-96 ...................... 10,750 10,642,500
13.0%, 3-1-99 ....................... 9,750 9,945,000
Total ............................... 36,435,000
Hotels and Other Lodging Places - 4.06%
GNF, CORP.,
10.625%, 4-1-2003 ................... 7,000 6,982,500
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 (A) ................ 6,000 5,670,000
LaQuinta Motor Inns, Inc.,
9.25%, 5-15-2003 .................... 7,500 7,837,500
Premier Parks Inc.,
12.0%, 8-15-2003 .................... 1,500 1,597,500
Prime Hospitality Corp.,
9.25%, 1-15-2006 .................... 4,000 3,890,000
Showboat, Inc.,
9.25%, 5-1-2008 ..................... 9,000 9,180,000
Station Casinos, Inc.,
10.125%, 3-15-2006 .................. 4,500 4,432,500
Total ............................... 39,590,000
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Industrial Machinery and Equipment - 3.64%
American Standard Inc.:
9.875%, 6-1-2001 .................... $ 2,000 $ 2,100,000
0.0%, 6-1-2005 (C) .................. 12,250 10,443,125
9.25%, 12-1-2016 .................... 8,000 8,180,000
Bell & Howell Company:
10.75%, 10-1-2002 ................... 5,000 5,300,000
0.00%, 3-1-2005 (C) ................. 8,200 5,330,000
Fairfield Manufacturing Company, Inc.,
11.375%, 7-1-2001 ................... 4,000 4,070,000
Total ............................... 35,423,125
Instruments and Related Products - 1.44%
IVAC Corporation,
9.25%, 12-1-2002 .................... 2,500 2,600,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ..................... 11,000 11,440,000
Total ............................... 14,040,000
Insurance Carriers - 1.30%
American Annuity Group, Inc.:
9.5%, 8-15-2001 ..................... 5,500 5,720,000
11.125%, 2-1-2003 ................... 6,500 6,987,500
Total ............................... 12,707,500
Lumber and Wood Products - 0.70%
Triangle Pacific Corp.,
10.5%, 8-1-2003 ..................... 6,500 6,825,000
Miscellaneous Retail - 0.89%
Eckerd Corporation,
9.25%, 2-15-2004 .................... 5,500 5,720,000
PETROLEUM HEAT AND POWER CO., INC.,
9.375%, 2-1-2006 .................... 3,000 2,970,000
Total ............................... 8,690,000
Nondepository Institutions - 1.37%
First Nationwide Holdings Inc.,
9.125% 1-15-2003 (A) ................ 3,750 3,712,500
GP Group, Inc.,
8.75%, 12-15-98 ..................... 9,500 9,595,000
Total ............................... 13,307,500
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Oil and Gas Extraction - 1.04%
Falcon Drilling, Inc.,
9.75%, 1-15-2001 .................... $ 3,500 $ 3,622,500
Noble Drilling Corporation,
9.25%, 10-1-2003 .................... 4,000 4,040,000
Vintage Petroleum, Inc.,
9.0%, 12-15-2005 .................... 2,500 2,437,500
Total ............................... 10,100,000
Paper and Allied Products - 2.97%
Asia Pulp & Paper Company Ltd,
11.75%, 10-1-2005 ................... 4,500 4,370,625
Container Corporation of America,
11.25%, 5-1-2004 .................... 3,500 3,613,750
Fort Howard Corporation:
9.25%, 3-15-2001 .................... 8,000 8,060,000
9.0%, 2-1-2006 ...................... 2,000 1,940,000
Mail-Well Corporation,
10.5%, 2-15-2004 .................... 3,500 3,403,750
S. D. Warren Company,
12.0%, 12-15-2004 ................... 3,000 3,165,000
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ..................... 4,250 4,335,000
Total ............................... 28,888,125
Personal Services - 0.44%
Coinmach Corporation,
11.75%, 11-15-2005 (A) .............. 4,220 4,241,100
Petroleum and Coal Products - 0.38%
Clark USA, Inc.,
10.875%, 12-1-2005 (A) .............. 3,500 3,657,500
Primary Metal Industries - 1.71%
Essex Group, Inc.,
10.0%, 5-1-2003 ..................... 4,000 4,040,000
Inland Steel Industries, Inc.,
12.75%, 12-15-2002 .................. 6,000 6,690,000
Russel Metals Inc.,
10.25%, 6-15-2000 ................... 4,500 4,455,000
Ucar Global Enterprises Inc.,
12.0%, 1-15-2005 .................... 1,310 1,506,500
Total ............................... 16,691,500
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Printing and Publishing - 1.65%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................. $ 4,000 $ 4,060,000
Big Flower Press, Inc.,
10.75%, 8-1-2003 .................... 4,333 4,441,325
Hollinger International Publishing Inc.,
9.25%, 2-1-2006 ..................... 2,000 1,940,000
K-III Communications Corporation,
8.5%, 2-1-2006 (A) .................. 6,000 5,700,000
Total ............................... 16,141,325
Railroad Transportation - 1.04%
Southern Pacific Rail Corporation,
9.375%, 8-15-2005 ................... 9,700 10,136,500
Rubber and Miscellaneous Plastics Products - 0.55%
RBX Corporation,
11.25%, 10-15-2005 (A) .............. 5,500 5,362,500
Stone, Clay and Glass Products - 2.69%
Owens-Illinois, Inc.:
10.25%, 4-1-99 ...................... 5,000 5,125,000
10.0%, 8-1-2002 ..................... 5,000 5,175,000
11.0%, 12-1-2003 .................... 7,500 8,221,875
9.75%, 8-15-2004 .................... 7,500 7,668,750
Total ............................... 26,190,625
Textile Mill Products - 2.04%
CMI Industries, Inc.,
9.5%, 10-1-2003 ..................... 4,500 3,555,000
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 .................... 7,000 6,387,500
Interface, Inc.,
9.5%, 11-15-2005 .................... 2,000 1,970,000
Linter Textiles Corporation Limited,
13.75%, 10-1-2000 (E) ............... 17,200 86,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................. 8,000 7,900,000
Total ............................... 19,898,500
See Notes to Schedule of Investments on pages and .
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Transportation by Air - 0.92%
NWA, Inc.,
8.625%, 8-1-96 ...................... $ 9,000 $ 9,000,000
Transportation Equipment - 0.53%
Walbro Corporation,
9.875%, 7-15-2005 ................... 2,000 2,040,000
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ................... 3,000 3,120,000
Total ............................... 5,160,000
Wholesale Trade - Durable Goods - 1.35%
Alvey Systems, Inc.,
11.375%, 1-31-2003 (A) .............. 2,500 2,600,000
General Medical Corporation:
10.875%, 8-15-2003 .................. 7,000 7,000,000
12.125%, 8-15-2005 .................. 3,577 3,593,568
Total ............................... 13,193,568
Wholesale Trade - Nondurable Goods - 1.33%
Corporate Express, Inc.,
9.125%, 3-15-2004 ................... 4,000 4,090,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 2,000 2,120,000
United Stationers Supply Co.,
12.75%, 5-1-2005 .................... 6,000 6,780,000
Total ............................... 12,990,000
TOTAL CORPORATE DEBT SECURITIES - 87.79% $855,141,138
(Cost: $855,730,098)
UNITED STATES GOVERNMENT SECURITY - 1.65%
United States Treasury,
7.5%, 11-15-2016 .................... 15,000 $ 16,068,750
(Cost: $15,115,389)
TOTAL SHORT-TERM SECURITIES - 4.58% $ 44,626,856
(Cost: $44,626,856)
TOTAL INVESTMENT SECURITIES - 98.78% $962,157,578
(Cost: $972,250,582)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.22% 11,907,650
NET ASSETS - 100.00% $974,065,228
See Notes to Schedule of Investments on pages and .
<PAGE>
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1996
Notes to Schedule of Investments
No income dividends were paid during the preceding 12 months.
(A) As of March 31, 1996, the following restricted securities were owned:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Advanstar
Holdings,
Inc., Warrants 3/30/92 1,750$ 0 $ 1,750
Consolidated Hydro, Inc.,
Warrants 6/15/93 5,400 127,817 5
Fitzgeralds Gaming
Corporation,
Warrants 3/8/94 to
9/15/95 14,000 506,065 140,000
Heartland Wireless
Communications,
Inc., Warrants 4/20/95 12,000 74,000 54,000
IntelCom Group Inc.,
Warrants 12/8/95 20,625 80,225 165,000
K-III Communications
Corporation,
Preferred 1/19/96 35,000 3,500,000 3,438,750
AMF Group Inc.:
0.0%, 3-15-2006 3/7/96 $ 5,250 2,902,935 2,861,250
10.875%, 3-15-2006 3/7/96 3,250 3,250,000 3,233,750
ARV Assisted Living, Inc.,
Convertible,
6.75%, 4-1-2006 3/28/96 5,000 5,000,000 5,150,000
Adams Outdoor Advertising
Limited Partnership,
10.75%, 3-15-2006 3/5/96 4,250 4,250,000 4,345,625
Allbritton Communications Company,
9.75%, 11-30-2007 2/1/96 4,500 4,477,500 4,241,250
Alvey Systems, Inc.,
11.375%, 1-31-20031/19/96 2,500 2,500,000 2,600,000
Assisted Living Concepts,
Inc., Convertible,
7.0%, 7-31-2005 8/2/95 1,000 1,000,000 1,290,000
Brooks Fiber Properties, Inc.,
0.0%, 3-1-2006 2/16/96 5,500 3,293,580 3,190,000
Clark USA, Inc.,
10.875%, 12-1-200511/22/95 3,500 3,500,000 3,657,500
Coinmach Corporation,
11.75%, 11-15-2005 11/30/95 4,220 4,267,475 4,241,100
Continental Cablevision, Inc.,
8.3%, 5-15-2006 12/8/95 5,500 5,482,345 5,678,750
First Nationwide Holdings Inc.,
9.125%, 1-15-2003 1/23/96 2,000 2,000,000 1,980,000
1/31/96 1,750 1,795,938 1,732,500
Granite Broadcasting Corporation,
9.375%, 12-1-2005 2/13/96 3,000 2,985,000 2,835,000
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 12/15/95 6,000 6,000,000 5,670,000
International CableTel Incorporated,
0.0%, 2-1-2006 1/25/96 10,750 6,144,163 6,073,750
K-III Communications Corporation,
8.5%, 2-1-2006 1/19/96 6,000 5,974,680 5,700,000
Knoll Group, Inc. (The),
10.875%, 3-15-2006 2/22/96 4,500 4,500,000 4,590,000
RBX Corporation,
11.25%, 10-15-2005 10/6/95 5,500 5,535,000 5,362,500
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 1/26/96 3,000 3,000,000 3,045,000
2/6/96 1,000 1,032,500 1,015,000
Shared Technologies Fairchild
Communications Corp.,
0.0%, 3-1-2006 3/8/96 2,500 1,756,925 1,775,000
----------------------
$84,936,148$84,067,480
======================
The total market value of restricted securities represents approximately
8.63% of the total net assets at March 31, 1996.
(B) Affiliate as defined by the Investment Company Act of 1940 by reason of
ownership by the Fund of 5% or more of its outstanding voting securities.
(C) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(D) Each unit consists of 10 Senior Discount notes due 2-1-2006 and 32
Warrants.
(E) Non-income producing as the issuer has either missed its most recent
interest
payment or declared bankruptcy.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
Assets
Investment securities -- at value
(Notes 1 and 3) ............................... $ 962,157,578
Cash ........................................... 38,046
Receivables:
Dividends and interest ........................ 19,460,208
Investment securities sold .................... 1,578,750
Fund shares sold .............................. 396,823
Prepaid insurance premium ...................... 55,759
--------------
Total assets ................................ 983,687,164
--------------
Liabilities
Payable for investment securities purchased .... 5,000,000
Payable for Fund shares redeemed ............... 4,172,120
Accrued service fee ............................ 271,558
Accrued transfer agency and dividend
disbursing .................................... 85,051
Accrued accounting services fee ................ 7,083
Other .......................................... 86,124
--------------
Total liabilities ........................... 9,621,936
--------------
Total net assets ........................... $ 974,065,228
==============
Net Assets
$1.00 par value capital stock
Capital stock ................................. $ 107,103,444
Additional paid-in capital .................... 1,307,228,075
Accumulated undistributed income (loss):
Accumulated undistributed net investment income 767,157
Accumulated undistributed net realized
loss on investment transactions ............. (430,940,444)
Net unrealized depreciation in value of
investments at end of period ................ (10,093,004)
--------------
Net assets applicable to outstanding
units of capital ........................... $ 974,065,228
==============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $9.09
Class Y .......................................... $9.10
Capital shares outstanding
Class A .......................................... 106,867,154
Class Y .......................................... 236,290
Capital shares authorized .......................... 500,000,000
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1996
Investment Income
Income:
Interest ........................................ $ 92,926,899
Dividends ....................................... 285,339
------------
Total income .................................. 93,212,238
------------
Expenses (Note 2):
Investment management fee ....................... 5,455,292
Service fee - Class A ........................... 1,122,736
Transfer agency and dividend disbursing - Class A 1,101,546
Legal fees ...................................... 210,046
Accounting services fee ......................... 85,000
Audit fees ...................................... 47,137
Custodian fees .................................. 34,303
Shareholder servicing - Class Y ................. 351
Other ........................................... 188,040
------------
Total expenses ................................ 8,244,451
------------
Net investment income ........................ 84,967,787
------------
Realized and Unrealized Gain (Loss) on Investments
Realized net loss on investments ................. (16,543,528)
Unrealized appreciation in value of
investments during the period.................... 60,496,492
------------
Net gain on investments ......................... 43,952,964
------------
Net increase in net assets resulting
from operations .............................. $128,920,751
============
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
-----------------------------
1996 1995
-------------- --------------
Increase (Decrease) in Net Assets
Operations:
Net investment income .......... $ 84,967,787 $ 85,909,957
Realized net loss on
investments ................... (16,543,528) (38,935,982)
Unrealized appreciation
(depreciation) ............... 60,496,492 (16,709,489)
------------ --------------
Net increase in net assets
resulting from operations ... 128,920,751 30,264,486
------------ --------------
Dividends to shareholders from
net investment income:*
Class A ...................... (85,921,769) (84,555,022)
Class Y ...................... (18,564) ---
------------ --------------
(85,940,333) (84,555,022)
------------ --------------
Capital share transactions:
Proceeds from sale of shares:
Class A (7,953,459 and 7,942,722
shares, respectively) ....... 71,825,120 69,649,781
Class Y (236,584 and 0
shares, respectively) ....... 2,181,529 ---
Proceeds from reinvestment
of dividends:
Class A (7,892,778 and
7,920,844 shares, respectively) 71,060,893 69,202,582
Class Y (2,040 and 0
shares, respectively) ....... 18,564 ---
Payments for shares redeemed:
Class A (16,328,917 and 17,970,581
shares, respectively) ....... (147,555,964) (157,604,402)
Class Y (2,334 and 0
shares, respectively) ....... (21,268) ---
------------ --------------
Net decrease in net assets
resulting from capital share
transactions ................ (2,491,126) (18,752,039)
------------ --------------
Total increase (decrease) ... 40,489,292 (73,042,575)
Net Assets
Beginning of period ............. 933,575,936 1,006,618,511
------------ --------------
End of period, including
undistributed net investment
income of $767,157 and
$1,739,703, respectively ....... $974,065,228 $ 933,575,936
============ ==============
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of period $8.70 $9.20 $9.21 $8.82 $7.51
----- ----- ----- ----- ------
Income from investment
operations:
Net investment
income .......... .79 .80 .80 .83 .95
Net realized and
unrealized gain
(loss) on
investments ..... .40 (0.51) (0.01) .40 1.29
----- ----- ----- ----- ------
Total from investment
operations ....... 1.19 .29 .79 1.23 2.24
----- ----- ----- ----- ------
Less dividends
declared from net
investment income . (0.80) (0.79) (0.80) (0.84) (0.93)
----- ----- ----- ----- ------
Net asset value,
end of period .... $9.09 $8.70 $9.20 $9.21 $8.82
===== ===== ===== ===== =====
Total return* ...... 14.16% 3.41% 8.69% 14.72% 31.72%
Net assets, end
of period (000
omitted) ......... $971,916$933,576$1,006,619$986,867$910,917
Ratio of expenses to
average net assets 0.85% 0.84% 0.78% 0.75% 0.79%
Ratio of net investment
income to average
net assets ....... 8.74% 9.07% 8.51% 9.28% 11.56%
Portfolio turnover
rate ............. 41.67% 18.94% 54.80% 58.68% 62.12%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period
from 1/4/96
through
3/31/96
--------
Net asset value,
beginning of period $9.19
-----
Income from investment
operations:
Net investment
income .......... .20
Net realized and
unrealized loss
on investments... (0.10)
-----
Total from investment
operations ........ .10
-----
Less dividends
declared from net
investment income . (0.19)
-----
Net asset value,
end of period ..... $9.10
=====
Total return ....... 1.00%
Net assets, end of
period (000
omitted) ......... $2,149
Ratio of expenses
to average net
assets ............ 0.80%*
Ratio of net
investment income
to average net
assets ............ 8.55%*
Portfolio
turnover rate ..... 41.67%
*On July 31, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A
shares.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 -- Significant Accounting Policies
United High Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to provide a high level of current income,
by investing primarily in a diversified portfolio of high-yield, high-risk fixed
income securities, with a secondary objective of capital growth when consistent
with the primary objective. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using Nasdaq
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Restricted securities and securities for which
market quotations are not readily available are valued at fair value as
determined in good faith under procedures established by and under the
general supervision of the Fund's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
3 -- Investment Security Transactions.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
D. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as
of the close of business each day at the annual rate of .15% of net assets and
(ii) a "Group" fee computed each day on the combined net asset values of all of
the funds in the United Group of mutual funds (approximately $14.0 billion of
combined net assets at March 31, 1996) 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
For Class A shares, 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. With respect to Class Y shares, the Fund
pays WARSCO a monthly fee at an annual rate of .15% of the average daily net
assets of the class for the preceding 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 for Class A shares (which are not an expense of
the Fund) of $1,968,791, out of which W&R paid sales commissions of $1,111,988
and all expenses in connection with the sale of Fund shares, except for
registration fees and related expenses.
Under a Service Plan for Class A shares 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 $38,464.
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 obligations
and short-term securities, aggregated $395,244,940 while proceeds from
maturities and sales aggregated $366,248,277. Purchases of short-term
securities aggregated $928,424,779 while proceeds from maturities and sales of
short-term securities aggregated $954,960,240. There were no purchases or sales
of U.S. Government securities during the period.
For Federal income tax purposes, cost of investments owned at March 31,
1996 was $971,483,808, resulting in net unrealized depreciation of $9,326,230,
of which $36,890,512 related to appreciated securities and $46,216,742 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$20,841,730 during its fiscal year ended March 31, 1996. Capital loss
carryovers aggregated $431,707,217 at March 31, 1996 and are available to offset
future realized capital gain net income for Federal income tax purposes through
March 31, 1997; $346,084,313 of this amount is available through March 31, 1998;
$324,499,056 is available through March 31, 1999; $152,828,886 is available
through March 31, 2000; $38,804,483 is available through March 31, 2003; and
$20,841,730 is available through March 31, 2004.
NOTE 5 -- Commencement of Multiclass Operations
On July 31, 1995, the Fund was authorized to offer investors a choice of
two classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. Class Y shares are not subject to a sales charge
on purchases; they are not subject to a Rule 12b-1 Service Plan and have a
separate transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of either class are
offered is contained in the prospectus and the Statement of Additional
Information for the Fund. The Fund commenced multiclass operations on January 4,
1996.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United High Income 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 High Income Fund, Inc. (the
"Fund") at March 31, 1996, the results of its operations for the year then ended
and the changes in its net assets and the financial highlights for each of 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 March
31, 1996 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
May 10, 1996
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United High Income Fund, Inc.
Included in Part B:
-------------------
As of March 31, 1996
Statement of Assets and Liabilities
For the fiscal year ended March 31, 1996
Statement of Operations
For each of the two years in the period ended March 31, 1996
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1996
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended, filed June 1, 1995 as EX-
99.B1-charter to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
Articles Supplementary filed June 1, 1995 as EX-99.B1-hiarsup1 to
Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A*
Articles Supplementary filed June 1, 1995 as EX-99.B1-hiarsup2 to
Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A*
(2) Bylaws, as amended, attached hereto as EX-99.B2-hibylaw
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed June 1, 1995 as
EX-99.B1-charter to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*; Article I, Article IV and
Article VII of the Bylaws of the Registrant, as amended, attached
hereto as EX-99.B2-hibylaw
(5) Investment Management Agreement, filed June 1, 1995 as EX-99.B5-
hiima to Post-Effective Amendment No. 24 to the Registration
Statement on Form N-1A*
Assignment of the Investment Management, filed June 1, 1995 as
EX-99.B5-hiassign to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
(6) Underwriting Agreement, filed June 1, 1995 as EX-99.B6-hiua to
Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended, filed June 1, 1995 as EX-99.B8-
hica to Post-Effective Amendment No. 24 to the Registration
Statement on Form N-1A*
(9) Shareholder Servicing Agreement, as amended, attached hereto as
EX-99.B9-hissa
Fund Class A application, attached hereto as EX-99.B9-hiappca
Fund Class Y application, filed June 1, 1995 as EX-99.B9-hiappcy
to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A*
Class Y Letter of Understanding, attached hereto as EX-99.B9-
hilou
Fund NAV application, filed June 1, 1995 as EX-99.B9-appnav to
Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A*
Accounting Services Agreement, filed June 1, 1995 as EX-99.B9-
hiasa to Post-Effective Amendment No. 24 to the Registration
Statement on Form N-1A*
- ---------------------------------
*Incorporated herein by reference
Service Agreement filed by EDGAR July 30, 1993 as Exhibit (b)(15)
to Post-Effective Amendment No. 16 to the Registration Statement
on Form N-1A*
Amendment to Service Agreement, as EX-99.B9-hisaa1 to Post-
Effective Amendment No. 24 to the Registration Statement on Form
N-1A*
Amendment to Service Agreement, as EX-99.B9-hisaa2 to Post-
Effective Amendment No. 24 to the Registration Statement on Form
N-1A*
(10) Not Applicable
(11) Consent of Independent Accountants, attached hereto as EX-99.B11-
hiconsnt
(12) Not Applicable
(13) Not Applicable
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-s401gis
to Pre-Effective Amendment No. 1 to the Registration
- ---------------------------------
*Incorporated herein by reference
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-smppgis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description
field December 16, 1994 as EX-99.B14-17-spspgis to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
(15) Service Plan, filed June 1, 1995 as EX-99.B15-hispca to Post-
Effective Amendment No. 24 to the Registration Statement on Form
N-1A*
(16) Schedule for computation of average annual total return
performance quotations for Class A shares filed through EDGAR on
July 30, 1993 as Exhibit (b)(16) to Post-Effective Amendment No.
23 to the Registration Statement on Form N-1A*
Computation of yield performance quotations for Class A and Class
Y shares attached hereto as EX-99.B16-hiyield
(17) Financial Data Schedule, attached hereto as EX-27.B17-hifds
(18) Multiple Class Plan, attached hereto as EX-99.B18-himcp
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 March 31, 1996
-------------- -------------------------------
Class A Capital Stock 58,221
Class Y Capital Stock 83
- ---------------------------------
*Incorporated herein by reference
27. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through (f) of the
Articles of Incorporation, as amended, filed June 1, 1995 as EX-99.B1-
charter to Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A*; and to Article IV of the Underwriting Agreement, filed June 1,
1995 as EX-99.B6-hiua to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*, each of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers and
employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment.
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 to 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 Municipal Bond Fund, Inc.
United New Concepts Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
- ---------------------------------
*Incorporated herein by reference
United Asset Strategy Fund, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United Science
and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
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 Parts A and B of
this Post-Effective Amendment and 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/or the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(b) of the Securities Act of 1933 and the Registrant has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 27th day of June, 1996.
UNITED HIGH INCOME 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 June 27, 1996
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director June 27, 1996
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer June 27, 1996
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and June 27, 1996
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director June 27, 1996
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director June 27, 1996
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director June 27, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director June 27, 1996
- ------------------- ----------------
Linda Graves
<PAGE>
Director
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director June 27, 1996
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director June 27, 1996
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director June 27, 1996
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B. Schwartz* Director June 27, 1996
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 27, 1996
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director June 27, 1996
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: April 24, 1996 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board April 24, 1996
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director April 24, 1996
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer April 24, 1996
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and April 24, 1996
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director April 24, 1996
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director April 24, 1996
- -------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director April 24, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves Director April 24, 1996
- -------------------- ----------------
Linda Graves
Director
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director April 24, 1996
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director April 24, 1996
- -------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director April 24, 1996
- -------------------- ----------------
Doyle Patterson
/s/Eleanor Schwartz Director April 24, 1996
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director April 24, 1996
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director April 24, 1996
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
<PAGE>
EX-99.B2-hibylaws
UNITED HIGH INCOME FUND, INC.
BYLAWS
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such date
within 31 days after the 1st day of June in each year as may be fixed by the
Board of Directors for the purpose of electing directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at
such meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
eleven Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until the annual
meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board; may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. No Director shall receive any
stated salary or fees from the Corporation for his services as such Director if
such Director is, otherwise than by reason of being such Director, affiliated
(as such term is defined in the Investment Company Act of 1940) with the
Corporation or with any investment adviser of the Corporation. Except as
provided in the preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
Section 11. Power to Declare Dividends and/or Distributions: The Board of
Directors, from time to time as it may deem advisable, may declare and pay
dividends and/or distributions in shares of the Fund, cash or other property of
the Corporation, as determined by resolution of the Board of Directors out of
any source available for dividends and/or distributions, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
MISCELLANEOUS
Section 1. Custodianship. All cash and securities owned by the
Corporation shall be held by one or more banks or trust companies of good
standing, each having a capital, surplus and undivided profits aggregating not
less than two million ($2,000,000), provided such a bank or trust company can be
found ready and willing to act. Upon the resignation or inability to serve of
any such bank or trust company the Corporation shall (i) use its best efforts to
obtain a qualified successor, (ii) require the cash and securities of the
Corporation held by such bank or trust company to be delivered directly to the
successor, and (iii) in the event that no qualified successor can be found,
submit to the holders of the shares of the capital stock of the Corporation at
the time outstanding and entitled to vote, before permitting delivery of such
cash and securities to anyone other than a qualified successor, the question
whether the Corporation shall be dissolved and liquidated or shall function
without a qualified bank or trust company selected by it, such assets to be held
subject to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article VII.
Nothing herein contained, however, shall prevent the termination of any
agreement between the Corporation and any such bank or trust company by the
Corporation at the discretion of the Board of Directors, and any such agreement
shall be terminated upon the affirmative vote of the holders of a majority of
all the shares of the capital stock of the Corporation at the time outstanding
and entitled to vote.
Section 2. Certain Transactions. The Corporation shall not purchase or
sell any securities (other than stock which may be issued by the Corporation)
from or to any of the following acting as principals and shall not make any loan
to any of the following: (i) any officer or director of the Corporation; (ii)
any person or organization furnishing managerial or supervisory services to the
Corporation; or (iii) any officer, director or partner of any person or
organization furnishing such managerial or supervisory services.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment, addition or
repeal of the By-Laws by action of the Board of Directors may be altered or
repealed by the stockholders. Article VII may be altered, amended or repealed
only by the stockholders.
<PAGE>
EX-99.B9-hissa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and between
UNITED HIGH INCOME FUND, INC., and Waddell & Reed Services Company (the
"Agent"), as amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder under a
particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement and
charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's or any Subagent's facilities in accordance with reasonable
procedures at the frequency necessary to assure proper administration of the
Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED HIGH INCOME FUND, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015196B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $18,500,000
Audit Expense 500,000
On Premises 18,500,000
In Transit 18,500,000
Forgery or Alteration 18,500,000
Securities 18,500,000
Counterfeit Currency 18,500,000
Uncollectible Items of Deposit 25,000
Total Limit 18,500,000
Directors and Officers/ 87015196D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
and Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-hiappca
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office Stamp
Shawnee Mission, KS 66201-9217 APPLICATION
I (We make application for an account to be established as follows:
________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: ________
Date Transmitted: _____
________________________________________________________________________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other:___________________________
(Use this section for
Retirement Plans with
Custodians other than
Fiduciary Trust Co.)
________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new, Plan tear out
page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457 ____________________________________________
(If billing is required, Employer's Name (Do not Abbreviate)
attach form #CUF1417) _____________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________ Amt $______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: _____________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
________________________________________________________________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT:
(Must have same ownership) [][][][][][][]-[]
Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
_________________________
_______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
_________________________ _____________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
____________________________ ______________ ________ ____/_______-______
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS Make check payable to Waddell & Reed
Code Code
621-Income 626-Gold & Government
622-Science and Technology 627-Continental Income
623-Accumulative 628-High Income
624-Bond 629-Vanguard
625-International Growth 630-New Concepts
Code Code
634-High Income II 760-Municipal Bond (not available
680-Retirement Shares for Ret. Plans)
684-Asset Strategy 762-Municipal High Income (not
750-Cash Management available for Ret. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
Fund Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
Total $_________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
$_________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[][][] $__________ $__________ 19_____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
______ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This Purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671) [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___,___,___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time: _______________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_______________________________________________
Name & Address of Bank/Broker/Savings & Loan
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_______________________________________________
Name of Its Commercial Bank
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
___________________________________________________________________________
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents ___
4. Occupation: _________________________ 5. Employer Name: _____________________
6. Employer Address: ___________________________________________________________
7. Savings and Liquid Assets: $___ 11. Investment Objectives (mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $___ [] Retirement Savings
9. Net Worth (Assets minus liabilities): $___ [] Children's College []Income
10. Are you associated with an NASD Member? Yes ___ No ___ [] Other
needs/goals
(specify in
Special
Remarks)
12. Special Remarks/Considerations: _______________________________________
___________________________________________________________________________
13. Residence Address: ____________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGMENT
* I (we) have received a copy of the current prospectus of the Funds selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct and
(strike the following if not true) that I am not subject to tax withholding
because I have not been notified by the IRS that I am subject to withholding
as a result of a failure to report all interest and dividends or I was
subject to withholding and the IRS has notified me that I am no longer
subject to withholding.
* Since a major portion of the sales charge for Variable Investment Programs
is deducted from payments made in the first year, I understand that a loss
will undoubtedly result if I withdraw or discontinue payments during the
early years of the program.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ______________________________
Date Representative Signature
[OSJ: (H.O.USE) ] [][][][][]
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the
Custody Agreement:
By:____________________________________________
Fiduciary Trust Company Authorized Signature
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Partnership Confidential Questionnaire (CRP1186)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications _______________________________________
[] Check enclosed # _________________________________
[] Other: ___________________________________________
CAP0001(11/94)
EX-99.B9-hilou
DATE
ADDRESS
Dear:
The purpose of this Letter of Understanding is to confirm our mutual
understanding regarding the establishment of an account in the United Funds on
behalf of [NAME OF INSTITUTION OF PLAN] and our agreement as to subsequent
administrative procedures.
It is our understanding that the Plan wishes to establish an account in the
United Funds for the purpose of utilizing [FUND NAME] as a participant-directed
investment alternative. This Letter of Understanding shall serve as a
substitute application to open the account.
We will establish the mutual fund account upon receipt of the initial share
purchase with the following registration:
The Federal Tax Identification Number to be shown on the account is
.
We will set up the account to have dividend and capital gains (securities
profits) distributions reinvested rather than paid in cash. Exhibit A reflects
the frequency of anticipated distributions.
[The next two paragraphs are included only for employee benefit plan/accounts:]
By approving and signing the Letter of Understanding, you certify that the [PLAN
NAME] is a [401(k) / 403(b) / 457] plan having 100 or more eligible employees,
thereby qualifying the plan to establish an omnibus account, under the terms of
the [FUND NAME] Prospectus, for making purchases of Class Y shares, which are
priced at net asset value (no sales load).
The undersigned trustee on behalf of the Plan also certifies that it has the
authority to open such an account on behalf of [PLAN NAME].
It is our understanding that funds will be wire transferred from your bank for
the purpose of purchasing [FUND NAME] shares. To insure timely investment, any
wire must be received by United Missouri Bank by 2:00 p.m. (Central) on the day
of the wire. The following wire order instructions should be used:
United Missouri Bank, N.A.
ABA #101000695; United K.C.;
For Waddell & Reed Account #000-797-8
FBO (Registration of
Account)
Account No. (To be provided for each
account)
Notify Control Depart. 236-1978
When funds are to be wired from the account to your bank in accordance with your
request, the wire must be received by your bank by 1:00 p.m. Eastern on the day
of the wire. The following wire order instructions are to be used:
We offer to provide an enhanced level of service to ...your institution / the
Plan... and its authorized representatives. Contained in Exhibits B and C
hereto is information provided to allow us to provide this service. We cannot
overemphasize that our ability to serve the institutional client is dependent
upon the Plan's representatives interfacing with the members of our
institutional support staff as identified in Exhibit C.
If any of the above does not conform to your understanding and/or instructions,
or if you have questions or need additional information, please do not hesitate
to call me at the number shown on Exhibit C. We are very much looking forward
to our relationship with [NAME OF INSTITUTION OR NAMES OF PLAN AND TRUSTEE] and
are determined to provide the best possible service.
Sincerely,
SALES REP NAME
SALES REP TITLE
ACKNOWLEDGED AND APPROVED
[If signed by a plan trustee, add next line:]
AS TRUSTEE FOR
By:
Title:
Date:
The above signatory certifies that the following
persons are authorized to instruct transactions in the
account (type or print):
For Waddell & Reed use only:
Accepted:
<PAGE>
EXHIBIT A
FREQUENCY OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
[FUND NAME] ordinarily distributes investment income by way of a dividend once
per [NORMAL DIVIDEND FREQUENCY].
[FUND NAME] generally distributes capital gains (securities profits), if capital
gains are available for distribution, once each year in December, on the same
date as the December dividend distribution.
For the Fund and in the case of reinvested dividend and capital gain
distributions, the record date and the reinvestment date are the same. The per
share distribution amounts are applied to the share balance in the account after
the posting of that day's activity.
For the remainder of [YEAR], the ordinary dividend distribution dates would be
[DATES].
<PAGE>
EXHIBIT B
ADDITIONAL SERVICES WE WILL PROVIDE
The following services can be provided by us on an ongoing basis:
1. Coordinating purchases by notifying Waddell & Reed Services Company of each
incoming wire transfer and verifying the posting of the purchase(s) the
following business morning.
2. Confirming the purchase to you including: the date and dollar amount of the
investment, the purchase price and number of shares purchased, and the new Fund
account share balance.
3. Notifying you of dividend and/or capital gains distributions and
reinvestments including: the per share and dollar amount of distributions, the
date of reinvestment, the reinvestment price and number of shares purchased, and
the new Fund account share balance.
4. Processing redemptions based on your request by notifying Waddell & Reed
Services Company of the redemption, instructing them as to the outgoing wire
transfer, and verifying the posting of the redemption the following business
morning.
5. Confirming the redemption to you including: the date and dollar amount of
the redemption, the selling price and number of shares redeemed, and the new
Fund account share balance.
6. At the end of each month following the initial investment, we will provide
a report, if desired, which reflects all transactions in the account during the
previous month, and the share balance, net asset value per share and total
market value of the account.
Each of the confirmations, notifications and reports identified above will be
made available at your request, by telephone or facsimile transmission, as
appropriate to whomever you request.
<PAGE>
EXHIBIT C
LIST OF WADDELL & REED CONTACTS
During the period of account setup and initial wire transfer, your contacts at
Waddell & Reed are the following:
PRIMARY SECONDARY
Cynthia LaGree James McCroy
913-236-1722 913-236-1744
On an ongoing basis once the account is operational, your contacts are as
follows:
PRIMARY SECONDARY
Julie Herrick Dana Arth
913-236-1854 913-236-1853
BACKUP
Cynthia LaGree
913-236-1722
Our fax numbers are:
Primary: 913-236-1801
Secondary: 913-236-1888
EX-99.B11-hiconsnt
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 25 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated May
10, 1996, relating to the financial statements and financial highlights of
United High Income Fund, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the Class
A Shares Prospectus and the Class Y Shares Prospectus which constitute part of
this Registration Statement. We also consent to the reference to us under the
heading "Custodial and Auditing Services" in such Statement of Additional
Information and to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in the Class A Shares Prospectus and
the Class Y Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
June 27, 1996
<TABLE>
1FDCSY2
PAGE 13
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME
000000000000028
<S> <C> <C> <C> <C> <C> <C>
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
001546AA8 AK STEEL SENIOR NOTES YTM-CALL 6,460.72 7.97384600 STANDARD YTM
00202BAC5 APP INTL FIN GTD SECD NT YTM 47,337.16 12.27049790 STANDARD YTM
002033AA6 A PLUS NETWORK SR SUB NTS..YTM-CALL 51,887.60 19 11.76470000 STANDARD YTM
00204CAA5 ARV ASST LIVING CV 144A ..ACTUAL 0.00 03 6.75000000
002786AB7 ABBEY HEALTHCARE SR SUB N..YTM-CALL 15,640.93 65 8.70143660 STANDARD YTM
006348AA4 ADAMS OUTDOOR ADV 144A SN..YTM-CALL 25,183.99 00 10.32584590 STANDARD YTM
006848AC9 ADELPHIA COMMUN SR NOTES ..YTM-CALL 65,339.96 10.93964910 STANDARD YTM
00755X104 ADVANSTAR HLDGS, INC ..DIVIDEND 0.00 86 0.00000000 ZERO ANNUAL RATE
01310JC67 ALBERTSON INC GSC ACTUAL 1,966.20 5.22000000
016745AD3 ALLBRITTON COMM SR SUB DE YTM 1,271.13 10.62158240 STANDARD YTM PAGE 10
022380AB5 ALVEY SYS SR SUB NT YTM-CALL 791.68 10.74520740 STANDARD YTM
023840AA9 AMER ANNUITY GRP SR SUB NSEYTM-CALLIS 47,226.02 UR 8.26342980 ILSTANDARD YTM
023840AB7 AMERICAN ANNUITY SENIOR N YTM-CALL 41,482.27 9.16721600 STANDARD YTM PAGE 11
02637JD93 AMERICAN GREETINGS GSC ACTUAL 6,642.68 5.30000000
02744RAA5 AMERICAN MEDIA OPER SR SUSEYTM-CALLIS 40,149.54 UR 11.67943730 ILSTANDARD YTM
029161AA4 AMER RADIO SYS SR SUB NTSFOYTM RI 28,910.97 HR 9.31203170 STANDARD YTM
029161106DEAMERICAN RADIO SYSTEMS ICDIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
029362AB6 AMER SAFETY RAZOR SER B YTM-CALL 8,350.69 9.94170260 STANDARD YTM
029717AB1 AMERICAN STANDARD SF DEB YTM-CALL 64,599.66 9.51532230 STANDARD YTM
029717AH8 AMERICAN STANDARD SR SUB YTM-CALL 14,699.59 8.50184200 STANDARD YTM
029717AJ4 AMERICAN STANDARD SR SUB YTM 14,498.88 1.74796210 STANDARD YTM
030151AA2 AMER TELECAST SR DISC NT FOYTM RI 218.92 HR 3.50335300 STANDARD YTM
030985AA3 AMF GROUP 144A SR SUB NTS..YTM 10,837.09 93 10.95833750 STANDARD YTM
030985AB1 AMF GROUP 144A SR DISC NT..YTM 5,395.36 00 6.18891710 STANDARD YTM
039381AB4 ARCH COMMUN SR DISC NOTE ..YTM 13,985.65 4.71885780 STANDARD YTM
039914AA4 ARGYLE TELEVISION ..YTM 86,028.38 52 10.41652370 STANDARD YTM
040228AB4 ARGOSY GAMING CONVT SUB N ACTUAL 32,484.70 12.00000000 PAGE 12
040228AC2 ARGOSY GAM 144A 1ST MORT YTM 0.00 0.00000000 STANDARD YTM REVERSAL IN PERIOD
04543LAA7 ASSISTED LIVING CONV 144ASEACTUAL IS 5,769.23 UR 7.00000000 IL
07181ACB4 BAXTER INTERNATIONAL GSCFOACTUAL RI 3,196.62 HR 5.35000000
07181ACB7DEBAXTER INTL INC. GSCICACTUAL 717.24 5.65000000
07181AE17 BAXTER INTERNATIONAL GSC ACTUAL 5,919.31 5.45000000
07556QAA3 BEAZER HOME USA SENIOR NO YTM 30,944.18 9.73349690 STANDARD YTM
077852AF8 BELL & HOWELL STEP UP DEB YTM 20,849.70 4.88849310 STANDARD YTM
077852101 BELL & HOWELL COMPANY ..DIVIDEND 0.00 64 0.00000000 ZERO ANNUAL RATE
077912AB9 BELL & HOWELL SR NT SER B..YTM-CALL 40,092.05 05 8.95888420 STANDARD YTM
087851101 BEVERLY ENTERPRISES INC ..DIVIDEND 0.00 37 0.00000000 ZERO ANNUAL RATE
089162AA9 BIG FLOWER PRESS SR SUB N..YTM-CALL 41,365.26 00 11.03858920 STANDARD YTM
089698AB0 BIG V SPRMKT SER B SR SUB..YTM 49,712.83 13.40128680 STANDARD YTM
114399AA6 BROOKS FIBR SR DISC 144A ..YTM 14,400.74 46 5.56759540 STANDARD YTM
116881AB9 BRUNOS SR SUB NOTES YTM 77,022.51 11.19605880 STANDARD YTM
12476PAA2 CAI WIRELESS SYS YTM-CALL 16,689.86 11.92253330 STANDARD YTM PAGE 13
125765AA5 CMI INDUSTRIES SR SUB NOT YTM 44,007.25 14.12899400 STANDARD YTM
12686CAC3 CABLEVISION SYST SEYTM-CALLIS 24,794.01 UR 7.93699040 ILSTANDARD YTM
1FDCSY2
PAGE 14
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME
000000000000028
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
126915AF4 CABLEVISION IND SERIES B FOYTM-CALLRI 36,455.49 HR 8.04502310 STANDARD YTM
13032RAG0 CALIFORNIA HOTEL SR SUB N..YTM-CALL 70,201.50 65 9.51295470 STANDARD YTM
15133VAB5 CENTENNIAL CELLULAR SR NO..YTM 25,839.95 00 9.95177470 STANDARD YTM
156503AC8 CENTURY COMM SR SUB NOTES..YTM-CALL 53,163.78 9.33803390 STANDARD YTM
158910109 CHANCELLOR BRDCSTNG CL A ..DIVIDEND 0.00 86 0.00000000 ZERO ANNUAL RATE
162456AE7 CHATTEM INC SR SUB NOTE YTM 50,059.30 13.19694520 STANDARD YTM
181581AD1 CLARK USA INC SER B SR NT YTM-CALL 22,617.22 10.28729800 STANDARD YTM PAGE 10
19088KAA8 COBB THEATRES 144A SR SEC YTM 0.00 0.00000000 STANDARD YTM REVERSAL IN PERIOD
192596AB0 COINMACH CORP SER B SR NTSEYTM-CALLIS 21,251.69 UR 11.63428230 ILSTANDARD YTM
199904AB9 COMCAST SER B SR REDEEM N YTM 31,735.10 8.71689310 STANDARD YTM PAGE 11
199906AA6 COMCAST UK CABLE DEB YTM 20,146.44 4.77919160 STANDARD YTM
200300AP6 COMCAST SR SUB DEB SEYTM-CALLIS 64,897.85 UR 9.76157040 ILSTANDARD YTM
20279TD88 COMMONWEALTH EDISON JPMFOACTUAL RI 34,501.45 HR 5.38000000
20338CAC8DECOMMUN & PWR SER B SR NTSICYTM-CALL 40,217.17 11.47754410 STANDARD YTM
209349AC3 CON HYDRO SER B SR DISC N YTM 605.58 6.38090530 STANDARD YTM
209349505 CONSOL HYDRO 13.5 CM PFD DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
210305AB4 CONSOLTEX SER B SR SUB NO YTM 72,476.78 12.85170120 STANDARD YTM
210741AK0 CONTAINER CP SR NT SER A YTM-CALL 32,998.99 10.40567510 STANDARD YTM
211177AD2 CONTINENTAL CABLE SR SUB FOYTM-CALLRI 16,186.90 HR 6.99847400 STANDARD YTM
211177AE0 CONTINENTAL CABLE SR SUB ..YTM-CALL 27,799.68 93 7.51473950 STANDARD YTM
211177AJ9 CONTINENTAL CABLEVISION S..YTM 59,535.85 00 7.66925360 STANDARD YTM
211177AL4 CONTL CABLEVISION 144A ..YTM 44,928.56 7.82796990 STANDARD YTM
219888AB0 CORPORATE EXPRESS ..YTM-CALL 30,672.72 52 9.26621500 STANDARD YTM
23581ACM6 DANA CREDIT CORP MLP ACTUAL 1,170.42 5.30000000 PAGE 12
252567AB8 DIAMOND CABLE COMM DISC YTM 9,269.77 5.59945930 STANDARD YTM
25612TAA1 DR PEPPER BTLG HLDG INC SSEYTM IS 5,767.61 UR 2.37793710 ILSTANDARD YTM
257150AB8 DOMINICKS SR SUB NTS FOYTM-CALLRI 45,265.18 HR 10.24638220 STANDARD YTM
269288AB2DEEZ COMMUN SR SUB NOTES ICYTM-CALL 37,869.78 9.88596760 STANDARD YTM
278763AE7 ECKERD SENIOR SUB NOTES YTM-CALL 42,164.97 9.07443230 STANDARD YTM
283677AU6 EL PASO ELECT CO 1ST MTG YTM-CALL 39,483.68 9.34265540 STANDARD YTM
283677805 EL PASO ELEC 11.4 PIK PFD DIVIDEND 14,250.00 11.40000000
29356AC47 ENRON CORP GSC..ACTUAL 400.51 64 5.38000000
297015AB5 ESSEX GROUP INC SR NOTES ..YTM-CALL 34,832.32 05 10.31499470 STANDARD YTM
302051AB3 EXIDE CORP SR NOTES ..YTM-CALL 38,293.71 37 11.83108880 STANDARD YTM REVERSAL IN PERIOD
302051AC1 EXIDE CORP SR SUB DEF CPN..YTM 6,209.09 00 2.57889920 STANDARD YTM
302051AE7 EXIDE SR NOTES ..YTM-CALL 43,541.87 10.47995500 STANDARD YTM
304530AA6 FAIRFIELD MANU SENIOR SUB..YTM-CALL 38,871.84 46 11.26192800 STANDARD YTM
305914AB9 FALCON DRILL SER B SR NOT YTM-CALL 26,939.80 8.82369800 STANDARD YTM
32106PAE0 FRST NATWIDE SR SUB NTS YTM 976.46 9.32396080 STANDARD YTM PAGE 13
344839AD7 FOODMAKER INC SENIOR NOTE YTM 19,574.77 10.25623990 STANDARD YTM
347460AG2 FORT HOWARD SR NOTES SEYTM IS 61,447.34 UR 9.05691710 ILSTANDARD YTM
347460AK3 FORT HOWARD SENIOR SUB NO YTM 15,406.00 9.47188030 STANDARD YTM PAGE 14
361928AA2 GPA DELAWARE YTM 69,132.41 8.32089400 STANDARD YTM
361933AB0 GNF CORP SERIES B SEYTM IS 65,025.71 UR 10.67643740 ILSTANDARD YTM 1FDCSY2 PAGE 15
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
370299AC3 GENL MED SR SUB NT SER A FOYTM-CALLRI 63,569.02 HR 10.86712590 STANDARD YTM
370299AE9 GENL MED PIK SUB DB SER A..YTM-CALL 36,256.71 86 11.97603980 STANDARD YTM
370334MN1 GENERAL MILLS, INC ACTUAL 6,016.85 0.00000000
387241AE2 GRANITE BRDCST SR SUB NTS YTM-CALL 22,275.94 10.47397160 STANDARD YTM PAGE 10
387241AF9 GRANITE BROAD 144A SR SUB YTM 24,369.59 10.28777560 STANDARD YTM
403916AB5 HMC ACQ PROPERTIES SR NTSSEYTM IS 1,584.26 UR 9.79637290 ILSTANDARD YTM
413086AA7 HARMON INDUST SR SUB NOTE YTM-CALL 31,712.13 7.89139870 STANDARD YTM PAGE 11
413627AC4 HARRAHS OPER INC YTM-CALL 14,152.22 7.77622180 STANDARD YTM
42235WAC2 HEARTLAND WIRELESS SR NTSSEYTM-CALLIS 20,339.38 UR 10.29699860 ILSTANDARD YTM
42705LCK7 HERCULES INC LMBFOACTUAL RI 8,770.90 HR 5.21000000
427241AB0DEHERITAGE MEDIA SR SUB NT ICYTM 33,895.07 9.49960980 STANDARD YTM
42804AD12 HERTZ CORP FMC ACTUAL 27,392.10 5.23000000
433245AB3 HINES HORTICULTURE SR NTS YTM-CALL 20,042.85 11.05992490 STANDARD YTM
435572AA0 HOLLINGER INTL SR SUB NTS YTM-CALL 15,833.54 9.80380940 STANDARD YTM
450698AA3 IVAC CORP SENIOR NOTES YTM-CALL 20,072.55 9.02607210 STANDARD YTM
456626AC4 INFINITY BROAD SR SUB NOTFOYTM-CALLRI 88,397.02 HR 8.99735670 STANDARD YTM
456626100 INFINITY BROAD CORP CL A ..DIVIDEND 0.00 93 0.00000000 ZERO ANNUAL RATE
457472AB4 INLAND STEEL NOTES ..YTM-CALL 52,272.46 00 8.86447520 STANDARD YTM
45814VAB8 INTELCOM GROUP SR DISC NT..YTM 15,613.55 4.77455380 STANDARD YTM
45844LAB4 INTERCEL INC UNITS ..YTM-CALL 0.00 52 0.00000000 STANDARD YTM
458665AD8 INTERFACE SER B SR SUB NT YTM-CALL 16,317.46 9.77998460 STANDARD YTM PAGE 12
459216AE7 INTL CABLETEL 144A DEF CP YTM 28,929.28 5.88947260 STANDARD YTM
47758RAA3 JITNEY-JUNGLE ST SR NTS SEYTM-CALLIS 27,239.91 UR 12.19697780 ILSTANDARD YTM
480695AC9 JORDAN INDUSTRIES SENIOR FOYTM RI 99,090.97 HR 11.93070580 STANDARD YTM
482727AC8DEK-III COMM SR NOTE 144A ICYTM 44,233.56 9.28204290 STANDARD YTM
482727500 K-III COMM 10 EX PFD 144A DIVIDEND 29,166.60 10.00000000
49240CE14 KERR-MCGEE CREDIT CORPLMB ACTUAL 1,821.94 5.63000000
498904AA9 KNOLL INC 144A SR SUB NTS YTM 40,546.97 10.54067160 STANDARD YTM
501044AW1 KROGER SR SUB SER B DEB ..YTM-CALL 63,303.01 64 6.85927730 STANDARD YTM
501044BC4 KROGER CO SR SEC DEB ..YTM-CALL 20,026.04 05 7.45499030 STANDARD YTM
501044BV1 KROGER CO CTC..ACTUAL 41,008.38 37 5.55000000
501044BV2 KROGER CO CTC..ACTUAL 4,683.34 00 5.62000000
502175AB8 LTC PROPERTIES CONVT SUB ..ACTUAL 21,016.48 8.50000000
502175AC6 LTC PROPERTIES CV SUB DEB..ACTUAL 21,016.48 46 8.50000000
502175102 LTC PROPERTIES INC DIVIDEND 11,333.40 1.36000000
504195AB4 LA QUINTA INNS SR SUB NOT YTM-CALL 54,396.09 8.40941180 STANDARD YTM PAGE 13
512815AA9 LAMAR ADVERTISING SR SEC YTM-CALL 19,299.07 10.41317150 STANDARD YTM
517289AA2 LAROCHE INDUST SR SUB NOTSEYTM-CALLIS 21,184.26 UR 12.02099210 ILSTANDARD YTM
521893AB3 LEAR SEATING SUBORDINATED YTM 57,347.35 9.14512230 STANDARD YTM PAGE 14
536065AA3 LINTER TEXTILE CORP SR SU YTM 0.00 0.00000000 STANDARD YTM
55272TAA9 MFS COMMUNICATIONS SR DISSEYTM IS 14,496.85 UR 3.55338140 ILSTANDARD YTM
55272TAB7 MFS COMMUN SR DISC NOTE YTM 18,552.37 4.94214200 STANDARD YTM PAGE 15
554207AE0 MACANDREWS & FORBES NOTES YTM 128,183.97 15.88384460 STANDARD YTM
554208AA6 MACANDREWS & FORBES, INC SEYTM IS 102,128.83 UR 12.15507260 ILSTANDARD YTM
1FDCSY2 PAGE 16
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
560319AA3 MAIL-WELL SR SUB NTS FOYTM RI 31,535.27 HR 11.02638570 STANDARD YTM
56632WAA5 MARCUS CABLE SR SUB GTD D YTM 22,462.88 3.89516290 STANDARD YTM
570387AG5 MARK IV INDUST SR SUB NOTSEYTM-CALLIS 81,643.51 UR 8.58202460 ILSTANDARD YTM
591647AA0 METROCALL INC SR SUB NOTE YTM-CALL 50,540.42 10.37082680 STANDARD YTM PAGE 11
62543VAA3 MULTICARE CO SR SUB NOTES YTM-CALL 38,080.11 8.41441570 STANDARD YTM
62944TAA3 NVR INC. SENIOR NOTES SEYTM IS 32,551.86 UR 10.78966840 ILSTANDARD YTM
62945JAB2 NWA INC. DEBENTURES FOYTM RI 61,188.20 HR 8.50478140 STANDARD YTM
63633D104DENATIONAL HEALTH INVESTORSICDIVIDEND 9,713.70 2.80000000
65332VAB9 NEXTEL COMMUN SR DISC NTS YTM 15,839.64 6.50526940 STANDARD YTM
655042AA7 NOBLE DRILLING SENIOR NOT YTM-CALL 32,470.42 10.04181450 STANDARD YTM
656559AQ4 NORTEK, INC. SR SUB NOTES YTM 60,408.61 11.02702430 STANDARD YTM
685689AB7 ORCHARD SUPPLY SENIOR NOT YTM 48,780.34 10.05874490 STANDARD YTM
690057AA2 OUTDOOR SYSTEMS SENIOR NOFOYTM RI 62,471.28 HR 10.54641440 STANDARD YTM
690768AG1 OWENS ILLINOIS SR SUB NOT..YTM-CALL 35,408.01 93 7.61286190 STANDARD YTM
690768AU0 OWENS ILLINOIS SENIOR DEB..YTM-CALL 59,463.59 00 8.59073910 STANDARD YTM
690768AW6 OWENS ILLINOIS SR SUB NOT..YTM 40,426.22 9.25236220 STANDARD YTM
690768AX4 OWENS ILLINOIS SR SUB NOT..YTM-CALL 68,886.30 52 11.37760220 STANDARD YTM
692766AE8 P & C FOOD MRKT SR NOTES YTM 49,131.23 11.00546240 STANDARD YTM PAGE 12
707832AC5 PENN TRAFFIC SR NOTES YTM 77,979.50 10.64737720 STANDARD YTM
707832AE1 PENN TRAFFIC SENIOR NOTESSEYTM IS 52,238.34 UR 10.34254970 ILSTANDARD YTM
716600AE1 PETROLEUM HEAT & POWER SUFOYTM RI 23,813.11 HR 9.53008360 STANDARD YTM
721467AB4DEPILGRIM'S PRIDE SR SUB NOICYTM 33,300.49 11.80155790 STANDARD YTM
727903AB2 PLAYERS INTL SENIOR NOTES YTM 38,020.08 10.65434460 STANDARD YTM
729173AB0 PLITT THEATRES SR SUB NTS YTM 36,696.85 10.49922860 STANDARD YTM
740540AB5 PREMIER PARKS SER A SR NT YTM-CALL 15,164.22 11.13885780 STANDARD YTM
741917AC2 PRIME HOSPITALITY ..YTM 31,642.49 64 9.68772160 STANDARD YTM
74740ACC9 QUAKER OATS CO FBC..ACTUAL 8,062.88 05 5.55000000
749084AA7 QUORUM HEALTH GROUP SR SU..YTM-CALL 54,044.19 37 8.25347290 STANDARD YTM
749084AB5 QUORUM HEALTH SR SUB NTS ..YTM-CALL 34,131.36 00 8.94227360 STANDARD YTM
749280AB9 RBX CORP SER B SR SUB NTS..YTM 1,833.46 11.68946030 STANDARD YTM
758934AB9 REGENCY HLTH SR SUB NTS ..YTM-CALL 36,257.69 46 10.53976220 STANDARD YTM
76154KAB5 REVLON WRLDWDE SR DISC NT YTM 57,044.02 13.09845930 STANDARD YTM
766520AC4 RIFKIN ACQ SR SUB NTS YTM-CALL 1,257.40 10.94726100 STANDARD YTM PAGE 13
767147AC5 RIO HOTEL SR SUB NOTE YTM-CALL 43,690.30 9.78442360 STANDARD YTM
775103AA2 ROGERS CANTEL SR SEC DEB SEYTM-CALLIS 17,103.51 UR 7.82105810 ILSTANDARD YTM
775109AF8 ROGERS COMMUN SR NOTE YTM-CALL 58,954.94 9.72514460 STANDARD YTM PAGE 14
781903AD1 RUSSELL METALS INC YTM 39,968.16 10.54070060 STANDARD YTM
784092AC2 SD WARREN SER B SR SUB NTSEYTM IS 29,783.79 UR 10.99544380 ILSTANDARD YTM
786514AC3 SAFEWAY SR SUB NOTES YTM 56,946.21 7.57299280 STANDARD YTM PAGE 15
803111MN0 SARA LEE CORP ACTUAL 5,501.06 0.00000000
809337AA6 SCOTSMAN GROUP SENIOR NOTSEYTM IS 27,133.52 UR 8.83290760 ILSTANDARD YTM
817912207 SERVAM CORP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 16
817912306 SERVAM CORP 6/10% SER A C DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
81948QAA5 SHARED TECH/FAIRCHLD 144ASEYTM IS 3,326.60 UR 3.48269200 ILSTANDARD YTM
1FDCSY2 PAGE 17
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
825390AB3 SHOWBOAT 1ST MTG BONDS FOYTM RI 71,181.50 HR 8.97352790 STANDARD YTM
827048AB5 SILGAN CORP SR SUB DEB YTM 104,177.50 13.41693910 STANDARD YTM
843584AA1 SOUTHERN PAC RAIL SENIOR SEYTM-CALLIS 68,563.70 UR 8.83915180 ILSTANDARD YTM
847499AC4 SPECIALTY FOODS SR NTS B FOYTM RI 38,853.38 HR 12.73682810 STANDARD YTM
847499AD2DESPECIALTY FOODS SR NTS B ICYTM 74,720.71 15.67677590 STANDARD YTM
847499AF7 SPECIALTY FOODS SR NTS YTM 20,692.27 12.61953300 STANDARD YTM
857689AC7 STATION CASINOS SR SUB NT YTM 3,833.10 10.37145270 STANDARD YTM
864904AB3 SULLIVAN BRDCAST SR SUB N YTM-CALL 8,853.70 10.54898610 STANDARD YTM
865911AA9 SUMMIT COMMUN GRP SR SUB YTM-CALL 10,940.26 6.73720050 STANDARD YTM
870426AA1 SWEETHEART CUP FOYTM RI 36,623.10 HR 10.10701020 STANDARD YTM
88033GAA8 TENET HEALTHCARE CORP ..YTM 101,705.55 93 8.14957540 STANDARD YTM
88033GAB6 TENET HEALTHCARE CORP ..YTM 47,774.89 00 8.96595570 STANDARD YTM
88320DD48 TEXTRON FINANCIAL MLP..ACTUAL 18,033.99 5.35000000
895912AC7 TRIANGLE PACIFIC CORP SR ..YTM-CALL 54,140.98 52 9.59092530 STANDARD YTM
895912103 TRIANGLE PACIFIC CORP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 12
89816MAA6 TRUMP HLDGS FDNG SENIOR N YTM-CALL 67,840.80 12.41286350 STANDARD YTM
898168109 TRUMP HOTELS & CASINO RESSEDIVIDENDIS 0.00 UR 0.00000000 IL ZERO ANNUAL RATE
900262AR7 TURNER BROADCASTING FOYTM RI 71,018.31 HR 8.39476720 STANDARD YTM
90263EAB8DEUCC INV HLDG SR NTS ICYTM 77,878.01 9.50542050 STANDARD YTM
90263EAD4 UCC INV HLDG SUB DISC NOT YTM 6,809.54 2.61121410 STANDARD YTM
902933AB6 UCAR GLOBAL SR SUB YTM 11,981.37 9.44501790 STANDARD YTM
90329KAA8 USA MOBILE SENIOR NOTES YTM 16,133.62 10.05760140 STANDARD YTM
910734AC6 UTD INTL HLDG DISC NOTE ..YTM 33,090.68 64 12.41326920 STANDARD YTM
911596MN1 U S BANCORP ..ACTUAL 3,292.06 05 0.00000000
911920AB2 U.S. HOME CORP SENIOR NOT..YTM-CALL 29,249.13 37 9.66658420 STANDARD YTM
912810DX3 US TREASURY ..YTM 93,614.92 00 6.84883470 STANDARD YTM
913008AB4 UTD STATIONER SR SUB ..YTM-CALL 59,875.29 10.08224760 STANDARD YTM
92552GCD3 VIACOM INC CTC..ACTUAL 23,827.16 46 5.57000000
92552GCE1 VIACOM INC CTC ACTUAL 6,440.00 5.52000000
92552GDN0 VIACOM INTERNATIONAL CTC ACTUAL 8,325.00 5.55000000 PAGE 13
92552GDV2 VIACOM INTERNATIONAL CTC ACTUAL 11,160.34 5.65000000
925524AC4 VIACOM INC SEYTM IS 104,444.77 UR 8.78337590 ILSTANDARD YTM
925526AG0 VIACOM INTERNATIONAL YTM 21,027.42 7.79280030 STANDARD YTM PAGE 14
927460AA3 VINTAGE PETRO SR SUB NTS YTM-CALL 19,533.35 9.67442740 STANDARD YTM
931154AC2 WALBRO SENIOR NOTES SEYTM-CALLIS 17,088.37 UR 9.86213940 ILSTANDARD YTM
93317Q105 WALTER INDUSTRIES INC DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 15
947423AE9 WEBB DEL SR SUB DEB YTM 44,488.81 9.49638710 STANDARD YTM
947423AF6 DEL WEBB SENIOR SUB DEB SEYTM IS 15,517.36 UR 9.63368450 ILSTANDARD YTM
960080109 WESTFED HLDGS SER B PP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 16
960080208 WESTFED 151/2% SER A PFD DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
960386AA8 WESTINGHOUSE AIR BRAKE SRSEYTM IS 23,205.64 UR 8.73002790 ILSTANDARD YTM
961238AB8 WESTPOINT STEVENS SR SUB YTM 64,272.06 9.57128230 STANDARD YTM PAGE 17
981443104 WORLD COLOR PRESS INC DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
1FDCSY2 PAGE 18
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0 S U M M A R Y D A T A CLASS 01
0 TOTAL INCOME.................. 6,826,974.44
0 TOTAL EXPENSES................ 676,640.21-
0 AVERAGE SHARES................ 106,888,305.3946
0 MAXIMUM OFFERING PRICE........ 9.640000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 7.270368
0
1FDCSY2 PAGE 19
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
001546AA8 AK STEEL SENIOR NOTES YTM-CALL 6,460.72 7.97384600 STANDARD YTM
00202BAC5DEAPP INTL FIN GTD SECD NT ICYTM 47,337.16 12.27049790 STANDARD YTM
002033AA6 A PLUS NETWORK SR SUB NTS YTM-CALL 51,887.60 11.76470000 STANDARD YTM
00204CAA5 ARV ASST LIVING CV 144A ACTUAL 0.00 6.75000000
002786AB7 ABBEY HEALTHCARE SR SUB N YTM-CALL 15,640.93 8.70143660 STANDARD YTM
006348AA4 ADAMS OUTDOOR ADV 144A SN..YTM-CALL 25,183.99 64 10.32584590 STANDARD YTM
006848AC9 ADELPHIA COMMUN SR NOTES ..YTM-CALL 65,339.96 05 10.93964910 STANDARD YTM
00755X104 ADVANSTAR HLDGS, INC ..DIVIDEND 0.00 37 0.00000000 ZERO ANNUAL RATE
01310JC67 ALBERTSON INC GSC..ACTUAL 1,966.20 00 5.22000000
016745AD3 ALLBRITTON COMM SR SUB DE..YTM 1,271.13 10.62158240 STANDARD YTM
022380AB5 ALVEY SYS SR SUB NT ..YTM-CALL 791.68 46 10.74520740 STANDARD YTM
023840AA9 AMER ANNUITY GRP SR SUB N YTM-CALL 47,226.02 8.26342980 STANDARD YTM
023840AB7 AMERICAN ANNUITY SENIOR N YTM-CALL 41,482.27 9.16721600 STANDARD YTM PAGE 13
02637JD93 AMERICAN GREETINGS GSC ACTUAL 6,642.68 5.30000000
02744RAA5 AMERICAN MEDIA OPER SR SUSEYTM-CALLIS 40,149.54 UR 11.67943730 ILSTANDARD YTM
029161AA4 AMER RADIO SYS SR SUB NTS YTM 28,910.97 9.31203170 STANDARD YTM PAGE 14
029161106 AMERICAN RADIO SYSTEMS DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
029362AB6 AMER SAFETY RAZOR SER B SEYTM-CALLIS 8,350.69 UR 9.94170260 ILSTANDARD YTM
029717AB1 AMERICAN STANDARD SF DEB YTM-CALL 64,599.66 9.51532230 STANDARD YTM PAGE 15
029717AH8 AMERICAN STANDARD SR SUB YTM-CALL 14,699.59 8.50184200 STANDARD YTM
029717AJ4 AMERICAN STANDARD SR SUB SEYTM IS 14,498.88 UR 1.74796210 ILSTANDARD YTM
030151AA2 AMER TELECAST SR DISC NT YTM 218.92 3.50335300 STANDARD YTM PAGE 16
030985AA3 AMF GROUP 144A SR SUB NTS YTM 10,837.09 10.95833750 STANDARD YTM
030985AB1 AMF GROUP 144A SR DISC NTSEYTM IS 5,395.36 UR 6.18891710 ILSTANDARD YTM
039381AB4 ARCH COMMUN SR DISC NOTE YTM 13,985.65 4.71885780 STANDARD YTM PAGE 17
039914AA4 ARGYLE TELEVISION YTM 86,028.38 10.41652370 STANDARD YTM
040228AB4 ARGOSY GAMING CONVT SUB N ACTUAL 32,484.70 12.00000000 PAGE 18
040228AC2 ARGOSY GAM 144A 1ST MORT YTM 0.00 0.00000000 STANDARD YTM REVERSAL IN PERIOD
04543LAA7 ASSISTED LIVING CONV 144ASEACTUAL IS 5,769.23 UR 7.00000000 IL
07181ACB4 BAXTER INTERNATIONAL GSCFOACTUAL RI 3,196.62 HR 5.35000000
07181ACB7 HBAXTER INTL INC. GSC ACTUAL 717.24 5.65000000
07181AE17 BAXTER INTERNATIONAL GSC ACTUAL 5,919.31 5.45000000
07556QAA3 BEAZER HOME USA SENIOR NO YTM 30,944.18 9.73349690 STANDARD YTM
077852AF8 BELL & HOWELL STEP UP DEB YTM 20,849.70 4.88849310 STANDARD YTM
077852101 BELL & HOWELL COMPANY ..DIVIDEND 0.00 44 0.00000000 ZERO ANNUAL RATE
077912AB9 BELL & HOWELL SR NT SER B..YTM-CALL 40,092.05 21 8.95888420 STANDARD YTM
087851101 BEVERLY ENTERPRISES INC ..DIVIDEND 1 0.00 46 0.00000000 ZERO ANNUAL RATE
089162AA9 BIG FLOWER PRESS SR SUB N..YTM-CALL 41,365.26 00 11.03858920 STANDARD YTM
089698AB0 BIG V SPRMKT SER B SR SUB..YTM 49,712.83 13.40128680 STANDARD YTM
114399AA6 BROOKS FIBR SR DISC 144A ..YTM 14,400.74 68 5.56759540 STANDARD YTM
116881AB9 BRUNOS SR SUB NOTES YTM 77,022.51 11.19605880 STANDARD YTM
12476PAA2 CAI WIRELESS SYS YTM-CALL 16,689.86 11.92253330 STANDARD YTM PAGE 19
125765AA5 CMI INDUSTRIES SR SUB NOT YTM 44,007.25 14.12899400 STANDARD YTM
12686CAC3 CABLEVISION SYST SEYTM-CALLIS 24,794.01 UR 7.93699040 ILSTANDARD YTM
1FDCSY2 PAGE 20
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
126915AF4 CABLEVISION IND SERIES B FOYTM-CALLRI 36,455.49 HR 8.04502310 STANDARD YTM
13032RAG0 CALIFORNIA HOTEL SR SUB N YTM-CALL 70,201.50 9.51295470 STANDARD YTM
15133VAB5 CENTENNIAL CELLULAR SR NO..YTM 25,839.95 64 9.95177470 STANDARD YTM
156503AC8 CENTURY COMM SR SUB NOTES..YTM-CALL 53,163.78 05 9.33803390 STANDARD YTM
158910109 CHANCELLOR BRDCSTNG CL A ..DIVIDEND 0.00 37 0.00000000 ZERO ANNUAL RATE
162456AE7 CHATTEM INC SR SUB NOTE ..YTM 50,059.30 00 13.19694520 STANDARD YTM
181581AD1 CLARK USA INC SER B SR NT..YTM-CALL 22,617.22 10.28729800 STANDARD YTM
19088KAA8 COBB THEATRES 144A SR SEC..YTM 0.00 46 0.00000000 STANDARD YTM REVERSAL IN PERIOD
192596AB0 COINMACH CORP SER B SR NT YTM-CALL 21,251.69 11.63428230 STANDARD YTM
199904AB9 COMCAST SER B SR REDEEM N YTM 31,735.10 8.71689310 STANDARD YTM PAGE 13
199906AA6 COMCAST UK CABLE DEB YTM 20,146.44 4.77919160 STANDARD YTM
200300AP6 COMCAST SR SUB DEB SEYTM-CALLIS 64,897.85 UR 9.76157040 ILSTANDARD YTM
20279TD88 COMMONWEALTH EDISON JPM ACTUAL 34,501.45 5.38000000 PAGE 14
20338CAC8 COMMUN & PWR SER B SR NTS YTM-CALL 40,217.17 11.47754410 STANDARD YTM
209349AC3 CON HYDRO SER B SR DISC NSEYTM IS 605.58 UR 6.38090530 ILSTANDARD YTM
209349505 CONSOL HYDRO 13.5 CM PFD DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 15
210305AB4 CONSOLTEX SER B SR SUB NO YTM 72,476.78 12.85170120 STANDARD YTM
210741AK0 CONTAINER CP SR NT SER A SEYTM-CALLIS 32,998.99 UR 10.40567510 ILSTANDARD YTM
211177AD2 CONTINENTAL CABLE SR SUB YTM-CALL 16,186.90 6.99847400 STANDARD YTM PAGE 16
211177AE0 CONTINENTAL CABLE SR SUB YTM-CALL 27,799.68 7.51473950 STANDARD YTM
211177AJ9 CONTINENTAL CABLEVISION SSEYTM IS 59,535.85 UR 7.66925360 ILSTANDARD YTM
211177AL4 CONTL CABLEVISION 144A YTM 44,928.56 7.82796990 STANDARD YTM PAGE 17
219888AB0 CORPORATE EXPRESS YTM-CALL 30,672.72 9.26621500 STANDARD YTM
23581ACM6 DANA CREDIT CORP MLP ACTUAL 1,170.42 5.30000000 PAGE 18
252567AB8 DIAMOND CABLE COMM DISC YTM 9,269.77 5.59945930 STANDARD YTM
25612TAA1 DR PEPPER BTLG HLDG INC SSEYTM IS 5,767.61 UR 2.37793710 ILSTANDARD YTM
257150AB8 DOMINICKS SR SUB NTS FOYTM-CALLRI 45,265.18 HR 10.24638220 STANDARD YTM
269288AB2 HEZ COMMUN SR SUB NOTES YTM-CALL 37,869.78 9.88596760 STANDARD YTM
278763AE7 ECKERD SENIOR SUB NOTES YTM-CALL 42,164.97 9.07443230 STANDARD YTM
283677AU6 EL PASO ELECT CO 1ST MTG YTM-CALL 39,483.68 9.34265540 STANDARD YTM
283677805 EL PASO ELEC 11.4 PIK PFD DIVIDEND 14,250.00 11.40000000
29356AC47 ENRON CORP GSC..ACTUAL 400.51 44 5.38000000
297015AB5 ESSEX GROUP INC SR NOTES ..YTM-CALL 34,832.32 21 10.31499470 STANDARD YTM
302051AB3 EXIDE CORP SR NOTES ..YTM-CALL 1 38,293.71 46 11.83108880 STANDARD YTM REVERSAL IN PERIOD
302051AC1 EXIDE CORP SR SUB DEF CPN..YTM 6,209.09 00 2.57889920 STANDARD YTM
302051AE7 EXIDE SR NOTES ..YTM-CALL 43,541.87 10.47995500 STANDARD YTM
304530AA6 FAIRFIELD MANU SENIOR SUB..YTM-CALL 38,871.84 68 11.26192800 STANDARD YTM
305914AB9 FALCON DRILL SER B SR NOT YTM-CALL 26,939.80 8.82369800 STANDARD YTM
32106PAE0 FRST NATWIDE SR SUB NTS YTM 976.46 9.32396080 STANDARD YTM PAGE 19
344839AD7 FOODMAKER INC SENIOR NOTE YTM 19,574.77 10.25623990 STANDARD YTM
347460AG2 FORT HOWARD SR NOTES SEYTM IS 61,447.34 UR 9.05691710 ILSTANDARD YTM
347460AK3 FORT HOWARD SENIOR SUB NO YTM 15,406.00 9.47188030 STANDARD YTM PAGE 20
361928AA2 GPA DELAWARE YTM 69,132.41 8.32089400 STANDARD YTM
361933AB0 GNF CORP SERIES B SEYTM IS 65,025.71 UR 10.67643740 ILSTANDARD YTM
1FDCSY2 PAGE 21
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
370299AC3 GENL MED SR SUB NT SER A FOYTM-CALLRI 63,569.02 HR 10.86712590 STANDARD YTM
370299AE9 GENL MED PIK SUB DB SER A..YTM-CALL 36,256.71 37 11.97603980 STANDARD YTM
370334MN1 GENERAL MILLS, INC ..ACTUAL 6,016.85 00 0.00000000
387241AE2 GRANITE BRDCST SR SUB NTS..YTM-CALL 22,275.94 10.47397160 STANDARD YTM
387241AF9 GRANITE BROAD 144A SR SUB..YTM 24,369.59 46 10.28777560 STANDARD YTM
403916AB5 HMC ACQ PROPERTIES SR NTS YTM 1,584.26 9.79637290 STANDARD YTM
413086AA7 HARMON INDUST SR SUB NOTE YTM-CALL 31,712.13 7.89139870 STANDARD YTM PAGE 13
413627AC4 HARRAHS OPER INC YTM-CALL 14,152.22 7.77622180 STANDARD YTM
42235WAC2 HEARTLAND WIRELESS SR NTSSEYTM-CALLIS 20,339.38 UR 10.29699860 ILSTANDARD YTM
42705LCK7 HERCULES INC LMB ACTUAL 8,770.90 5.21000000 PAGE 14
427241AB0 HERITAGE MEDIA SR SUB NT YTM 33,895.07 9.49960980 STANDARD YTM
42804AD12 HERTZ CORP FMCSEACTUAL IS 27,392.10 UR 5.23000000 IL
433245AB3 HINES HORTICULTURE SR NTS YTM-CALL 20,042.85 11.05992490 STANDARD YTM PAGE 15
435572AA0 HOLLINGER INTL SR SUB NTS YTM-CALL 15,833.54 9.80380940 STANDARD YTM
450698AA3 IVAC CORP SENIOR NOTES SEYTM-CALLIS 20,072.55 UR 9.02607210 ILSTANDARD YTM
456626AC4 INFINITY BROAD SR SUB NOT YTM-CALL 88,397.02 8.99735670 STANDARD YTM PAGE 16
456626100 INFINITY BROAD CORP CL A DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
457472AB4 INLAND STEEL NOTES SEYTM-CALLIS 52,272.46 UR 8.86447520 ILSTANDARD YTM
45814VAB8 INTELCOM GROUP SR DISC NT YTM 15,613.55 4.77455380 STANDARD YTM PAGE 17
45844LAB4 INTERCEL INC UNITS YTM-CALL 0.00 0.00000000 STANDARD YTM
458665AD8 INTERFACE SER B SR SUB NT YTM-CALL 16,317.46 9.77998460 STANDARD YTM PAGE 18
459216AE7 INTL CABLETEL 144A DEF CP YTM 28,929.28 5.88947260 STANDARD YTM
47758RAA3 JITNEY-JUNGLE ST SR NTS SEYTM-CALLIS 27,239.91 UR 12.19697780 ILSTANDARD YTM
480695AC9 JORDAN INDUSTRIES SENIOR FOYTM RI 99,090.97 HR 11.93070580 STANDARD YTM
482727AC8 HK-III COMM SR NOTE 144A YTM 44,233.56 9.28204290 STANDARD YTM
482727500 K-III COMM 10 EX PFD 144A DIVIDEND 29,166.60 10.00000000
49240CE14 KERR-MCGEE CREDIT CORPLMB ACTUAL 1,821.94 5.63000000
498904AA9 KNOLL INC 144A SR SUB NTS YTM 40,546.97 10.54067160 STANDARD YTM
501044AW1 KROGER SR SUB SER B DEB ..YTM-CALL 63,303.01 44 6.85927730 STANDARD YTM
501044BC4 KROGER CO SR SEC DEB ..YTM-CALL 20,026.04 21 7.45499030 STANDARD YTM
501044BV1 KROGER CO CTC..ACTUAL 1 41,008.38 46 5.55000000
501044BV2 KROGER CO CTC..ACTUAL 4,683.34 00 5.62000000
502175AB8 LTC PROPERTIES CONVT SUB ..ACTUAL 21,016.48 8.50000000
502175AC6 LTC PROPERTIES CV SUB DEB..ACTUAL 21,016.48 68 8.50000000
502175102 LTC PROPERTIES INC DIVIDEND 11,333.40 1.36000000
504195AB4 LA QUINTA INNS SR SUB NOT YTM-CALL 54,396.09 8.40941180 STANDARD YTM PAGE 19
512815AA9 LAMAR ADVERTISING SR SEC YTM-CALL 19,299.07 10.41317150 STANDARD YTM
517289AA2 LAROCHE INDUST SR SUB NOTSEYTM-CALLIS 21,184.26 UR 12.02099210 ILSTANDARD YTM
521893AB3 LEAR SEATING SUBORDINATED YTM 57,347.35 9.14512230 STANDARD YTM PAGE 20
536065AA3 LINTER TEXTILE CORP SR SU YTM 0.00 0.00000000 STANDARD YTM
55272TAA9 MFS COMMUNICATIONS SR DISSEYTM IS 14,496.85 UR 3.55338140 ILSTANDARD YTM
55272TAB7 MFS COMMUN SR DISC NOTE YTM 18,552.37 4.94214200 STANDARD YTM PAGE 21
554207AE0 MACANDREWS & FORBES NOTES YTM 128,183.97 15.88384460 STANDARD YTM
554208AA6 MACANDREWS & FORBES, INC SEYTM IS 102,128.83 UR 12.15507260 ILSTANDARD YTM
1FDCSY2 PAGE 22
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
560319AA3 MAIL-WELL SR SUB NTS FOYTM RI 31,535.27 HR 11.02638570 STANDARD YTM
56632WAA5 MARCUS CABLE SR SUB GTD D..YTM 22,462.88 46 3.89516290 STANDARD YTM
570387AG5 MARK IV INDUST SR SUB NOT YTM-CALL 81,643.51 8.58202460 STANDARD YTM
591647AA0 METROCALL INC SR SUB NOTE YTM-CALL 50,540.42 10.37082680 STANDARD YTM PAGE 13
62543VAA3 MULTICARE CO SR SUB NOTES YTM-CALL 38,080.11 8.41441570 STANDARD YTM
62944TAA3 NVR INC. SENIOR NOTES SEYTM IS 32,551.86 UR 10.78966840 ILSTANDARD YTM
62945JAB2 NWA INC. DEBENTURES YTM 61,188.20 8.50478140 STANDARD YTM PAGE 14
63633D104 NATIONAL HEALTH INVESTORS DIVIDEND 9,713.70 2.80000000
65332VAB9 NEXTEL COMMUN SR DISC NTSSEYTM IS 15,839.64 UR 6.50526940 ILSTANDARD YTM
655042AA7 NOBLE DRILLING SENIOR NOT YTM-CALL 32,470.42 10.04181450 STANDARD YTM PAGE 15
656559AQ4 NORTEK, INC. SR SUB NOTES YTM 60,408.61 11.02702430 STANDARD YTM
685689AB7 ORCHARD SUPPLY SENIOR NOTSEYTM IS 48,780.34 UR 10.05874490 ILSTANDARD YTM
690057AA2 OUTDOOR SYSTEMS SENIOR NO YTM 62,471.28 10.54641440 STANDARD YTM PAGE 16
690768AG1 OWENS ILLINOIS SR SUB NOT YTM-CALL 35,408.01 7.61286190 STANDARD YTM
690768AU0 OWENS ILLINOIS SENIOR DEBSEYTM-CALLIS 59,463.59 UR 8.59073910 ILSTANDARD YTM
690768AW6 OWENS ILLINOIS SR SUB NOT YTM 40,426.22 9.25236220 STANDARD YTM PAGE 17
690768AX4 OWENS ILLINOIS SR SUB NOT YTM-CALL 68,886.30 11.37760220 STANDARD YTM
692766AE8 P & C FOOD MRKT SR NOTES YTM 49,131.23 11.00546240 STANDARD YTM PAGE 18
707832AC5 PENN TRAFFIC SR NOTES YTM 77,979.50 10.64737720 STANDARD YTM
707832AE1 PENN TRAFFIC SENIOR NOTESSEYTM IS 52,238.34 UR 10.34254970 ILSTANDARD YTM
716600AE1 PETROLEUM HEAT & POWER SUFOYTM RI 23,813.11 HR 9.53008360 STANDARD YTM
721467AB4 HPILGRIM'S PRIDE SR SUB NO YTM 33,300.49 11.80155790 STANDARD YTM
727903AB2 PLAYERS INTL SENIOR NOTES YTM 38,020.08 10.65434460 STANDARD YTM
729173AB0 PLITT THEATRES SR SUB NTS YTM 36,696.85 10.49922860 STANDARD YTM
740540AB5 PREMIER PARKS SER A SR NT YTM-CALL 15,164.22 11.13885780 STANDARD YTM
741917AC2 PRIME HOSPITALITY ..YTM 31,642.49 44 9.68772160 STANDARD YTM
74740ACC9 QUAKER OATS CO FBC..ACTUAL 8,062.88 21 5.55000000
749084AA7 QUORUM HEALTH GROUP SR SU..YTM-CALL 1 54,044.19 46 8.25347290 STANDARD YTM
749084AB5 QUORUM HEALTH SR SUB NTS ..YTM-CALL 34,131.36 00 8.94227360 STANDARD YTM
749280AB9 RBX CORP SER B SR SUB NTS..YTM 1,833.46 11.68946030 STANDARD YTM
758934AB9 REGENCY HLTH SR SUB NTS ..YTM-CALL 36,257.69 68 10.53976220 STANDARD YTM
76154KAB5 REVLON WRLDWDE SR DISC NT YTM 57,044.02 13.09845930 STANDARD YTM
766520AC4 RIFKIN ACQ SR SUB NTS YTM-CALL 1,257.40 10.94726100 STANDARD YTM PAGE 19
767147AC5 RIO HOTEL SR SUB NOTE YTM-CALL 43,690.30 9.78442360 STANDARD YTM
775103AA2 ROGERS CANTEL SR SEC DEB SEYTM-CALLIS 17,103.51 UR 7.82105810 ILSTANDARD YTM
775109AF8 ROGERS COMMUN SR NOTE YTM-CALL 58,954.94 9.72514460 STANDARD YTM PAGE 20
781903AD1 RUSSELL METALS INC YTM 39,968.16 10.54070060 STANDARD YTM
784092AC2 SD WARREN SER B SR SUB NTSEYTM IS 29,783.79 UR 10.99544380 ILSTANDARD YTM
786514AC3 SAFEWAY SR SUB NOTES YTM 56,946.21 7.57299280 STANDARD YTM PAGE 21
803111MN0 SARA LEE CORP ACTUAL 5,501.06 0.00000000
809337AA6 SCOTSMAN GROUP SENIOR NOTSEYTM IS 27,133.52 UR 8.83290760 ILSTANDARD YTM
817912207 SERVAM CORP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 22
817912306 SERVAM CORP 6/10% SER A C DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
81948QAA5 SHARED TECH/FAIRCHLD 144ASEYTM IS 3,326.60 UR 3.48269200 ILSTANDARD YTM
1FDCSY2 PAGE 23
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
825390AB3 SHOWBOAT 1ST MTG BONDS FOYTM RI 71,181.50 HR 8.97352790 STANDARD YTM
827048AB5 SILGAN CORP SR SUB DEB YTM 104,177.50 13.41693910 STANDARD YTM
843584AA1 SOUTHERN PAC RAIL SENIOR SEYTM-CALLIS 68,563.70 UR 8.83915180 ILSTANDARD YTM
847499AC4 SPECIALTY FOODS SR NTS B YTM 38,853.38 12.73682810 STANDARD YTM PAGE 14
847499AD2 SPECIALTY FOODS SR NTS B YTM 74,720.71 15.67677590 STANDARD YTM
847499AF7 SPECIALTY FOODS SR NTS SEYTM IS 20,692.27 UR 12.61953300 ILSTANDARD YTM
857689AC7 STATION CASINOS SR SUB NT YTM 3,833.10 10.37145270 STANDARD YTM PAGE 15
864904AB3 SULLIVAN BRDCAST SR SUB N YTM-CALL 8,853.70 10.54898610 STANDARD YTM
865911AA9 SUMMIT COMMUN GRP SR SUB SEYTM-CALLIS 10,940.26 UR 6.73720050 ILSTANDARD YTM
870426AA1 SWEETHEART CUP YTM 36,623.10 10.10701020 STANDARD YTM PAGE 16
88033GAA8 TENET HEALTHCARE CORP YTM 101,705.55 8.14957540 STANDARD YTM
88033GAB6 TENET HEALTHCARE CORP SEYTM IS 47,774.89 UR 8.96595570 ILSTANDARD YTM
88320DD48 TEXTRON FINANCIAL MLP ACTUAL 18,033.99 5.35000000 PAGE 17
895912AC7 TRIANGLE PACIFIC CORP SR YTM-CALL 54,140.98 9.59092530 STANDARD YTM
895912103 TRIANGLE PACIFIC CORP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 18
89816MAA6 TRUMP HLDGS FDNG SENIOR N YTM-CALL 67,840.80 12.41286350 STANDARD YTM
898168109 TRUMP HOTELS & CASINO RESSEDIVIDENDIS 0.00 UR 0.00000000 IL ZERO ANNUAL RATE
900262AR7 TURNER BROADCASTING FOYTM RI 71,018.31 HR 8.39476720 STANDARD YTM
90263EAB8 HUCC INV HLDG SR NTS YTM 77,878.01 9.50542050 STANDARD YTM
90263EAD4 UCC INV HLDG SUB DISC NOT YTM 6,809.54 2.61121410 STANDARD YTM
902933AB6 UCAR GLOBAL SR SUB YTM 11,981.37 9.44501790 STANDARD YTM
90329KAA8 USA MOBILE SENIOR NOTES YTM 16,133.62 10.05760140 STANDARD YTM
910734AC6 UTD INTL HLDG DISC NOTE ..YTM 33,090.68 44 12.41326920 STANDARD YTM
911596MN1 U S BANCORP ..ACTUAL 3,292.06 21 0.00000000
911920AB2 U.S. HOME CORP SENIOR NOT..YTM-CALL 1 29,249.13 46 9.66658420 STANDARD YTM
912810DX3 US TREASURY ..YTM 93,614.92 00 6.84883470 STANDARD YTM
913008AB4 UTD STATIONER SR SUB ..YTM-CALL 59,875.29 10.08224760 STANDARD YTM
92552GCD3 VIACOM INC CTC..ACTUAL 23,827.16 68 5.57000000
92552GCE1 VIACOM INC CTC ACTUAL 6,440.00 5.52000000
92552GDN0 VIACOM INTERNATIONAL CTC ACTUAL 8,325.00 5.55000000 PAGE 19
92552GDV2 VIACOM INTERNATIONAL CTC ACTUAL 11,160.34 5.65000000
925524AC4 VIACOM INC SEYTM IS 104,444.77 UR 8.78337590 ILSTANDARD YTM
925526AG0 VIACOM INTERNATIONAL YTM 21,027.42 7.79280030 STANDARD YTM PAGE 20
927460AA3 VINTAGE PETRO SR SUB NTS YTM-CALL 19,533.35 9.67442740 STANDARD YTM
931154AC2 WALBRO SENIOR NOTES SEYTM-CALLIS 17,088.37 UR 9.86213940 ILSTANDARD YTM
93317Q105 WALTER INDUSTRIES INC DIVIDEND 0.00 0.00000000 ZERO NNUAL RATE PAGE 21
947423AE9 WEBB DEL SR SUB DEB YTM 44,488.81 9.49638710 STANDARD YTM
947423AF6 DEL WEBB SENIOR SUB DEB SEYTM IS 15,517.36 UR 9.63368450 ILSTANDARD YTM
960080109 WESTFED HLDGS SER B PP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE PAGE 22
960080208 WESTFED 151/2% SER A PFD DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
960386AA8 WESTINGHOUSE AIR BRAKE SRSEYTM IS 23,205.64 UR 8.73002790 ILSTANDARD YTM
961238AB8 WESTPOINT STEVENS SR SUB YTM 64,272.06 9.57128230 STANDARD YTM PAGE 23
981443104 WORLD COLOR PRESS INC DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
1FDCSY2 PAGE 24
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD HIGH INCOME 000000000000028
0 S U M M A R Y D A T A CLASS 03
0 TOTAL INCOME.................. 15,074.51
0 TOTAL EXPENSES................ 1,428.06-
0 AVERAGE SHARES................ 236,001.4340
0 MAXIMUM OFFERING PRICE........ 9.100000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 7.747248
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000310254
<NAME> UNITED HIGH INCOME FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 972,250,582
<INVESTMENTS-AT-VALUE> 962,157,578
<RECEIVABLES> 21,435,781
<ASSETS-OTHER> 55,759
<OTHER-ITEMS-ASSETS> 38,046
<TOTAL-ASSETS> 983,687,164
<PAYABLE-FOR-SECURITIES> 5,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,621,936
<TOTAL-LIABILITIES> 9,621,936
<SENIOR-EQUITY> 107,103,444
<PAID-IN-CAPITAL-COMMON> 1,307,228,075
<SHARES-COMMON-STOCK> 107,103,444
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 767,157
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (430,940,444)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,093,004)
<NET-ASSETS> 974,065,228
<DIVIDEND-INCOME> 285,339
<INTEREST-INCOME> 92,926,899
<OTHER-INCOME> 0
<EXPENSES-NET> (8,244,451)
<NET-INVESTMENT-INCOME> 84,967,787
<REALIZED-GAINS-CURRENT> (16,543,528)
<APPREC-INCREASE-CURRENT> 60,496,492
<NET-CHANGE-FROM-OPS> 128,920,751
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (85,940,333)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,190,043
<NUMBER-OF-SHARES-REDEEMED> (16,331,251)
<SHARES-REINVESTED> 7,894,818
<NET-CHANGE-IN-ASSETS> 40,489,292
<ACCUMULATED-NII-PRIOR> 1,739,703
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,455,292
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,244,451
<AVERAGE-NET-ASSETS> 971,012,601
<PER-SHARE-NAV-BEGIN> 8.70
<PER-SHARE-NII> .79
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> (.80)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.09
<EXPENSE-RATIO> .85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B18-himcp
UNITED HIGH INCOME FUND, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for United High Income Fund, Inc. ("Fund"). This multiple class
structure was approved by the Board of Directors of the Fund on February 8,
1995, under an order of exemption issued by the Securities and Exchange
Commission on January 11, 1995. Subsequent to such approval, Rule 18f-3 under
the 1940 Act was adopted. It was determined that the Fund operate under Rule
18f-3, and this Plan was adopted pursuant to Rule 18f-3. This Plan describes
the classes of shares of stock of the Fund -- Class A shares and Class Y shares
- -- offered to the public on or after July 31, 1995 ("Implementation Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 5.75% of the amount
invested and declines to 0% based on discounts for volume purchases. The
initial sales charge is waived for certain eligible purchasers.
Class A shares also will be subject to a service fee charged pursuant to a
Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1")
that provides for a maximum fee of .25% of the average annual net assets of the
Class A shares of the Fund. All of the shares of the Fund issued pursuant to a
Fund prospectus effective prior to the Implementation Date and that are
outstanding on the Implementation Date will be designated as Class A shares.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and without a Rule 12b-1 fee. Class Y shares are designed for
institutional investors and will be available for purchase by: (i) participants
of employee benefit plans established under section 403(b) or section 457, or
qualified under section 401, including 401(k) plans, of the Internal Revenue
Code of 1986 ("Code"), when the plan has 100 or more eligible employees and
holds the shares in an omnibus account on the Fund's records; (ii) banks, trust
institutions, investment fund administrators and other third parties investing
for their own accounts or for the accounts of their customers where such
investments for customer accounts are held in an omnibus account on the Fund's
records; (iii) government entities or authorities and corporations whose
investment within the first twelve months after initial investment is $10
million or more; and (iv) certain retirement plans and trusts for employees and
sales representatives of Waddell & Reed, Inc. and its affiliates.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class A shares
and Class Y shares of the Fund differ with respect to the applicable shareholder
servicing fees. Class A shares pay a monthly shareholder servicing fee of
$1.0208 for each Class A shareholder account which was in existence during the
prior month, plus $0.30 for each Class A account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class of shares;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
These expenses may, but are not required to, be directly attributed
and charged to a particular Class. The shareholder servicing fees and other
expenses listed above that are attributed and charged to a particular Class are
borne on a pro rata basis by the outstanding shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class A shares of the Fund may be exchanged for corresponding shares of any
other fund in the United Group of Mutual Funds.
Class Y shares may be exchanged for Class Y shares of any other fund in the
United Group of Mutual Funds.
These exchange privileges may be modified or terminated by the Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the Fund's multiple class structure.
Adopted: June 1, 1995
As Amended: December 6, 1995
Effective: January 9, 1996
June 27, 1996
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United High Income Fund, Inc.
Post-Effective Amendment No. 25
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:mmd
