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. 29
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 26
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
Kristen A. Richards, 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, 1999 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, 1999 was filed on or about June 25,
1999.
<PAGE>
June 30, 1999
PROSPECTUS
UNITED HIGH
INCOME FUND, INC.
- ------------------------------------------------------
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.
[Column Graphic]
[WADDEL & REED LOGO]
The Securities and exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offence to state otherwise.
<PAGE>
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
<S> <C>
AN OVERVIEW OF THE FUND 3
- --------------------------------------------------
PERFORMANCE 5
- --------------------------------------------------
FEES AND EXPENSES 7
- --------------------------------------------------
THE INVESTMENT PRINCIPLES OF
THE FUND 9
- --------------------------------------------------
Investment Goals, Principal Strategies
and Other Investments 9
-----------------------------------------------
Risk Considerations of Principal
Strategies and Other Investments 10
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Year 2000 and Euro Issues 11
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YOUR ACCOUNT 13
- --------------------------------------------------
Choosing a Share Class 13
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Sales Charge Reduction and
Waivers 14
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Waivers for Certain Investors 14
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Ways to Set Up Your Account 15
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Buying Shares 17
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Minimum Investments 19
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Adding to Your Account 20
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Selling Shares 20
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Telephone Transactions 23
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Shareholder Services 23
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Personal Service 23
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Reports 24
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Exchanges 24
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Automatic Transactions for Class A
Shareholders 24
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Distributions and Taxes 25
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Distributions 25
--------------------------------------------
Taxes 26
--------------------------------------------
THE MANAGEMENT OF THE FUND 28
- --------------------------------------------------
Portfolio Management 28
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Management Fee 28
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FINANCIAL HIGHLIGHTS 30
- --------------------------------------------------
</TABLE>
<PAGE>
An
Overview
of the
Fund
[Column Graphic]
Goal
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.
Principal Strategies
The Fund seeks to achieve its goals by investing primarily in a diversified
portfolio of high-yield, high-risk, fixed-income securities, the risks of which
are, in the judgment of Waddell & Reed Investment Management Company
("WRIMCO"), the Fund's investment manager, consistent with the Fund's goals.
The Fund may invest in companies of any size.
The Fund invests primarily in lower quality bonds, commonly called "junk
bonds," which are bonds rated BB and below by Standard and Poor's ("S&P") and
Ba and below by Moody's Investor Services ("MIS)". The Fund may invest an
unlimited amount of its total assets in junk bonds. As well, the Fund may
invest in bonds of any maturity. The Fund may also invest a significant portion
of its assets in common stock in order to seek capital growth. The Fund will
invest primarily in common stock of companies with expected growth in their
earnings and revenue.
Principal Risks of Investing in the Fund
Because the Fund owns different types of investments, a variety of factors can
affect its investment performance, such as:
- - the credit quality, earnings performance and other conditions of the companies
whose securities the Fund holds;
- - the susceptibility of junk bonds to greater risks of non-payment or default,
price volatility and lack of liquidity than higher-rated bonds;
- - an increase in interest rates, which may cause the value of a bond held by the
Fund to decline;
- - changes in the maturities of bonds owned by the Fund;
- - adverse bond and stock market conditions, sometimes in response to general
economic or industry
3
<PAGE>
news, that may cause the prices of the Fund's holdings to fall as part of a
broad market decline; and
- - the skill of WRIMCO in evaluating and managing the interest rate and credit
risks of the Fund's portfolio.
Market risk for small- or medium-sized companies may be greater than that for
large companies. For example, smaller companies may have limited financial
resources, limited product lines or inexperienced management.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
The Fund is designed for investors who primarily seek a level of current income
that is higher than is normally available with securities in the higher rated
categories and, secondarily, seek capital growth where consistent with this
income goal, through a diversified, actively managed portfolio. The Fund is not
suitable for all investors. You should consider whether the Fund fits with your
particular investment objectives.
4
<PAGE>
Performance
[Column Graphic]
The chart and table below provide some indication of the risks of investing in
the Fund by showing changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns for 1, 5 and 10 years compare with
those of a broad measure of market performance.
- - The chart presents the total annual returns for Class A and shows how
performance has varied from year to year over the past ten years.
- - The chart does not reflect any sales charge that you may be required to pay
upon purchase of the Fund's Class A shares. If the sales charge were included,
the returns would be less than those shown.
- - The table shows Class A and Class Y average annual returns and compares them
to the market indicators listed.
- - Both the chart and the table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Note that the performance information in the chart and table is based on
calendar-year periods, while the information shown in the Financial Highlights
section of this Prospectus and in the Fund's shareholder reports is based on
the Fund's fiscal year.
CHART OF YEAR-BY-YEAR RETURNS
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98
- -8.07% -14.97% 37.45% 16.33% 17.69% -3.66% 17.80% 11.88% 14.32% 3.88%
</TABLE>
In the period shown in the chart, the highest quarterly return was 12.12% (the
first quarter of 1991) and the lowest quarterly return was -8.09% (the fourth
quarter of 1989). The Class A return for the quarter ended March 31, 1999 was
1.80%.
5
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life of Class*
<S> <C> <C> <C> <C>
Class A Shares of the
Fund -2.09% 7.29% 7.71%
Salomon Brothers High
Yield Composite Index 4.04% 9.55% 11.44% 9.77%
Lipper High Current
Yield Fund Universe
Average -0.41% 7.38% 9.34% 8.21%
Class Y Shares of the
Fund 4.06% 9.89%
Salomon Brothers High
Yield Composite Index 4.04% 9.55% 11.44% 9.77%
Lipper High Current
Yield Fund Universe
Average -0.41% 7.38% 9.34% 8.21%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the
goals of the Fund.
*Since January 4, 1996 for Class Y shares.
6
<PAGE>
Fees and Expenses
[Column Graphic]
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Shareholder Fees Class A Class Y
(fees paid directly from your investment) Shares Shares
<S> <C> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering
price) 5.75% None
Maximum Deferred Sales Charge (Load)
(as a percentage of amount invested) None None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<S> <C> <C>
Management Fees(1) 0.61% 0.61%
Distribution and Service (12b-1 Fees)(2) 0.24% None
Other Expenses 0.16% 0.20%
Total Annual Fund Operating Expenses 1.01% 0.81%
</TABLE>
(1) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise,
expense ratios are based on Fund-level expenses for the fiscal year ended
March 31, 1999. Actual expenses may be greater or lesser than those shown.
(2) It is possible that long-term Class A shareholders of the Fund may bear
12b-1 distribution fees that are more than the maximum front-end sales
charge permitted under the rules of the National Association of Securities
Dealers, Inc.
7
<PAGE>
Example
This example is intended to help you compare the cost of investing in the shares
of the Fund with the cost of investing in other mutual funds. The example
assumes that (a) you invest $10,000 in the particular Class A or Class Y shares
for each time period specified, (b) your investment has a 5% return each year,
and (c) the expenses remain the same. Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
Class A Class Y
<S> <C> <C>
1 year $ 672 $ 83
3 years $ 878 $ 259
5 years $1,101 $ 450
10 year s $1,740 $1,002
</TABLE>
Your costs would be the same whether or not you redeemed your shares at the end
of each time period.
8
<PAGE>
The
Investment
Principles of
the Fund
[Column Graphic]
Investment Goals, Principal Strategies and
Other Investments
The primary goal of the Fund is to earn a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund seeks to achieve these goals by investing primarily in a
diversified portfolio of high-yield, high-risk, fixed income securities, the
risks of which are, in the judgment of WRIMCO, consistent with the Fund's
goals. There is no guarantee that the Fund will achieve its goals.
The main types of securities that the Fund owns are debt securities and common
stock. 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 determined by WRIMCO to be of comparable quality;
these are securities rated BBB or lower by S&P, or Baa or lower by MIS and
unrated securities. Lower-quality debt securities, which include "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.
The Fund will normally invest at least 80% of its total assets to seek a high
level of current income. The Fund limits its acquisition of common stock so
that no more than 20% of its total assets will consist of common stock and no
more than 10% of its total assets will consist of non-dividend-paying common
stock.
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:
- - financial strength;
- - cash flow;
- - management;
- - borrowing requirements; and
9
<PAGE>
- - responsiveness to changes in interest rates and business conditions.
In determining whether to sell a debt security, WRIMCO will use the same type
of analysis that it uses in buying debt securities. For example, WRIMCO may
sell a holding if the issuer's financial strength declines to an unacceptable
level or management of the company weakens. As well, WRIMCO may choose to sell
an equity security if the issuer's growth potential is diminished.
The Fund may invest an unlimited amount of its assets in foreign securities. At
this time, however, the Fund intends to invest in foreign securities to a
limited extent.
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:
- - shorten the average maturity of the Fund's debt portfolio;
- - hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit) in varying amounts designed for defensive
purposes; and
- - emphasize high-grade debt securities.
Taking a temporary defensive position in any one or more of these manners might
reduce the yield on the Fund's portfolio.
The Fund may also invest in other types of investments and use certain other
instruments in seeking to achieve the Fund's goals. For example, the Fund may
invest in options, futures contracts, asset-backed securities and other
derivative instruments if it is permitted to invest in the type of asset by
which the return on, or value of, the derivative is measured. At this time, the
Fund has limited exposure to derivative investments. You will find more
information in the Statement of Additional Information ("SAI") about the Fund's
permitted investments and strategies, as well as the restrictions that apply to
them.
Risk Considerations of Principal Strategies and Other Investments
Risks exist in any investment. The Fund is subject to market risk, financial
risk and, in some cases, prepayment risk.
- - Market risk is the possibility of a change in the price of the security
because of market factors including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive.
10
<PAGE>
For example, if interest rates increase, the value of a bond with a longer
maturity is more likely to decrease. Because of market risks, the share
price of the Fund will likely change as well.
- - Financial risk is based on the financial situation of the issuer of the
security. The financial risk of the Fund depends on the credit quality of the
underlying securities in which it invests.
- - Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid before
its expected maturity date.
Because the Fund owns different types of investments, its performance will be
affected by a variety of factors. In general, the value of the Fund's
investments and the income it generates will vary from day to day, generally
due to changes in interest rates, market conditions, and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments.
Certain types of the Fund's authorized investments and strategies (such as
derivative instruments) involve special risks. Lower-quality debt securities
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.
Year 2000 and Euro Issues
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by WRIMCO and the Fund's other service providers do not properly process
and calculate date-related information and data from and after January 1, 2000.
WRIMCO is taking steps that it believes are reasonably designed to address year
2000 computer-related problems with respect to the computer systems that it
uses and to obtain assurances that comparable steps are being taken by the
Fund's other, major service providers. Although there can be no assurances,
WRIMCO believes these steps will be sufficient to avoid any adverse impact on
the Fund. Similarly, the companies
11
<PAGE>
and other issuers in which the Fund invests could be adversely affected by year
2000 computer-related problems, and there can be no assurance that the steps
taken, if any, by these issuers will be sufficient to avoid any adverse impact
on the Fund.
Also, the Fund could be adversely affected by the conversion of certain
European currencies into the Euro. This conversion, which is underway, is
scheduled to be completed in 2002. However, problems with the conversion
process and delays could increase volatility in world capital markets and
affect European capital markets in particular.
12
<PAGE>
Your
Account
[Column Graphic]
Choosing a Share Class
This Prospectus offers two classes of shares of the Fund: Class A and Class Y.
Each class has its own sales charge, if any, and expense structure. You should
choose the class for which you are eligible and that seems best for you, which
usually depends on how much you plan to invest and how long you plan to hold
your shares. Class A shares are available for both individual and institutional
investors. Class Y shares are designed for institutional investors and others
investing through certain intermediaries, as described below. All of your
future investments in the Fund will be made in the class you select when you
open your account, unless you inform the Fund otherwise, in writing, when you
make the future investment.
Class A shares are subject to a sales charge when you buy them, based on the
amount of your investment, according to the table below. Class A shares pay an
annual 12b-1 fee of up to 0.25% of average Class A net assets. The ongoing
expenses of this class are higher than those for Class Y.
For Class A shares, the Fund has adopted a Distribution and Service Plan
("Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
the Plan, the Fund may pay Waddell & Reed, Inc. a fee of up to 0.25%, on an
annual basis, of the average daily net assets of the Class A shares. This fee
is to reimburse Waddell & Reed, Inc. for the cost of distributing the Fund's
Class A shares, providing services to Class A shareholders or maintaining Class
A shareholder accounts. Because the Plan fees are paid out of the Class A
assets on an on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
13
<PAGE>
<TABLE>
<CAPTION>
Sales Charge
Sales Charge as Approx.
Size of as Percent of Percent of
Purchase Offering Price Amount Invested
<S> <C> <C>
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
$1,000,000 1.50 1.52
$1,000,000 to less than
$2,000,000 1.00 1.01
$2,000,000 and over 0.00 0.00
</TABLE>
Sales Charge Reductions and Waivers
Lower sales charges are available by:
- - Combining additional purchases of Class A shares of any of the funds in the
United Group, except shares of United Cash Management, Inc. unless acquired by
exchange for Class A shares on which a sales charge was paid (or as a dividend
or distribution on such acquired shares), with the NAV of Class A shares
already held ("Rights of Accumulation");
- - Grouping all purchases of Class A shares made during a thirteen-month period
("Statement of Intention"); and
- - Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell & Reed
financial advisors.
Waivers for Certain Investors
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, financial advisors of Waddell & Reed, Inc. and
the spouse, children, parents, children's spouses and spouse's parents of
each;
14
<PAGE>
- - Certain retirement plans and certain trusts for these persons; and
- - A 401(k) plan or a 457 plan having 100 or more eligible employees.
You will find more information in the SAI about sales charge reductions and
waivers.
Class Y shares are not subject to a sales charge or annual 12b-1 fees and thus
may cost you less than if you had bought Class A shares. Class Y shares are
only 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.
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
15
<PAGE>
to these accounts (other than Roth IRAs and Education IRAs) may be tax
deductible.
- - Individual Retirement Accounts (IRAs) allow an individual under 701/2, with
earned income to invest up to $2,000 per tax year. The maximum annual
contribution for an investor and his or her spouse is $4,000 ($2,000 for each
spouse) or, if less, the couple's combined earned income for the taxable year.
- - Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
- - Roth IRAs allow certain individuals to make non-deductible contributions up to
$2,000 per year. Withdrawals of earnings may be tax-free if the account is at
least five years old and certain other requirements are met.
- - Education IRAs are established for the benefit of a minor, with non-deductible
contributions, and permit tax-free withdrawals to pay the higher education
expenses of the beneficiary.
- - Simplified Employee Pension Plans (SEP--IRAs) provide small business owners or
those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh Plan, but with fewer administrative
requirements.
- - Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their employees' retirement accounts and
involve fewer administrative requirements than 401(k) or other qualified plans
generally.
- - Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
- - 401(k) Programs allow employees of corporations and non-governmental
tax-exempt organizations of all sizes to contribute a percentage of their
wages on a tax-deferred basis. These accounts need to be established by the
administrator or trustee of the plan.
- - 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
- - 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
16
<PAGE>
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
financial advisor for the form.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its financial
advisors. To open your account you must complete and sign an application. Your
Waddell & Reed financial advisor can help you with any questions you might
have.
To purchase Class A and Class Y shares 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.
To purchase Class Y shares by wire, you must first obtain an account number by
calling 1-800-366-5465, then mail a completed application to Waddell & Reed,
Inc., P. O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to
913-236-5044. Instruct your bank to wire the amount you wish to invest to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO
Customer Name and Account Number.
You may also buy Class Y shares of the Fund indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements to buy Class Y shares.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a share (price to buy one share of a particular class) is
the net asset value ("NAV") per share of that class, plus for Class A shares,
the sales charge shown in the table above.
In the calculation of the Fund's NAV:
17
<PAGE>
- - The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
- - Bonds are generally valued according to prices quoted by an independent
pricing service.
- - Short-term debt securities are valued at amortized cost, which approximates
market value.
- - Other investment assets for which market prices are unavailable 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 New York Stock Exchange ("NYSE") is
open. The Fund normally calculates the NAVs of its shares as of the close of
business of the NYSE, normally 4 p.m. Eastern time, except that an option or
futures contract held by the Fund may be priced at the close of the regular
session of any other securities or commodities exchange on which that
instrument is traded.
The Fund may invest in securities listed on foreign exchanges which may trade
on Saturdays or on 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 are not able to purchase or
redeem the Fund's shares. Similarly, if an event materially affecting the value
of foreign investments or foreign currency exchange rates occurs prior to the
close of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair
value as determined in good faith by or under the direction of the Board of
Directors.
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.
18
<PAGE>
- - If you purchase Class Y shares of the Fund from certain broker-dealers, banks
or other authorized third parties, the Fund will be deemed to have received
your purchase order when that third party (or its designee) has received your
order. Your order will receive the Class Y offering price next calculated
after the order has been received in proper form by the authorized third party
(or its designee). You should consult that firm to determine the time by which
it must receive your order for you to purchase shares of the Fund at that
day's price.
When you sign your account application, you will be asked to certify that your
Social Security or other taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
<TABLE>
<CAPTION>
For Class A:
<S> <C>
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
For Class Y:
To Open an Account
$10 million
For a government entity or authority or for a (within first
corporation: twelve months)
For other investors: Any amount
To Add to an Account Any amount
</TABLE>
19
<PAGE>
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 stating your account number, the account registration and that you
wish to purchase Class A or Class Y shares of the Fund.
Mail to Waddell & Reed, Inc. at:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
To add to your Class Y 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.
If you purchase Class Y shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class) is the NAV
per share of that class.
To sell shares by written request: complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
20
<PAGE>
- - the name on the account registration;
- - the Fund's name;
- - the Fund account number;
- - the dollar amount or number, and the class, 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 financial advisor, or
mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
To sell Class Y 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 Class Y
shares and make payment by wire to your pre-designated bank account or by check
to you at the address on the account.
When you place an order to sell shares, your shares will be sold at the next
NAV calculated after receipt of a written request for redemption in good order
by Waddell & Reed, Inc. at its home office. Note the following:
- - If more than one person owns the shares, each owner must sign the written
request.
- - If you hold a certificate, it must be properly endorsed and sent to the Fund.
- - If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance that the
check has cleared and been honored. If you do not, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Fund can 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.
21
<PAGE>
- - Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
- - If you purchased Class Y shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms, some
of which may charge you a fee and may have additional requirements to sell
Fund shares. The Fund will be deemed to have received your order to sell Class
Y shares when that firm (or its designee) has received your order. Your order
will receive the Class Y NAV next calculated after the order has been received
in proper form by the authorized firm (or its designee). You should consult
that firm to determine the time by which it must receive your order for you to
sell Class Y shares at that day's price.
Special Requirements for Selling Shares
<TABLE>
<CAPTION>
Account Type Special Requirements
<S> <C>
Individual or Joint The written instructions must be signed by all
Tenant 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 Organization At least one person authorized by corporate
resolution to act on the account must sign the
written instructions.
Conservator, Guardian The written instructions must be signed by the
or Other Fiduciary person properly authorized by court order to act in
the particular fiduciary capacity.
</TABLE>
The Fund may require a signature guarantee in certain situations such as:
- - a redemption request made by a corporation, partnership or fiduciary;
- - a redemption request made by someone other than the owner of record; or
- - the check is made payable to someone other than the owner of record.
22
<PAGE>
This requirement is intended to protect you and Waddell & Reed from fraud. You
can obtain a signature guarantee from most banks and securities dealers, but
not from a notary public.
The Fund reserves the right to redeem at NAV all your Fund shares if their
aggregate NAV is less than $500. The Fund will give you notice 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 of Class A shares
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 with Class A shares of the
Fund.
Payments of principal and interest on loans made pursuant to Waddell & Reed's
401(k) prototype plan may be reinvested, without payment of a sales charge, in
Class A shares of any United Group fund in which the plan may invest.
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 financial advisor is available to provide personal
service. Additionally, one toll-free call, 1-800-366-5465, connects you to a
Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to answer your questions or update your account
23
<PAGE>
records. At almost any time of the day or night, you may access TeleWaddell
from a touch-tone phone to:
- - obtain information about your accounts;
- - obtain price information about other funds in the United Group; or
- - request duplicate statements.
Reports
Statements and reports sent to you include the following:
- - confirmation statements (after every purchase, other than those purchases made
through Automatic Investment Service, and after every exchange, transfer or
redemption)
- - year-to-date statements (quarterly)
- - annual and semiannual reports (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one
account with the Fund. Call the telephone number listed above for Customer
Service if you need copies of annual or semiannual reports or account
information.
Exchanges
You may sell your shares and buy shares of the same class of other funds in the
United Group. As well, exchanging Class Y shareholders may buy Class A shares
of United Cash Management, Inc. You may exchange only into funds that are
legally permitted 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 for Class A Shareholders
Flexible withdrawal service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your 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.
24
<PAGE>
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed financial advisor for more
information.
<TABLE>
<CAPTION>
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Class A Fund account
Minimum Frequency
<S> <C>
$25 Monthly
</TABLE>
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the
same or a different account
<TABLE>
<CAPTION>
Minimum Frequency
<S> <C>
$100 Monthly
</TABLE>
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Dividends are distributed monthly from
the Fund's net investment income, which includes accrued interest, earned
original issue discount, earned market 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.
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 dividends, capital gains and other distributions
with respect to a class will be automatically paid in additional shares of
the same class 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 and other distributions with respect
to a class will be automatically paid in shares of the same class, but you
will be sent a check for each dividend distribution. However, if the dividend
distribution is less than ten dollars, the distribution will be automatically
paid in additional shares of the same class of the Fund.
25
<PAGE>
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is ten dollars or greater. If
the distribution total is less than ten dollars, the total distribution will
be automatically paid in additional shares of the same class of the Fund.
For retirement accounts, all distributions are automatically paid in Fund
shares.
Taxes
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income generally are taxable to you as ordinary income whether received in cash
or paid in additional Fund shares. Distributions of the Fund's net capital
gains, 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. For Federal income tax purposes,
your long-term capital gains (if you are a noncorporate shareholder of the
Fund) may be taxable at different rates depending on how long the Fund held the
assets generating the gains, but generally are taxed at a maximum rate of 20%.
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.
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 Federal alternative
minimum tax.
Withholding. The Fund must 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
26
<PAGE>
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 what you paid 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 Class A Fund shares through a redemption or
exchange within ninety days after your purchase and then reacquire Class A Fund
shares or acquire Class A shares of another fund in the United Group without
paying a sales charge due to the thirty-day reinvestment privilege or exchange
privilege. See "Your Account." In these cases, any gain on the disposition of
the original Class A 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.
State and local income taxes. The portion of the dividends paid by the Fund
attributable to interest earned on its U.S. Government securities generally is
not subject to state and local income taxes, although distributions by the Fund
to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Fund in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; you will find
more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
27
<PAGE>
The
Management
of the Fund
[Column Graphic]
Portfolio Management
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. WRIMCO and its predecessors have served as investment
manager to each of the registered investment companies in the United Group of
Mutual Funds, Waddell & Reed Funds, Inc. and Target/United Funds, Inc. since
the inception of the company. WRIMCO is located at 6300 Lamar Avenue, P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
Louise D. Rieke is primarily responsible for the management of the portfolio of
the Fund. Ms. Rieke has held her Fund responsibilities since January 1990. She
is Vice President of WRIMCO, Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. From
November 1985 to March 1998, Ms. Rieke was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company, a former affiliate of
WRIMCO. Ms. Rieke has served as the portfolio manager for investment companies
managed by WRIMCO and its predecessor since July 1986 and has been an employee
of such 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.
Management Fee
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 in the SAI.
28
<PAGE>
The management fee is payable by the Fund at the annual rates of: 0.625% of net
assets up to $500 million; 0.60% of net assets over $500 million and up to $1
billion; 0.55% of net assets over $1 billion and up to $1.5 billion; and 0.50%
of net assets over $1.5 billion.
Prior to June 30, 1999, the management fee of the Fund was calculated by adding
a group fee to a specific fee. It was accrued and paid to WRIMCO daily. The
specific fee was 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 was a pro rata participation determined on the basis of the combined net
asset values of all the funds in the United Group at the annual rates shown in
the following table and then allocated pro rata to the Fund based on the its
relative net assets
<TABLE>
<CAPTION>
Group Fee Rate
Group Net Asset Level Annual Group Fee Rate
(all dollars in millions) For Each Level
<S> <C>
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 $12,00 0 .38 of 1%
Over $12,000 .36 of 1%
</TABLE>
Management fees for the fiscal year ended March 31, 1999 were 0.54% of the
Fund's average net assets.
29
<PAGE>
Financial
Highlights
[Column Graphic]
The following information is to help you understand the financial performance of
the Fund's Class A* and Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with the Fund's financial statements for the fiscal year
ended March 31, 1999, are included in the SAI, which is available upon request.
For a Class A share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Class A Per-Share Data
Net asset value,
beginning of period $10.04 $9.25 $9.09 $8.70 $9.20
--------------------------------------------------------------------------------------------
Income from investment operations:
Net investment
income 0.81 0.82 0.80 0.79 0.80
Net realized and
unrealized gain
(loss) on
investments (0.66) 0.79 0.16 0.40 (0.51)
--------------------------------------------------------------------------------------------
Total from
investment operations 0.15 1.61 0.96 1.19 0.29
--------------------------------------------------------------------------------------------
Less dividends from
net investment
income (0.80) (0.82) (0.80) (0.80) (0.79)
--------------------------------------------------------------------------------------------
Net asset value,
end of period $9.39 $10.04 $9.25 $9.09 $8.70
--------------------------------------------------------------------------------------------
Class A Ratios/Supplemental Data
Total return** 1.70% 18.03% 10.94% 14.16% 3.41%
Net assets, end of
period (in millions) $1,009 $1,102 $983 $972 $934
Ratio of expenses
to average net assets 0.94% 0.84% 0.89% 0.85% 0.84%
Ratio of net
investment income
to average net assets 8.44% 8.38% 8.68% 8.74% 9.07%
Portfolio turnover
rate 53.19% 63.40% 53.17% 41.67% 18.94%
</TABLE>
*On July 31, 1995, Fund shares outstanding were designated Class A shares.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
30
<PAGE>
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31,
For the
Class Y Per-Share Data period
from 1/4/96*
through
1999 1998 1997 3/31/96
<S> <C> <C> <C> <C>
Net asset value,
beginning of
period $10.04 $9.25 $9.10 $9.19
-------------------------------------
Income from investment operations:
Net investment
income 0.83 0.82 0.81 0.20
Net realized
and unrealized
gain (loss) on
investments (0.66) 0.79 0.15 (0.10)
-------------------------------------
Total from
investment
operations 0.17 1.61 0.96 0.10
-------------------------------------
Less dividends
from net
investment
income (0.82) (0.82) (0.81) (0.19)
-------------------------------------
Net asset value,
end of period $9.39 $10.04 $ 9.25 $9.10
-------------------------------------
Class Y Ratios/Supplemental Data
Total return 1.90% 18.13% 11.07% 1.00%
Net assets, end
of period (in
millions) $2 $3 $3 $2
Ratio of expenses
to average net
assets 0.74% 0.77% 0.77% 0.80%**
Ratio of net
investment
income to
average net assets 8.62% 8.46% 8.78% 8.51%**
Portfolio
turnover rate 53.19% 63.40% 53.17% 41.67%**
</TABLE>
*Commencement of operations.
**Annualized.
31
<PAGE>
United High
Income Fund,
Inc.
[Column Graphic]
Custodian
UMB Bank, n.a.
Kansas City, Missouri
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts
Avenue, N.W.
Washington, D.C. 20036
Independent Auditors
Deloitte & Touche LLP
1010 Grand Avenue
Kansas City, Missouri
64106-2232
Investment Manager
Waddell & Reed
Investment
Management Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Shareholder Servicing
Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Accounting Services
Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
35
<PAGE>
This space available for your notes and calculations.
<PAGE>
This space available for your notes and calculations.
<PAGE>
This space available for your notes and calculations.
<PAGE>
[Column Graphic]
UNITED HIGH INCOME
FUND, INC.
You can get more information about the Fund in--
- - its Statement of Additional Information (SAI) dated June 30, 1999, which
contains detailed information about the Fund, particularly its investment
policies and practices. You may not be aware of important information about
the Fund unless you read both the Prospectus and the SAI. The current SAI is
on file with the Securities and Exchange Commission (SEC) and it is
incorporated into this Prospectus by reference (that is, the SAI is legally
part of the Prospectus).
- - its Annual and Semiannual Reports to Shareholders, which detail the Fund's
actual investments and include financial statements as of the close of the
particular annual or semiannual period. The annual report also contains a
discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the year covered by the
report.
To request a copy of the current SAI or copies of the Fund's most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the
Fund or Waddell & Reed, Inc. at the address and telephone number below. Copies
of the SAI, Annual and Semiannual reports may also be requested at
[email protected]
Information about the Fund (including its current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and from the SEC's Public Reference Room in Washington, D.C.
You can find out about the operation of the Public Reference Room and
applicable copying charges by calling 1-800-SEC-0330.
The Fund's SEC file number is: 811-2907.
- --------------------------------------------------------------------------------
[WADDELL&REED LOGO] Waddell & Reed, Inc.
6300 Lamar Avenue, P. O. Box 29217
Shawnee Mission, Kansas, 66201-9217
(913) 236-2000, (800) 366-5465
NUP2009(6-99)
<PAGE>
UNITED HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
June 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the prospectus
("Prospectus") for the Class A shares and the Class Y shares of United High
Income Fund, Inc. (the "Fund") dated June 30, 1999, which may be obtained from
the Fund or its underwriter, Waddell & Reed, Inc., at the address or telephone
number shown above.
TABLE OF CONTENTS
Performance Information ............................... 2
Investment Strategies, Policies and Practices.......... 4
Investment Management and Other Services .............. 31
Purchase, Redemption and Pricing of Shares ............ 36
Directors and Officers ................................ 52
Payments to Shareholders .............................. 58
Taxes ................................................. 59
Portfolio Transactions and Brokerage .................. 62
Other Information ..................................... 64
Financial Statements .................................. 66
Appendix A ............................................
<PAGE>
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 company organized as a
Maryland corporation on January 11, 1979.
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
The total return is the overall change in the value of an investment
over a given period of time. 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, deducting the
maximum sales load of 5.75%. 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, 1999, which is the most recent balance sheet included in this SAI, for
the periods shown were as follows:
With Without
Sales Load Sales Load
Deducted Deducted
One-year period from April 1, 1998 to
March 31, 1999: % %
Five-year period from April 1, 1994 to
March 31, 1999: % %
Ten-year period from April 1, 1989 to
March 31, 1999: % %
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 average annual total return quotations for Class Y shares as of
March 31, 1999, which is the most recent balance sheet included in this SAI, for
the period shown were as follows:
One year period from April 1, 1998 to
March 31, 1999 %
Period from January 4, 1996* to
March 31, 1999: %
*Date of inception.
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
Yield refers to the income generated by an investment in the Fund over
a given period of time. 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, 1999, the date of the most
recent balance sheet included in this SAI, is %. The yield for Class Y shares of
the Fund computed according to the formula for the 30-day period ended on March
31, 1999, the date of the most recent balance sheet included in this SAI, is %.
Change in yields primarily reflect different interest rates received by
the Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses of
the applicable class.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. Each class of the Fund may also compare its performance to that of other
selected mutual funds or selected recognized market indicators such as the
Standard & Poor's 500 Composite Stock Price Index and the Dow Jones Industrial
Average. Performance information may be quoted numerically or presented in a
table, graph or other illustration. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
related, 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
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of the Fund's shares when redeemed may be
more or less than their original cost.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Fund's investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which the Fund may
invest, in pursuit of the Fund's goal. A summary of the risks associated with
these instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques, or use them to the full extent permitted by the Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help the Fund achieve its goal. See "Investment
Restrictions" for a listing of the fundamental and non-fundamental (e.g.,
operating) investment restrictions and policies of the Fund.
Securities - General
The Fund may invest in securities including common stock, preferred stock and
debt securities. 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 Fund may invest in
preferred stock that is rated by an established rating service or, if unrated,
judged by WRIMCO to be of equivalent quality. 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 securities fall and, conversely, when interest rates fall, the values
of fixed-rate debt rise. Similarly, long-term bonds are generally more sensitive
to interest rate changes than shorter-term bonds.
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. 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 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.
The Fund may invest in debt securities rated in any rating category of
the established rating services, including securities rated in the lowest
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. Debt securities rated
at least BBB by S&P or Baa by MIS are considered to be investment grade debt
securities. Securities rated BBB or Baa may have speculative characteristics. In
addition, the Fund will treat unrated securities judged by WRIMCO to be of
equivalent quality to a rated security 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.
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 invest in 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 different issuer within a particular period of time at a specified price or
formula. Convertible securities generally have higher yields than common stocks
of the same or similar issuers, but lower yields than comparable nonconvertible
securities, are less subject to fluctuation in the value that 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.
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
10% 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") are high quality debt
instruments issued or guaranteed as to principal or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
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,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only by
the credit of the instrumentality and by a pool of mortgage assets. If the
securities are not backed by the full faith and credit of the United States, the
owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government securities may include mortgage-backed securities
issued by U.S. Government agencies or instrumentalities including, but not
limited to, Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed
securities include pass-through securities, participation certificates and
collateralized mortgage obligations. See "Mortgage-Backed and Asset-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.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments
that present minimal credit risk. They may include U.S. Government securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit and other financial institution obligations. These instruments may carry
fixed or variable interest rates.
Zero Coupon Securities
Zero coupon securities are debt obligations that do not entitle the
holder to any periodic payment of interest prior to maturity or that specify a
future date when the securities begin to pay current interest; instead, they are
sold at a deep discount from their face value and are redeemed at face value
when they mature. Because zero coupon securities do not pay current income,
their prices can be very volatile when interest rates change and generally are
subject to greater price fluctuations in response to changing interest rates
than prices of comparable maturities that make current distributions of interest
in cash.
The Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). The Federal tax
law requires that a holder of a security with OID accrue a ratable portion of
the OID on the security as income each year, even though the holder may receive
no interest payment on the security during the year. Accordingly, although the
Fund will receive no payments on its zero coupon securities prior to their
maturity or disposition, it will have current income attributable to those
securities and includable in the dividends paid to its shareholders. Those
dividends will be paid from the Fund's cash assets or by liquidation of
portfolio securities, if necessary, at a time when the Fund otherwise might not
have done so.
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 and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent direct
or indirect participations in, or are secured by and payable from, mortgage
loans secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
in this SAI as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of the
payments that investors receive, as well as the priority of their rights to
receive payments, are determined by the specific terms of the CMO class.
The U.S. Government mortgage-backed securities in which the Fund may
invest include mortgage-backed securities issued or guaranteed as to the payment
of principal and interest (but not as to market value) by Ginnie Mae, Fannie
Mae, or Freddie Mac. Other mortgage-backed securities are issued by private
issuers, generally originators of and investors in mortgage loans, including
savings associations, mortgage bankers, commercial banks, investment bankers and
special purpose entities. Payments of principal and interest (but not the market
value) of such private mortgage-backed securities may be supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed, directly
or indirectly, by the U.S. Government or one of its agencies or
instrumentalities, or they may be issued without any government guarantee of the
underlying mortgage assets but with some form of non-government credit
enhancement. These credit enhancements do not protect investors from changes in
market value.
The Fund may purchase mortgage-backed securities issued by both
government and non-government entities such as banks, mortgage lenders, or other
financial institutions. Other types of mortgage-backed securities will likely be
developed in the future, and the Fund may invest in them if WRIMCO determines
they are consistent with the Fund's goals and investment policies.
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.
For example, interest-only ("IO") classes are entitled to receive all
or a portion of the interest, but none (or only a nominal amount) of the
principal payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest allocable to the IO class, and therefore the yield
to investors, generally will be reduced. In some instances, an investor in an IO
may fail to recoup all of the investor's initial investment, even if the
security is government guaranteed or considered to be of the highest quality.
Conversely, principal-only ("PO") classes are entitled to receive all or a
portion of the principal payments, but none of the interest, from the underlying
mortgage assets. PO classes are purchased at substantial discounts from par, and
the yield to investors will be reduced if principal payments are slower than
expected. IOs, POs and other CMOs involve special risks, and evaluating them
requires special knowledge.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets are not first lien mortgage loans or interests
therein, but include assets such as motor vehicle installment sales contracts,
other installment sale contracts, home equity loans, leases of various types of
real and personal property and receivables from revolving credit (credit card)
agreements. Such assets are securitized through the use of trusts or special
purpose corporations. Payments or distributions of principal and interest may be
guaranteed up to a certain amount and for a certain time period by a letter of
credit or pool insurance policy issued by a financial institution unaffiliated
with the issuer, or other credit enhancements may be present. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage- and asset-backed securities differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the
mortgage-backed securities, and this delay reduces the effective yield to the
holder of such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed-rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. However,
these effects may not be present, or may differ in degree, if the mortgage loans
in the pools have adjustable interest rates or other special payment terms, such
as a prepayment charge. Actual prepayment experience may cause the yield of
mortgage-backed securities to differ from the assumed average life yield.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically structured in a
manner that provides any of a wide variety of investment characteristics, such
as yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and may carry
rights that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial intermediaries on
dates prior to their stated maturities. Floating rate securities have interest
rates that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in the
interest rate. These formulas are designed to result in a market value for the
instrument that approximates its par value.
Foreign Securities and Currencies
The Fund may invest in the securities of foreign issuers, including
depositary receipts. In general, depositary receipts are securities convertible
into and evidencing ownership of securities of foreign corporate issuers,
although depositary receipts may not necessarily be denominated in the same
currency as the securities into which they may be converted. American depositary
receipts, in registered form, are dollar-denominated receipts typically issued
by a U.S. bank or trust company evidencing ownership of the underlying
securities. International depositary receipts and European depositary receipts,
in bearer form, are foreign receipts evidencing a similar arrangement and are
designed for use by non-U.S. investors and traders in non-U.S. markets. Global
depositary receipts are more recently developed receipts designed to facilitate
the trading of securities of foreign issuers by U.S. and non-U.S. investors and
traders.
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. Thus, 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. 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.
However, foreign securities and foreign currencies involve additional
significant risks, apart from the risks inherent in U.S. investments. 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 conditions 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 greater possibility of
default by foreign governments or 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.
These is no assurance that WRIMCO will be able to anticipate these potential
events or counter their effects.
The considerations noted above generally are intensified 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.
The Fund may purchase and sell foreign currency and invest in foreign
currency deposits, and may enter into forward currency contracts, as described
in this SAI. The Fund may incur a transaction charge in connection with the
exchange of currency. Currency conversion involves dealer spreads and other
costs, although commissions are not usually charged. See "Options, Futures and
Other Strategies - Forward Currency Contracts" below.
Restricted Securities
Restricted securities are securities that are subject to legal or
contractual restrictions or resale. However, restricted securities generally can
be sold in privately negotiated transactions, pursuant to an exemption from
registration under the Securities Act of 1933, as amended, 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.
Certain restricted securities, e.g., Rule 144A securities, may be determined to
be liquid in accordance with guidelines adopted by the Board of Directors.
See "Illiquid Investments" below.
Lending Securities
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing the Fund's income. If the Fund lends securities, 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 lent the securities.
The Fund also receives additional compensation. The Fund makes loans of its
securities only to parties deemed by WRIMCO to be creditworthy.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). Under the
present Guidelines, the collateral must consist of cash, U.S. Government
securities or bank letters of credit, at least equal in value to the market
value of the securities lent on each day that the loan is outstanding. If the
market value of the lent 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 lent. 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 investments, 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. In other
words, the value of the underlying securities, which will be held by the Fund's
custodian bank or by a third party that qualifies as a custodian under Section
17(f) of the 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.
In either case, payment and delivery for the securities take place at a future
date. 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. When purchasing securities on a when issued or
delayed-delivery basis, the Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. 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. When the Fund sells a security on a
delayed-delivery basis, the Fund does not participate in further gains or losses
with respect to the security. 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. 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.
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 liquid assets, 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.
Investment Company Securities
The Fund may purchase 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.
Illiquid Investments
Illiquid investments are investments that cannot be sold or otherwise
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. 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;
(iv) bank deposits, unless they are payable at principal amount plus
accrued interest on demand or within seven days after demand;
(iv) securities involved in swap, cap, collar and floor transactions;
(v) non-government stripped fixed-rate mortgage-backed securities; and
(vi) 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.
If through a change in values, net assets, or other circumstances, the
Fund were in a position where more than 10% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Indexed Securities
The Fund may purchase securities the value of which varies in
relation to the value of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators, subject to
its operating policy regarding derivative instruments. 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 investments. 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 and Rights
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. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
Warrants and rights 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.
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. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance income
or yield or to attempt to hedge the Fund's investments. The strategies described
below may be used in an attempt to manage the Fund's foreign currency exposure
as well as other risks of the Fund's investments that can affect fluctuation in
its net asset value.
Generally, the Fund may purchase and sell any type of Financial
Instrument. However, as an operating policy, the Fund will only purchase or sell
a particular Financial Instrument if the Fund is authorized to invest in the
type of asset by which the return on, or value of, the Financial Instrument is
primarily measured. Since the Fund is authorized to invest in foreign
securities, it may purchase and sell foreign currency derivatives.
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 and the Commodity Futures Trading Commission (the
"CFTC"). 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,
WRIMCO expects to discover additional opportunities in connection with Financial
Instruments 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 Financial Instruments 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
might not use any of these strategies, and there can be no assurance that any
strategy used will succeed. The Fund's Prospectus or 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. In general 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. 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, currency 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, and use of Financial Instruments could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
(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.
(5) 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, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient 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 or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in an 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 accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon 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
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.
The purchase of call options can serve as a long hedge, and the
purchase of put options can serve 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 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 or
currency 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 or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid
Investments."
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 or currency
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 or currency 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. 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 instrument. The Fund may purchase or
write both exchange-traded 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.
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. There can be no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. 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 Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When the Fund buys a put on
an index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put, upon the Fund's exercise of the put, to deliver
to the Fund an amount of cash if the closing level of the index upon which the
put is based is less than the exercise price of the put, which amount of cash is
determined by the multiplier, as described above for calls. When the Fund writes
a put on an index, it receives a premium and the purchaser of the put has the
right, prior to the expiration date, to require the Fund to deliver to it an
amount of cash equal to the difference between the closing level of the index
and the exercise price times the multiplier if the closing level is less than
the exercise price.
Risks of Options on Indices. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when the Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. The Fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, the Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
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.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by the Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
Futures Contracts and Options on 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 contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies 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 debt
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 debt 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"
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.
However, there can be no assurance that a liquid secondary 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 an option on
a 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 futures contract or option or to maintain cash or
liquid assets in an account.
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 rate, currency exchange 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, currency exchange rate or stock market movements or the
time span within which the movements take place.
Index Futures. The risk of imperfect correlation between movements in
the price of an 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
portfolio diverges from the securities included in the applicable index. The
price of the index futures may move more than or less than the price of the
securities being hedged. If the price of the index futures 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 futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, the Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where the Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the futures contracts and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before the Fund is able to invest in them in an
orderly fashion, it is possible that the market may decline instead. If the Fund
then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize a loss on
the futures contracts that is not offset by a reduction in the price of the
common stocks it had anticipated purchasing.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case 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, options
on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. The Fund
may use options and futures contracts on foreign currencies, as described above,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or to attempt to enhance income or yield. Currency hedges can
protect against price movements in a security that the Fund owns or intends to
acquire that are attributable to changes in the value of the currency in which
it is denominated. Such hedges do not, however, protect against price movements
in the securities that are attributable to other causes.
The Fund might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, the Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if the Fund owned securities denominated in pounds sterling, it
could enter into a forward currency contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's value. Such a
hedge, sometimes referred to as a "position hedge," would tend to offset both
positive and negative currency fluctuations, but would not offset changes in
security values caused by other factors. The Fund could also hedge the position
by selling another currency expected to perform similarly to the pound sterling,
for example, by entering into a forward currency contract to sell Deutsche Marks
or European Currency Units in return for U.S. dollars. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
The Fund also may use forward currency contracts to attempt to enhance
income or yield. The Fund could use forward currency contracts to increase its
exposure to foreign currencies that WRIMCO believes might rise in value relative
to the U.S. dollar, or shift its exposure to foreign currency fluctuations from
one country to another. For example, if the Fund owned securities denominated in
a foreign currency and WRIMCO believed that currency would decline relative to
another currency, it might enter into a forward currency contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency.
The cost to the Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward currency contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward currency contracts can enter into offsetting closing transactions,
similar to closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or liquid assets in an account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward currency contracts
when it determines that the best interests of the Fund will be served.
Successful use of forward currency contracts depends on WRIMCO's skill
in analyzing and predicting currency values. Forward currency contracts may
substantially change the Fund's exposure to changes in currency exchange rates
and could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that WRIMCO will hedge at an
appropriate time.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of 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.
Swaps, Caps, Collars and Floors. The Fund may enter into swaps, caps,
collars and floors to preserve a return or a spread on a particular investment
or portion of its portfolio, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to attempt to
enhance yield. Swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed-rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
the cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling the floor. A collar combines
elements of buying a cap and selling a floor.
Swap agreements, including caps, collars and floors, can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease the overall volatility of the Fund's
investments and its share price and yield because, and to the extent, these
agreements affect the Fund's exposure to long- or short-term interest rates (in
the United States or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates, or other factors such as security prices or
inflation rates.
Swap agreements will tend to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which the Fund enters into swaps,
caps or floors will be monitored by WRIMCO in accordance with procedures adopted
by the Fund's Board of Directors. If a firm's creditworthiness declines, the
value of the agreement would be likely to decline, potentially resulting in
losses. If a default occurs by the other party to such transaction, the Fund
will have contractual remedies pursuant to the agreements related to the
transaction.
The net amount of the excess, if any, of the Fund's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
an amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. The Fund will also
establish and maintain such account with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the Fund. WRIMCO and the Fund believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to the Fund's borrowing
restrictions. The Fund understands that the position of the SEC is that assets
involved in swap transactions are illiquid and are, therefore, subject to the
limitations on investing in illiquid securities.
Investment Restrictions and Limitations
Certain of the Fund's investment restrictions and other limitations are
described in this SAI. The following are the Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's goal, cannot be
changed without shareholder approval. For this purpose, shareholder approval
means the approval, at a meeting of Fund shareholders, by the lesser of (1) the
holders of 67% or more of the Fund's shares represented at the meeting, if more
than 50% of the Fund's outstanding shares are present in person or by proxy or
(2) more than 50% of the Fund's outstanding shares. The Fund may not:
(i) Purchase or sell physical commodities; however, this policy
shall not prevent the Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
or invest in minerals-related programs or leases;
(ii) With respect to 75% of its total assets, purchase securities
of any one issuer (other than cash items and "Government
securities" as defined in the 1940 Act), if immediately after
and as a result of such purchase, (a) the value of the
holdings of the Fund in the securities of such issuer exceeds
5% of the value of the Fund's total assets, or (b) the Fund
owns more than 10% of the outstanding voting securities of
such issuer;
(iii) 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;
(iv) 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;
(v) Invest for the purpose of exercising control or management of
other companies;
(vi) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vii) Sell securities short (unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short) or buy securities on margin; except
that (1) this policy does not prevent the Fund from entering
into short positions in foreign currency, futures contracts,
options, forward contracts, swaps, caps, collars, floors and
other financial instruments, (2) the Fund may obtain such
short-term credits as are necessary for the clearance of
transactions, and (3) the Fund may make margin payments in
connection with futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
(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;
(ix) Borrow for investment purposes, that is, to purchase
securities. 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;
(x) Make loans other than certain limited types of loans; the Fund
may buy debt securities and other obligations consistent with
its goals and its other investment policies and restrictions.
The Fund may also enter into repurchase agreements (see
"Repurchase Agreements" above) and lend its portfolio
securities to the extent allowed, and in accordance with the
requirements, under the 1940 Act;
(xi) Issue senior securities;
(xii) Purchase, or otherwise voluntarily acquire, any common stocks
if, as a result, more than 20% of its total assets would
consist of common stock; or
(xiii) Buy real estate not any nonliquid interest in real estate
investment trusts.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) At least 80% of the Fund's total assets normally will be
invested to seek a high level of current income.
(ii) The Fund does not intend to invest more than 10% of its total
assets in non-dividend-paying common stocks.
(iii) The Fund will not invest more than 25% of its total assets in
securities issued by the government of any one foreign
country.
(iv) The Fund may not purchase a security if, as a result, more
than 10% of its net assets would consist of illiquid
securities.
(v) The Fund does not intend to invest more than 5% of its assets
in the securities of investment companies that do not redeem
their shares.
An investment policy or limitation that states a maximum percentage of
the Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, the Fund's acquisition of an
asset. Accordingly, a subsequent change in the asset's value, net assets, or
other circumstances will not be considered when determining whether the
investment complies with the Fund's investment policies and limitations.
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,
1999 and 1998 was % and 63.40%, 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.
Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly
owned subsidiary of Waddell & Reed Financial, Inc., a publicly held company. The
address of these companies is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to Target/United Funds, Inc. since that
fund's inception, until January 8, 1992 when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for Waddell & Reed Funds,
Inc. since its inception in September 1992 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995. Waddell & Reed, Inc. serves as
principal underwriter for the investment companies in the United Group of Mutual
Funds and Waddell & Reed Funds, Inc. and acts as principal underwriter and
distributor for variable life insurance and variable annuity policies issued by
United Investors Life Insurance Company for which Target/United Funds, Inc. is
the underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund
and Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell &
Reed, Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records, pricing of
the Fund's shares, and preparation of prospectuses for existing shareholders,
proxy statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Fund pays WRIMCO a fee as described in the Prospectus. The management fees paid
by the Fund to WRIMCO during the Fund's fiscal years ended March 31, 1999, 1998
and 1997 were $ , $5,773,843 and $5,445,319, 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 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, 1999, 1998
and 1997 were $ , $98,750 and $88,750, respectively.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement are
described above. Waddell & Reed, Inc. and affiliates pay the Fund's Directors
and officers who are affiliated with WRIMCO and its affiliates. The Fund pays
the fees and expenses of the Fund's other Directors.
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,
1999, 1998 and 1997 were $ , $2,719,457 and $2,037,706, respectively, and the
amounts retained by Waddell & Reed, Inc. were $ , $1,147,748 and $876,800,
respectively.
No portion of the sales charge is reallowed to dealers. A major portion
of the sales charge for Class A shares is paid to financial advisors and
managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its
financial advisors 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 Distribution and 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 distribution of the Class A shares, and service
and/or maintenance of Class A shareholder accounts.
Waddell & Reed, Inc. offers the Fund's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
currently contemplated for Class A shares, to make distribution of shares also
through other broker-dealers. In distributing shares through its sales force,
Waddell & Reed, Inc. will pay commissions and incentives to the sales force at
or about the time of sale and will incur other expenses including costs for
prospectuses, sales literature, advertisements, sales office maintenance,
processing of orders and general overhead with respect to its efforts to
distribute the Fund's shares. The Plan permits Waddell & Reed, Inc. to receive
reimbursement for these Class A-related distribution activities through the
distribution fee, subject to the limit contained in the Plan. The Plan also
permits Waddell & Reed, Inc. to be reimbursed for amounts it expends in
compensating, training and supporting registered financial advisors, 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. Distribution and service fees in the amount of $ were
paid (or accrued) by the Fund with respect to Class A shares for the fiscal year
ended March 31, 1999. To the extent that Waddell & Reed, Inc. incurs expenses
for which reimbursement may be made under the Plan that relate to distribution
activities also involving another fund in the United Group of Funds or Waddell &
Reed Funds, Inc., Waddell & Reed, Inc. typically determines the amount
attributable to the Fund's expenses under the Plan on the basis of a combination
of the respective classes' relative net assets and number of shareholder
accounts.
The only Directors or interested persons, as defined in the 1940 Act,
of the Fund who have a direct or indirect financial interest in the operation of
the Plan are the officers and Directors who are also officers of either Waddell
& Reed, Inc. or its affiliate(s) or who are shareholders of Waddell & Reed
Financial, Inc., the indirect parent company of Waddell & Reed, Inc. The Plan is
anticipated to benefit the Fund and its Class A shareholders through Waddell &
Reed, Inc.'s activities not only to distribute the Class A shares of the Fund
but also to provide personal services to Class A shareholders and thereby
promote the maintenance of their accounts with the Fund. The Fund anticipates
that Class A shareholders may benefit to the extent that Waddell & Reed's
activities are successful in increasing the assets of the Fund, through
increased sales or reduced redemptions, or a combination of these, and reducing
a Class A shareholder's share of Fund and Class A expenses. Increased Fund
assets may also provide greater resources with which to pursue the goal of the
Fund. Further, continuing sales of Class A shares may also reduce the likelihood
that it will be necessary to liquidate portfolio securities, in amounts or at
times that may be disadvantageous to the Fund, to meet redemption demands. In
addition, the Fund anticipates that the revenues from the Plan will provide
Waddell & Reed, Inc. with greater resources to make the financial commitments
necessary to continue to improve the quality and level of services to the Fund
and Class A shareholders. The Plan was 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. Deloitte & Touche LLP, Kansas City, Missouri, the Fund's independent
auditors, 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 sales charge is
paid to Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of
March 31, 1999 was as follows:
Net asset value per Class A share (Class A net assets divided by Class
A shares
outstanding) ......................................... $
Add: selling commission (5.75% of offering
price) ............................................... .
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) .......... $
=====
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 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, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. However, it is possible that the NYSE
may close on other days. The 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 the Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks.
Bonds, other than convertible bonds, are valued using a third-party pricing
system. 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 contracts purchased and held by the Fund are valued
at the last sales price thereof on the securities or commodities exchanges on
which they are traded, or, if there are no transactions, at the mean between bid
and asked prices. Ordinarily, the close of the regular session for options
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"), salary reduction plan account under Section 457
of the Internal Revenue Code of 1986, as amended (the "Code"), 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. All
qualified employee benefit plans of an employer who is a franchisor and those of
its franchisee(s) may also be grouped.
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 such 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 Class A shares of any of the funds in the United Group
subject to a sales charge. A purchase of Class A shares, or Class A shares held,
in any of the funds in the United Group subject to a sales charge will be
treated as an investment in the Fund in determining the applicable sales charge.
For these purposes, Class A shares of United Cash Management, Inc. that were
acquired by exchange of another United Group fund's Class A shares on which a
sales charge was paid, plus the shares paid as dividends on those acquired
shares, are also taken into account.
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, financial
advisors of Waddell & Reed, Inc. and the spouse, children, parents, children's
spouses and spouse's parents of each such Director, officer, employee and
financial advisor. "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. "Employees" also includes individuals who, on
November 6, 1998, were employees (including retired employees) of a company that
on that date was an affiliate of Waddell & Reed, Inc. "Financial advisors"
includes retired financial advisors. A "retired financial advisor" is any
financial advisor who was, at the time of separation from service from Waddell &
Reed, Inc., a Senior Financial Advisor. A custodian under the UGMA or UTMA
purchasing for the child or grandchild of any employee or financial advisor 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.
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.
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 through the Flexible
Withdrawal Service (the "Service") regular monthly, quarterly, semiannual or
annual payments by redeeming on an ongoing basis Class A shares that you own of
the Fund or of any of the funds in the United Group. It would be a disadvantage
to an investor to make additional purchases of shares while a withdrawal program
is in effect because it would result in duplication of sales charges.
Applicable forms to start the Service are available through Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
Class A shares which you still own of any of the funds in the United Group; or,
you must own Class A shares having a value of at least $10,000. The value for
this purpose is the value at the offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the account (you
select the percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a fixed number of shares (at least five shares).
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 under the
Service are made by redeeming Class A 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.
You may at any time, redeem part or all of the shares in your account; if you
redeem all of the shares, the Service is terminated. The Fund can also terminate
the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax return.
Exchanges 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 dividends or distributions
paid in shares 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 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 or for Class A shares of United Cash Management,
Inc.
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 model or prototype
documents for the following retirement plans. All of these plans involve
investment in shares of the Fund (or shares of certain other funds in the United
Group).
Individual Retirement Accounts (IRAs). Investors having earned income
may set up a plan that is commonly called an IRA. Under a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, the annual maximum is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year even if one
spouse had no earned income. Generally, the contributions are deductible unless
the investor (or, if married, either spouse) is an active participant in a
qualified retirement plan or if, notwithstanding that the investor or one or
both spouses so participate, their adjusted gross income does not exceed certain
levels. However, a married investor who is not an active participant, files
jointly with his or her spouse and whose combined adjusted gross income does not
exceed $150,000 is not affected by the spouse's active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution from an
employer's plan or (b) a rollover of an eligible distribution paid to the
investor from an employer's plan or another IRA. To the extent a rollover
contribution is made to a traditional IRA, the distribution will not be subject
to Federal income tax until distributed from the IRA. A direct rollover
generally applies to any distribution from an employer's plan (including a
custodial account under Section 403(b)(7) of the Code, but not an IRA) other
than certain periodic payments, required minimum distributions and other
specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the assets
in that IRA transferred directly to an IRA offered by Waddell & Reed, Inc.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an investor
whose adjusted gross income does not exceed $100,000 (and who is not a married
person filing a separate return), certain distributions from traditional IRAs
may be rolled over to a Roth IRA and any of the investor's traditional IRAs may
be converted into a Roth IRA; these rollover distributions and conversions are,
however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years and
the account holder has reached age 59-1/2 (or certain other conditions apply).
Education IRAs. Although not technically for retirement savings,
Education IRAs provide a vehicle for saving for a child's higher education. An
Education IRA may be established for the benefit of any minor, and any person
whose adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than $500 may be contributed for any year
to Education IRAs for the same beneficiary. Contributions are not deductible and
may not be made after the beneficiary reaches age 18; however, earnings
accumulate tax-free, and withdrawals are not subject to tax if used to pay the
qualified higher education expenses of the beneficiary (or a member of his or
her family).
Simplified Employee Pension (SEP) plans. Employers can make
contributions to SEP-IRAs established for employees. An employer may contribute
up to 15% of compensation or $24,000, whichever is less, per year for each
employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar (up to 3%
of an employee's compensation) or may contribute to all eligible employees 2% of
their compensation, whether or not they defer salary to their retirement plans.
SIMPLE plans involve fewer administrative requirements than 401(k) or other
qualified plans generally.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit-sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government
or of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an
employee of a public school system or of certain types of charitable
organizations, he or she may be able to enter into a deferred compensation
arrangement through a custodian account under Section 403(b) of the Code. Some
organizations have adopted Title I plans, which are funded by employer
contributions in addition to employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms
are available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
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 majority of the
Directors is not affiliated with Waddell & Reed, Inc.
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. Vogel is a member of the Fund's Board of Directors. The other
persons are officers but not members of the Board of Directors. For purposes of
this section, the term "Fund Complex" includes each of the registered investment
companies in the United Group of Mutual Funds, Waddell & Reed Funds, Inc. and
Target/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.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Principal Financial Officer and Director of Waddell & Reed Financial,
Inc.; President, Chairman of the Board of Directors and Chief Executive Officer
of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors
of WRIMCO, Waddell & Reed, Inc. and Waddell & Reed Services Company; formerly,
President of the Fund and each of the other funds in the Fund Complex; formerly,
Chairman of the Board of Directors of Waddell & Reed Asset Management Company, a
former affiliate of Waddell & Reed Financial, Inc. Date of birth: February 11,
1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
President, JoDill Corp., an agricultural company; President and
Director of Dillingham Enterprises Inc.; formerly, Director and consultant,
McDougal Construction Company; formerly, Instructor at Central Missouri State
University; formerly, Member of the Board of Police Commissioners, Kansas City,
Missouri; formerly, Senior Vice President-Sales and Marketing, Garney Companies,
Inc., a specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores
Dori Eccles Foundation. Director of First Security Corp., a bank holding
company, and Director of Fluor Corp., a company with interests in coal. Date of
birth: March 24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Partner, Levy and Craig, P.C., a law firm. Date
of birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents and Adjunct Professor of Law at
the University of Oklahoma College of Law; formerly, Vice President for
Executive Affairs of the University of Oklahoma; formerly, an Attorney with
Crowe & Dunlevy, a law firm. Date of birth: January 17, 1967.
JOHN F. HAYES
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Vice President, Chief
Operating Officer, Director and Treasurer of Waddell & Reed Financial Services,
Inc.; Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal Financial
Officer, Director and Treasurer of Waddell & Reed, Inc.; President, Director and
Treasurer of Waddell & Reed Services Company; formerly, Vice President of the
Fund and each of the other funds in the Fund Complex; formerly, Director and
Treasurer of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, Treasurer and Director of Waddell
& Reed Financial, Inc.; Vice President, Chief Investment Officer and Director of
Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.;
President, Chief Executive Officer, Chief Investment Officer and Director of
WRIMCO; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: December 8, 1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; 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.
Date of birth: April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director of Network Rehabilitation Services; formerly, Employment
Counselor and Director of McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Professor of Business Administration, University of Missouri-Kansas
City; formerly, Chancellor, University of Missouri-Kansas City. Date of birth:
January 1, 1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
Helge K. Lee
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Secretary and General Counsel of Waddell &
Reed Financial, Inc.; Vice President, Secretary, General Counsel and Director of
Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary, General Counsel and Director of Waddell & Reed Services Company;
formerly, Executive Vice President, Secretary and Chief Compliance Officer of
LGT Asset Management, Inc. and affiliates; formerly, Senior Vice President,
General Counsel and Secretary of Strong Capital Management, Inc. and affiliates.
Date of birth: March 30, 1946.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell &
Reed Services Company. Date of birth: July 18, 1942.
John M. Holliday
Vice President of the Fund and eight other funds in the Fund Complex;
Senior Vice President of WRIMCO; formerly, Senior Vice President of Waddell &
Reed Asset Management Company. Date of birth: June 11, 1935.
Louise D. Rieke
Vice President of the Fund and two other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed Asset
Management Company. Date of birth: April 24, 1949.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be "interested persons" as defined
in the 1940 Act of the Fund's underwriter, Waddell & Reed, Inc., or of WRIMCO
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 70 and has served as a Director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Fund. Messrs.
Henry L. Bellmon, Jay B. Dillingham, Doyle Patterson, Ronald K. Richey and Paul
S. Wise retired as Directors of the Fund and of each of the funds in the Fund
Complex and elected a position as Director Emeritus.
The funds in the United Group, Target/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $48,000 per year, plus $2,500
for each meeting of the Board of Directors attended plus reimbursement of
expenses of attending such meeting and $500 for each committee meeting attended
which is not in conjunction with a Board of Directors meeting, other than
Directors who are affiliates of Waddell & Reed, Inc. The fees to the Directors
who receive them are divided among the funds in the United Group, Target/United
Funds, Inc. and Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended March 31, 1999, the Fund's
Directors received the following fees for service as a director:
Compensation Table
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund Complex*
- -------- ------------ ------------
Robert L. Hechler
Henry J. Herrmann
Keith A. Tucker 0 0
James M. Concannon
John A. Dillingham
David P. Gardner
Linda K. Graves
Joseph Harroz, Jr.
John F. Hayes
Glendon E. Johnson
William T. Morgan
Ronald C. Reimer
Frank J. Ross, Jr.
Eleanor B. Schwartz
Frederick Vogel III
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Mr. Gardner was elected as a Director on August 18, 1998. Messrs.
Harroz, Hechler, Herrmann and Reimer were elected as Directors on November 18,
1998. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 1999, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. The following table
sets forth information with respect to the Fund, as of May 31, 1999, regarding
the beneficial ownership of the classes of the Fund's shares.
Shares owned
Name and Address Beneficially
of Beneficial Owner Class or of Record Percent
- ------------------- ----- ------------ -------
Fiduciary Trust Co NH Tr Class Y %
CMPP Okanogan Cnty Hosp Dist 3
FBO Unallocated Assets
Qualified Plan
PO Box 793
Omak WA 98841
Waddell & Reed Class Y
Financial, Inc.
Savings & Investment Plan
6300 Lamar Avenue
Overland Park KS 66201
Torchmark Corporation Class Y
Savings & Investment Plan
2001 Third Avenue South
Birmingham AL 35202
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 net investment income, which is derived
from the dividends, interest and earned discount on the securities the Fund
holds, less expenses (which will vary by class). The second source is net
realized capital gains, which are derived from the proceeds received from the
Fund's sale of securities at a price higher than the Fund's tax basis (usually
cost) in such securities, less losses from sales of securities at a price lower
than the Fund's basis therein these gains 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.
The Fund pays distributions from 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 pay distributions
once each year, in the latter part of the fourth calendar quarter, except to the
extent it has net capital losses carried over from a prior year or years 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, however, a total dividend and/or
distribution amount less than ten dollars will be automatically paid in shares
of the Fund of the same class as that with respect to which they were paid (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, however, a total dividend amount less than ten dollars will be
automatically paid in shares of the Fund of the same class as that with respect
to which it was paid 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
The Fund has qualified for treatment as a regulated investment company
("RIC") under the Code, so that it is relieved of Federal income tax on that
part of its investment company taxable income (consisting generally of taxable
net investment income, net short-term capital gains and net gains from certain
foreign currency transactions) that is distributed to its shareholders. To
continue to qualify as a RIC, the Fund must distribute to its shareholders for
each taxable year at least 90% of the sum of its investment company taxable
income ("Distribution Requirement") and must meet several additional
requirements. These requirements include the following: (1) the Fund must derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures contracts or forward contracts) derived with respect
to its business of investing in securities or those currencies ("Income
Requirement"); (2) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, 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 issuer's outstanding voting securities ("50%
Diversification Requirement"); and (3) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than 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 its 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 if they are paid by the Fund during the following
January. Accordingly, those dividends and distributions will be taxed to the
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 investor 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 pay sufficient dividends and
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 November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received, and gains realized, by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate 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 Forward Currency Contracts and Foreign
Currencies
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures contracts and entering into forward
currency contracts involves complex rules that will determine for income tax
purposes the amount, character and timing of recognition of the gains and losses
the Fund realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures contracts and forward currency contracts 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.
Any income the Fund earns from writing options is treated 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.
Certain options, futures contracts and forward currency contracts in
which the Fund may invest may be "section 1256 contracts." Section 1256
contracts held by the Fund at the end of its taxable year, other than contracts
subject to a "mixed straddle" election made by the Fund, are "marked-to-market"
(that is, treated as sold at that time 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 are treated as short-term capital gains or losses. That
60% portion will qualify for the 20% (10% for taxpayers in the 15% marginal tax
bracket) maximum tax rate on net capital gains enacted by the Taxpayer Relief
Act of 1997. Section 1256 contracts also may be marked-to-market for purposes of
the Excise Tax and other purposes. The Fund may need to distribute any
mark-to-market gains to its shareholders to satisfy the Distribution Requirement
and/or avoid imposition of the Excise Tax, even though it may not have closed
the transactions and received cash to pay the distributions.
Code section 1092 (dealing with straddles) may also affect the taxation
of options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. The regulations under section
1092 also provide certain "wash sale" rules that 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.
If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward currency contract entered into by the
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
Zero Coupon and Payment-in-Kind Securities
The Fund may acquire zero coupon or other securities issued with OID.
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 accrued OID and other non-cash income, in order to satisfy the
Distribution Requirement 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.
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 or WRIMCO may otherwise combine orders for the Fund with those of
other funds in the United Group, Target/United Funds, Inc. and Waddell & Reed
Funds, Inc. or other accounts for which it has investment discretion.
Transactions effected pursuant to such combined orders are averaged as to price
and allocated in accordance with the purchase or sale orders actually placed for
each fund or advisory account, except where the combined order is not filled
completely. In this case, WRIMCO will ordinarily allocate the transaction pro
rata based on the orders placed. Sharing in large transactions could affect the
price the Fund pays or receives or the amount it buys or sells. However,
sometimes a better negotiated commission is available through combined orders.
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 seek "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 ("research and 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 has investment discretion.
Research and 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 research and/or
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 research or
brokerage services provided. Subject to the foregoing considerations, WRIMCO may
also consider sales of Fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO, and investment
research received for the commissions of those other accounts may be useful both
to the Fund and one or more of such other accounts. To the extent that
electronic or other products provided by such brokers to assist WRIMCO in making
investment management decisions are used for administration or other
non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research, which may be supplied by a third party at the
request 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.
The Fund may also use its brokerage to pay for pricing or quotation
services to value securities. During the Fund's fiscal years ended March 31,
1999, 1998 and 1997, it paid brokerage commissions of $ , $30,213 and $28,192,
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, 1999, the transactions,
other than principal transactions, which were directed to broker-dealers who
provided research as well as execution totaled $ on which $ in brokerage
commissions were paid. These transactions were allocated to these broker-dealers
by the internal allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class Y. 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 distribution and/or service fee and Class
Y shares, which are designated for institutional investors, have no sales charge
nor ongoing distribution and/or 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. Shares are fully paid and nonassessable when purchased.
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 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 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 time which the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund
vote together as a single class, except as to any matter for which a separate
vote of any class is required by the 1940 Act, and except as to any matter which
affects the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities
which the Fund may use. The Fund may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. 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 a 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, a division of The McGraw-Hill Companies, Inc. 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.................................................1
STATEMENT OF ADDITIONAL INFORMATION.......................................1
TABLE OF CONTENTS..................................................1
PERFORMANCE INFORMATION......................................................2
Total Return..............................................................2
Yield.....................................................................3
Performance Rankings......................................................4
GOALS AND INVESTMENT POLICIES................................................4
Securities - General......................................................5
Specific Securities and Investment Practices..............................8
Common Stocks...........................................................8
U.S. Government Securities..............................................8
Zero Coupon Securities..................................................9
Mortgage-Backed and Asset-Backed Securities............................10
Variable or Floating Rate Instruments..................................13
Foreign Securities and Currency........................................13
Restricted Securities..................................................16
Lending Securities.....................................................16
Repurchase Agreements..................................................18
When-Issued and Delayed-Delivery Transactions..........................18
Illiquid Investments...................................................19
Indexed Securities.....................................................20
Warrants and Rights....................................................21
Real Estate............................................................21
Options, Futures and Other Strategies..................................21
Investment Restrictions..................................................37
Portfolio Turnover.......................................................39
INVESTMENT MANAGEMENT AND OTHER SERVICES....................................40
The Management Agreement.................................................40
Torchmark Corporation and Waddell & Reed Financial, Inc..................40
Shareholder Services.....................................................41
Accounting Services......................................................41
Payments by the Fund for Management, Accounting and
Shareholder Services.....................................................41
Custodial and Auditing Services..........................................45
Year 2000 Issue..........................................................45
PURCHASE, REDEMPTION AND PRICING OF SHARES..................................45
Determination of Offering Price..........................................45
Minimum Initial and Subsequent Investments...............................48
Reduced Sales Charges (Applicable to Class A Shares Only)................48
Account Grouping.......................................................48
One-time Purchases.....................................................51
Rights of Accumulation.................................................51
Statement of Intention.................................................51
Other Funds in the United Group........................................53
Net Asset Value Purchases of Class A Shares..............................54
Reasons for Differences in Public Offering Price of Class A Shares.......55
Flexible Withdrawal Service for Class A Shareholders.....................56
Exchanges for Shares of Other Funds in the United Group..................57
Class A Share Exchanges................................................57
Class Y Share Exchanges................................................58
General Exchange Information...........................................58
Retirement Plans.........................................................58
Redemptions..............................................................61
Reinvestment Privilege...................................................61
Mandatory Redemption of Certain Small Accounts...........................61
DIRECTORS AND OFFICERS......................................................62
Shareholdings............................................................70
PAYMENTS TO SHAREHOLDERS....................................................71
General..................................................................71
Choices You Have on Your Dividends and Distributions.....................71
TAXES.......................................................................72
General..................................................................72
Income from Foreign Securities...........................................73
Foreign Currency Gains and Losses........................................73
Income from Options, Futures and Forward Currency Contracts and
Foreign Currencies.......................................................74
Zero Coupon and Payment-in-Kind Securities...............................75
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................76
OTHER INFORMATION...........................................................78
The Shares of the Fund...................................................78
<PAGE>
22. Financial Statements
---------------------------------
(a) Financial Statements -- United High Income Fund, Inc.
Included in Part B:
-------------------
As of March 31, 1999
Statement of Assets and Liabilities
For the fiscal year ended March 31, 1999
Statement of Operations
For each of the two years in the period ended March 31,
1999 Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1999
Report of Independent Accountants
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND WARRANTS
Cable and Other Pay Television Services - 0.06%
Adelphia Communications Corporation,
13.0% Preferred ............................ 5,000 $ 575,000
Communication - 2.80%
Allegiance Telecom, Inc., Warrants (A)*....... 7,000 294,000
IXC Communications, Inc.,
12.5% Preferred ............................ 4,200 4,620,000
Infinity Broadcasting Corporation,
Class A* ................................... 180,000 4,635,000
Intermedia Communications, Inc.,
13.5% Preferred ............................ 6,577 7,069,972
Iridium LLC, Warrants (A)* ................... 6,500 130,000
Jacor Communications, Inc., Class A* ......... 50,000 3,798,438
Microcell Telecommunications Inc.,
Warrants (A)* .............................. 58,000 1,011,752
OnePoint Communications Corp.,
Warrants (A)* .............................. 4,000 4,000
Pathnet, Inc., Warrants (A)* ................. 2,500 25,000
Primus Telecommunications Group, Incorporated,
Warrants* .................................. 5,000 75,000
Sprint Corporation - PCS Group* .............. 145,000 6,425,312
VersaTel Telecom International N.V.,
Warrants (A)* .............................. 3,750 262,500
Total ...................................... 28,350,974
Depository Institutions - 0.39%
California Federal Preferred Capital
Corporation, 9.125% Preferred .............. 150,000 3,975,000
Electric, Gas and Sanitary Services - 0.02%
Consolidated Hydro, Inc.,
Class B Warrants* .......................... 7,578 477
Consolidated Hydro, Inc.,
Class C Warrants* .......................... 4,919 615
IntelCom Group Inc., Warrants (A)* ........... 20,625 211,406
Total ...................................... 212,498
Electronic and Other Electric Equipment - 0.01%
Powertel, Inc., Warrants* .................... 16,000 74,000
Food and Kindred Products - 0.60%
Keebler Foods Company* ....................... 166,500 6,077,250
General Building Contractors - 0.10%
Walter Industries, Inc.* ..................... 90,260 1,015,425
</TABLE>
See Notes to Schedule of Investments on page .
1
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON AND PREFERRED STOCKS AND
WARRANTS (Continued)
General Merchandise Stores - 0.52%
Fred Meyer, Inc.* ............................ 90,000 $ 5,298,750
Paper and Allied Products - 0.09%
SF Holdings Group, Inc., Class C (A)* ........ 18,900 37,800
SF Holdings Group, Inc.,
13.75% Preferred (A) ....................... 228 828,164
Total ...................................... 865,964
Printing and Publishing - 0.36%
PRIMEDIA Inc., 10.0% Preferred ............... 35,000 3,605,000
Wholesale Trade - Nondurable Goods - 0.24%
U.S. Foodservice* ............................ 52,000 2,418,000
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS - 5.19% $ 52,467,861
(Cost: $44,655,039)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.83%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 ........................... $ 5,650 5,607,625
Hines Horticulture, Inc.,
11.75%, 10-15-2005 ......................... 2,550 2,773,125
Total ...................................... 8,380,750
Agricultural Production - Livestock - 0.36%
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 .......................... 3,500 3,609,375
Amusement and Recreation Services - 2.15%
American Skiing Company,
12.0%, 7-15-2006 ........................... 4,500 4,072,500
Empress Entertainment, Inc.,
8.125%, 7-1-2006 ........................... 1,000 1,010,000
Hollywood Park, Inc.,
9.25%, 2-15-2007 (A) ....................... 4,000 4,110,000
Mohegan Tribal Gaming Authority,
8.75%, 1-1-2009 (A) ........................ 3,250 3,392,188
</TABLE>
See Notes to Schedule of Investments on page .
2
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Amusement and Recreation Services (Continued)
Premier Parks Inc.:
12.0%, 8-15-2003 ........................... $ 1,500 $ 1,618,125
9.25%, 4-1-2006 ............................ 2,000 2,070,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 ........................... 5,500 5,506,875
Total ...................................... 21,779,688
Apparel and Accessory Stores - 0.36%
Wilsons The Leather Experts Inc.,
11.25%, 8-15-2004 .......................... 3,500 3,622,500
Apparel and Other Textile Products - 1.21%
Consoltex Group Inc.,
11.0%, 10-1-2003 ........................... 7,000 7,218,750
Pillowtex Corporation:
10.0%, 11-15-2006 .......................... 1,000 1,045,000
9.0%, 12-15-2007 ........................... 4,000 4,000,000
Total ...................................... 12,263,750
Auto Repair, Services and Parking - 0.51%
Safelite Glass Corp.,
9.875%, 12-15-2006 ......................... 5,500 5,135,625
Building Materials and Garden Supplies - 1.04%
Central Tractor Farm & Country, Inc.,
10.625%, 4-1-2007 .......................... 2,500 2,593,750
Henry Company,
10.0%, 4-15-2008 ........................... 2,250 2,269,687
ISG Resources, Inc.,
10.0%, 4-15-2008 ........................... 3,000 3,045,000
Reliant Building Products, Inc.,
10.875%, 5-1-2004 .......................... 3,000 2,598,750
Total ...................................... 10,507,187
Business Services - 2.25%
Adams Outdoor Advertising Limited Partnership,
10.75%, 3-15-2006 .......................... 4,250 4,643,125
Coinmach Corporation,
11.75%, 11-15-2005 ......................... 6,620 7,298,550
Federal Data Corporation,
10.125%, 8-1-2005 .......................... 2,500 2,471,875
</TABLE>
See Notes to Schedule of Investments on page .
3
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Business Services (Continued)
Lamar Advertising Company:
9.625%, 12-1-2006 .......................... $ 3,000 $ 3,240,000
8.625%, 9-15-2007 .......................... 1,500 1,578,750
Rental Service Corporation,
9.0%, 5-15-2008 ............................ 3,500 3,500,000
Total ...................................... 22,732,300
Cable and Other Pay Television Services - 7.35%
Adelphia Communications Corporation:
10.25%, 7-15-2000 .......................... 2,250 2,323,125
9.25%, 10-1-2002 ........................... 7,000 7,297,500
10.5%, 7-15-2004 ........................... 4,000 4,400,000
9.875%, 3-1-2007 ........................... 3,000 3,300,000
Bresnan Communications Group LLC and
Bresnan Capital Corporation:
0.0%, 2-1-2009 (A)(B)....................... 1,250 850,000
8.0%, 2-1-2009 (A) ......................... 1,250 1,262,500
CSC Holdings, Inc.,
8.125%, 8-15-2009 .......................... 4,000 4,298,320
Charter Communications Holdings, LLC and
Charter Communications Holdings Capital
Corporation,
8.625%, 4-1-2009 (A) ....................... 17,000 17,488,750
Comcast Corporation,
9.5%, 1-15-2008 ............................ 5,250 5,533,290
Comcast UK Cable Partners Limited,
0.0%, 11-15-2007 (B) ....................... 9,000 7,863,750
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (B) ....................... 13,500 11,745,000
Renaissance Media Group LLC,
0.0%, 4-15-2008 (B) ........................ 5,000 3,493,750
Rifkin Acquisition Partners, L.L.L.P.,
11.125%, 1-15-2006 ......................... 4,000 4,485,000
Total ...................................... 74,340,985
Chemicals and Allied Products - 2.40%
AMM Holdings, Inc.,
0.0%, 7-1-2009 (B) ......................... 2,500 762,500
Aqua-Chem, Inc.,
11.25%, 7-1-2008 ........................... 3,500 3,080,000
Dade International Inc.,
11.125%, 5-1-2006 .......................... 2,500 2,793,750
Marsulex Inc.,
9.625%, 7-1-2008 ........................... 3,500 3,570,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 ......................... 6,000 4,200,000
UCC Investors Holding, Inc.,
10.5%, 5-1-2002 ............................ 9,000 9,821,250
Total ...................................... 24,227,500
</TABLE>
See Notes to Schedule of Investments on page .
4
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Communication - 21.69%
ACME Television, LLC,
0.0%, 9-30-2004 (B) ........................ $7,400 $ 6,308,500
Allbritton Communications Company,
9.75%, 11-30-2007 .......................... 4,500 4,775,625
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (B) ........................ 7,000 4,357,500
American Radio Systems Corporation,
9.0%, 2-1-2006 ............................. 3,250 3,526,250
Chancellor Media Corporation,
9.0%, 10-1-2008 ............................ 4,000 4,280,000
Chancellor Media Corporation of Los Angeles,
8.0%, 11-1-2008 (A) ........................ 5,000 5,206,250
Citadel Broadcasting Company,
9.25%, 11-15-2008 .......................... 2,000 2,145,000
Concentric Network Corporation,
12.75%, 12-15-2007 ......................... 4,000 4,570,000
Hyperion Telecommunications, Inc.:
0.0%, 4-15-2003 (B) ........................ 8,750 7,218,750
12.25%, 9-1-2004 ........................... 2,000 2,175,000
12.0%, 11-1-2007 (A) ....................... 4,500 4,702,500
ICG Holdings, Inc.,
0.0%, 9-15-2005 (B) ........................ 6,250 5,531,250
ICG Services, Inc.,
0.0%, 5-1-2008 (B) ......................... 4,000 2,390,000
ITC /\ DeltaCom, Inc.:
11.0%, 6-1-2007 ............................ 2,750 3,028,437
8.875%, 3-1-2008 ........................... 2,400 2,412,000
9.75%, 11-15-2008 .......................... 3,000 3,157,500
IXC Communications, Inc.,
9.0%, 4-15-2008 ............................ 5,250 5,460,000
Intermedia Communications Inc.,
8.5%, 1-15-2008 ............................ 1,000 995,000
Intermedia Communications of Florida, Inc.,
0.0%, 5-15-2006 (B)......................... 6,000 5,160,000
Iridium LLC and Iridium Capital Corporation:
10.875%, 7-15-2005 ......................... 4,250 1,615,000
11.25%, 7-15-2005 .......................... 1,400 532,000
13.0%, 7-15-2005 ........................... 7,900 3,318,000
JCAC, Inc.,
10.125%, 6-15-2006 ......................... 2,000 2,227,500
Level 3 Communications, Inc.:
9.125%, 5-1-2008 ........................... 7,000 7,017,500
0.0%, 12-1-2008 (A)(B) ..................... 13,000 8,141,250
LIN Holdings Corp.,
0.0%, 3-1-2008 (B) ......................... 7,000 4,935,000
LIN Television Corporation,
8.375%, 3-1-2008 ........................... 5,900 5,870,500
</TABLE>
See Notes to Schedule of Investments on page .
5
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
MetroNet Communications Corp.,
0.0%, 6-15-2008 (B) ........................ $ 7,000 $ 5,407,500
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (B) ......................... 10,000 8,150,000
Nextel Communications, Inc.:
9.75%, 8-15-2004 ........................... 6,750 6,986,250
0.0%, 9-15-2007 (B) ........................ 7,500 5,475,000
0.0%, 2-15-2008 (B) ........................ 6,400 4,480,000
Nextel Partners, Inc.,
0.0%, 2-1-2009 (A)(B) ...................... 13,000 7,540,000
OnePoint Communications Corp.,
14.5%, 6-1-2008 (A) ........................ 4,000 2,100,000
Pathnet, Inc.,
12.25%, 4-15-2008 .......................... 2,500 1,350,000
Primus Telecommunications Group, Incorporated,
11.75%, 8-1-2004 ........................... 5,000 5,187,500
Qwest Communications International Inc.,
0.0%, 10-15-2007 (B) ....................... 2,750 2,179,375
RSL Communications, Ltd.,
10.5%, 11-15-2008 .......................... 16,250 17,143,750
Rogers Communications Inc.,
9.125%, 1-15-2006 .......................... 7,500 7,912,500
SFX Broadcasting, Inc.,
10.75%, 5-15-2006 .......................... 2,303 2,582,239
Salem Communications Corporation,
9.5%, 10-1-2007 ............................ 3,425 3,630,500
Sinclair Broadcast Group, Inc.,
9.0%, 7-15-2007 ............................ 4,000 4,100,000
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (B) ........................ 10,500 9,588,180
Time Warner Telecom LLC and Time Warner Telecom Inc.,
9.75%, 7-15-2008 ........................... 2,250 2,407,500
VersaTel Telecom International N.V.,
13.25%, 5-15-2008 .......................... 3,750 3,909,375
Viatel, Inc.,
11.5%, 3-15-2009 (A) ....................... 3,000 3,120,000
WinStar Communications, Inc.:
0.0%, 3-15-2008 (B) ........................ 3,000 1,830,000
10.0%, 3-15-2008 ........................... 4,750 3,182,500
Total ...................................... 219,318,481
</TABLE>
See Notes to Schedule of Investments on page .
6
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Eating and Drinking Places - 1.96%
Domino's Pizza, Inc.,
10.375%, 1-15-2009 (A) ..................... $ 5,000 $ 5,150,000
Foodmaker, Inc.,
8.375%, 4-15-2008 .......................... 7,250 7,231,875
Fresh Foods, Inc.,
10.75%, 6-1-2006 ........................... 5,500 5,513,750
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 .......................... 2,000 1,935,000
Total ...................................... 19,830,625
Electric, Gas and Sanitary Services - 2.61%
Allied Waste North America, Inc.,
7.875%, 1-1-2009 ........................... 12,750 12,495,000
Browning Ferris Industries Inc.,
6.375%, 1-15-2008 .......................... 3,500 3,047,030
El Paso Electric Company,
9.4%, 5-1-2011 ............................. 5,000 5,751,600
Niagara Mohawk Power Corporation,
7.25%, 10-1-2002 ........................... 5,000 5,092,950
Total ...................................... 26,386,580
Electronic and Other Electric Equipment - 3.53%
Communications & Power Industries, Inc.,
12.0%, 8-1-2005 ............................ 4,000 4,260,000
Communications Instruments, Inc.,
10.0%, 9-15-2004 ........................... 2,500 2,415,625
EchoStar DBS Corporation,
9.375%, 2-1-2009 (A) ....................... 15,500 16,042,500
Elgar Holdings, Inc.,
9.875%, 2-1-2008 ........................... 4,000 3,120,000
InterCel, Inc.,
0.0%, 2-1-2006 (B) ......................... 5,000 4,012,500
Powertel, Inc.,
11.125%, 6-1-2007 .......................... 1,500 1,545,000
WESCO Distribution, Inc.,
9.125%, 6-1-2008 ........................... 3,000 3,108,750
WESCO International, Inc.,
0.0%, 6-1-2008 (B) ......................... 1,750 1,211,875
Total ...................................... 35,716,250
Engineering and Management Services - 0.34%
United International Holdings, Inc.,
0.0%, 2-15-2008 (B) ........................ 5,000 3,400,000
</TABLE>
See Notes to Schedule of Investments on page .
7
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Fabricated Metal Products - 2.48%
AXIA Incorporated,
10.75%, 7-15-2008 .......................... $ 2,000 $ 1,997,500
American Safety Razor Company,
9.875%, 8-1-2005 ........................... 1,000 1,052,500
Neenah Corporation:
11.125%, 5-1-2007 .......................... 8,250 8,662,500
11.125%, 5-1-2007 (A)....................... 3,000 3,150,000
Safety Components International, Inc.,
10.125%, 7-15-2007 ......................... 6,500 6,491,875
U.S. Can Corporation,
10.125%, 10-15-2006 ........................ 3,500 3,688,125
Total ...................................... 25,042,500
Food and Kindred Products - 0.80%
B & G Foods, Inc.,
9.625%, 8-1-2007 ........................... 4,500 4,432,500
Southern Foods Group, L.P.
and SFG Capital Corporation,
9.875%, 9-1-2007 ........................... 3,450 3,626,813
Total ...................................... 8,059,313
Food Stores - 0.94%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ........................... 5,000 5,012,500
Pueblo Xtra International, Inc.,
9.5%, 8-1-2003 ............................. 4,750 4,542,187
Total ...................................... 9,554,687
Forestry - 0.20%
U.S. Timberlands Company, L.P.,
9.625%, 11-15-2007 ......................... 2,000 2,027,500
Health Services - 0.75%
Tenet Healthcare Corporation,
8.625%, 1-15-2007 .......................... 7,500 7,537,500
Holding and Other Investment Offices - 0.71%
Grupo Industrial Durango, S.A. de C.V.,
12.625%, 8-1-2003 .......................... 5,000 4,800,000
LTC Properties, Inc.,
8.5%, 1-1-2001 (Convertible) ............... 3,000 2,396,250
Total ...................................... 7,196,250
</TABLE>
See Notes to Schedule of Investments on page .
8
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Hotels and Other Lodging Places - 4.71%
CapStar Hotel Company,
8.75%, 8-15-2007 ........................... $ 2,500 $ 2,378,125
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-2009 (A) ......................... 3,400 3,442,500
HMH Properties, Inc.,
7.875%, 8-1-2008 ........................... 15,000 14,400,000
MGM Grand, Inc.,
6.875%, 2-6-2008 ........................... 5,000 4,695,200
Prime Hospitality Corp.:
9.25%, 1-15-2006 ........................... 4,000 4,150,000
9.75%, 4-1-2007 ............................ 2,500 2,584,375
Station Casinos, Inc.:
10.125%, 3-15-2006 ......................... 2,500 2,650,000
8.875%, 12-1-2008 (A) ...................... 13,000 13,325,000
Total ...................................... 47,625,200
Industrial Machinery and Equipment - 3.97%
American Standard Inc.,
9.25%, 12-1-2016 ........................... 1,400 1,429,750
Anchor Lamina Inc. and Anchor Lamina America, Inc.,
9.875%, 2-1-2008 ........................... 1,500 1,406,250
Axiohm Transaction Solutions, Inc.,
9.75%, 10-1-2007 ........................... 2,000 1,820,000
Falcon Building Products, Inc.,
0.0%, 6-15-2007 (B) ........................ 7,000 4,138,750
International Comfort Products Holdings, Inc.,
8.625%, 5-15-2008 .......................... 4,000 4,030,000
National Equipment Services, Inc.:
10.0%, 11-30-2004 .......................... 2,500 2,562,500
10.0%, 11-30-2004 .......................... 9,000 9,022,500
Paragon Corporate Holdings, Inc.,
9.625%, 4-1-2008 ........................... 3,000 2,415,000
Terex Corporation,
8.875%, 4-1-2008 ........................... 6,000 5,887,500
Tokheim Corporation,
11.375%, 8-1-2008 (A) ...................... 4,750 5,046,875
Walbro Corporation,
9.875%, 7-15-2005 .......................... 2,400 2,361,000
Total ...................................... 40,120,125
Instruments and Related Products - 1.92%
Cole National Group, Inc.,
9.875%, 12-31-2006 ......................... 6,875 7,089,844
Maxxim Medical, Inc.,
10.5%, 8-1-2006 ............................ 9,250 9,920,625
</TABLE>
See Notes to Schedule of Investments on page .
9
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Instruments and Related Products (Continued)
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 ........................... $ 2,600 $ 2,405,000
Total ...................................... 19,415,469
Miscellaneous Manufacturing Industries - 0.72%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 .......................... 1,750 1,382,500
Amscan Holdings, Inc.,
9.875%, 12-15-2007 ......................... 3,400 2,924,000
Hedstrom Corporation,
10.0%, 6-1-2007 ............................ 3,500 2,975,000
Total ...................................... 7,281,500
Miscellaneous Retail - 1.55%
Eye Care Centers of America, Inc.,
9.125%, 5-1-2008 ........................... 2,000 1,740,000
Finlay Fine Jewelry Corporation,
8.375%, 5-1-2008 ........................... 1,500 1,458,750
Michaels Stores, Inc.:
6.75%, 1-15-2003 (Convertible) ............. 1,000 950,000
10.875%, 6-15-2006 ......................... 7,800 8,365,500
TravelCenters of America, Inc.,
10.25%, 4-1-2007 ........................... 3,000 3,135,000
Total ...................................... 15,649,250
Motion Pictures - 1.22%
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 .......................... 7,300 4,708,500
Loews Cineplex Entertainment Corporation,
8.875%, 8-1-2008 ........................... 2,000 1,995,000
Regal Cinemas, Inc.,
9.5%, 6-1-2008 ............................. 5,500 5,616,875
Total ...................................... 12,320,375
Paper and Allied Products - 1.90%
Buckeye Cellulose Corporation,
8.5%, 12-15-2005 ........................... 2,750 2,818,750
Container Corporation of America,
11.25%, 5-1-2004 ........................... 3,500 3,692,500
Mail-Well I Corporation,
8.75%, 12-15-2008 (A) ...................... 5,000 5,175,000
Outsourcing Services Group, Inc.,
10.875%, 3-1-2006 .......................... 3,000 2,970,000
</TABLE>
See Notes to Schedule of Investments on page .
10
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products (Continued)
Radnor Holdings Corporation,
10.0%, 12-1-2003 ........................... $2,000 $ 2,065,000
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (B) ........................ 5,750 1,423,125
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ............................ 1,725 1,095,375
Total ...................................... 19,239,750
Petroleum and Coal Products - 0.49%
Building Materials Corporation of America,
8.0%, 12-1-2008 (A) ........................ 5,000 4,987,500
Primary Metal Industries - 1.26%
California Steel Industries, Inc.,
8.5%, 4-1-2009 (A) ......................... 1,650 1,674,750
Commonwealth Aluminum Corporation,
10.75%, 10-1-2006 .......................... 3,000 3,011,250
Weirton Steel Corporation,
11.375%, 7-1-2004 .......................... 1,500 1,440,000
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 .......................... 6,750 6,648,750
Total ...................................... 12,774,750
Printing and Publishing - 3.23%
American Media Operations, Inc.,
11.625%, 11-15-2004 ........................ 4,000 4,320,000
Big Flower Press Holdings, Inc.,
8.625%, 12-1-2008 (A) ...................... 6,250 6,312,500
K-III Communications Corporation,
8.5%, 2-1-2006 ............................. 5,000 5,112,500
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ........................ 5,250 5,381,250
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 (A) ..................... 5,000 5,250,000
World Color Press, Inc.,
8.375%, 11-15-2008 (A) ..................... 6,250 6,296,875
Total ...................................... 32,673,125
Railroad Transportation - 0.20%
TFM, S.A. de C.V.,
0.0%, 6-15-2009 (B) ........................ 3,500 2,047,500
</TABLE>
See Notes to Schedule of Investments on page .
11
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Rubber and Miscellaneous Plastics Products - 2.75%
Furon Company,
8.125%, 3-1-2008 ........................... $ 1,900 $ 1,866,750
Graham Packaging Company and GPC Capital Corp. I,
8.75%, 1-15-2008 ........................... 7,000 7,008,750
Graham Packaging Holdings Company and
GPC Capital Corp. II,
0.0%, 1-15-2009 (B) ........................ 2,000 1,390,000
Heafner (J.H.) Company, Inc. (The):
10.0%, 5-15-2008 ........................... 4,500 4,606,875
10.0%, 5-15-2008 (A) ....................... 4,000 4,095,000
Home Products International, Inc.,
9.625%, 5-15-2008 .......................... 6,500 6,272,500
LDM Technologies, Inc.,
10.75%, 1-15-2007 .......................... 2,500 2,559,375
Total ...................................... 27,799,250
Social Services - 0.66%
KinderCare Learning Centers, Inc.,
9.5%, 2-15-2009 ............................ 3,000 3,015,000
La Petite Academy, Inc. and LPA Holding Corp.,
10.0%, 5-15-2008 ........................... 3,750 3,693,750
Total ...................................... 6,708,750
Textile Mill Products - 2.21%
Avondale Mills, Inc.,
10.25%, 5-1-2006 ........................... 3,500 3,622,500
Collins & Aikman Products Co.,
11.5%, 4-15-2006 ........................... 5,000 5,312,500
Galey & Lord, Inc.,
9.125%, 3-1-2008 ........................... 9,000 7,020,000
Glenoit Corporation,
11.0%, 4-15-2007 ........................... 2,500 2,315,625
Globe Manufacturing Corp.,
10.0%, 8-1-2008 ............................ 5,250 4,042,500
Total ...................................... 22,313,125
Transportation by Air - 1.15%
Atlas Air, Inc.,
9.375%, 11-15-2006 (A) ..................... 11,500 11,629,375
Transportation Equipment - 1.20%
Federal-Mogul Corporation,
7.875%, 7-1-2010 ........................... 7,000 6,992,020
Westinghouse Air Brake Company (The):
9.375%, 6-15-2005 .......................... 3,000 3,108,750
9.375%, 6-15-2005 (A) ...................... 2,000 2,045,000
Total ...................................... 12,145,770
</TABLE>
See Notes to Schedule of Investments on page .
12
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES (Continued)
Trucking and Warehousing - 0.78%
Iron Mountain Incorporated,
10.125%, 10-1-2006 ......................... $ 1,500 $ 1,620,000
Pierce Leahy Corp.,
9.125%, 7-15-2007 .......................... 6,000 6,300,000
Total ...................................... 7,920,000
Water Transportation - 0.35%
Equimar Shipholdings Ltd.,
9.875%, 7-1-2007 ........................... 5,000 3,550,000
Wholesale Trade - Durable Goods - 0.48%
Exide Corporation,
10.0%, 4-15-2005 ........................... 1,000 990,000
Sealy Mattress Company,
0.0%, 12-15-2007 (B) ....................... 6,000 3,900,000
Total ...................................... 4,890,000
Wholesale Trade - Nondurable Goods - 0.60%
Core-Mark International, Inc.,
11.375%, 9-15-2003 ......................... 3,500 3,552,500
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 ........................... 2,750 2,564,375
Total ...................................... 6,116,875
TOTAL CORPORATE DEBT SECURITIES - 85.82% $ 867,877,035
(Cost: $877,816,966)
OTHER GOVERNMENT SECURITY - 1.49%
Mexico
United Mexican States,
9.75%, 4-6-2005 ............................ 15,000 $ 15,056,250
(Cost: $14,994,600)
SHORT-TERM SECURITIES
Communication - 0.99%
Dominion Resources, Inc.,
5.0%, 4-21-99 .............................. 10,000 9,972,222
Electric, Gas and Sanitary Services - 0.54%
Public Service Electric & Gas Co.,
5.0%, 4-7-99 ............................... 1,525 1,523,729
Western Resources, Inc.,
5.03%, 4-21-99 ............................. 4,000 3,988,822
Total ...................................... 5,512,551
</TABLE>
See Notes to Schedule of Investments on page .
13
<PAGE>
THE INVESTMENTS OF
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
SHORT-SECURITIES (Continued)
Fabricated Metal Products - 0.25%
Danaher Corporation,
4.9388%, Master Note ....................... $ 2,547 $ 2,547,000
Food and Kindred Products - 0.09%
General Mills, Inc.,
4.7938%, Master Note ....................... 893 893,000
Food Stores - 1.98%
Kroger Co. (The),
5.43%, 4-1-99 .............................. 20,000 20,000,000
Instruments and Related Products - 0.58%
Raytheon Company,
5.05%, 4-1-99 .............................. 5,900 5,900,000
Personal Services - 0.89%
Block Financial Corp.,
4.84%, 4-20-99 ............................. 9,000 8,977,010
Petroleum and Coal Products - 1.54%
Kerr-McGee Credit Corp.:
5.05%, 4-7-99 .............................. 10,000 9,991,584
5.07%, 4-15-99 ............................. 5,615 5,603,929
Total ...................................... 15,595,513
TOTAL SHORT-TERM SECURITIES - 6.86% $ 69,397,296
(Cost: $69,397,296)
TOTAL INVESTMENT SECURITIES - 99.36% $1,004,798,442
(Cost: $1,006,863,901)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.64% 6,480,297
NET ASSETS - 100.00% $1,011,278,739
</TABLE>
See Notes to Schedule of Investments on page .
14
<PAGE>
UNITED HIGH INCOME FUND, INC.
MARCH 31, 1999
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144A under the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At March 31, 1999, the value
of these securities amounted to $154,340,935 or 15.26% of net assets.
(B) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
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.
15
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1999
(In Thousands, Except for Per Share Amounts)
<TABLE>
<S> <C>
Assets
Investment securities -- at value
(Notes 1 and 3) ........................................ $1,004,798
Cash .................................................... 390
Receivables:
Dividends and interest ................................. 19,453
Investment securities sold ............................. 6,510
Fund shares sold ....................................... 895
Prepaid insurance premium ................................ 57
----------
Total assets ......................................... 1,032,103
----------
Liabilities
Payable for investment securities purchased .............. 16,645
Payable to Fund shareholders ............................. 3,803
Accrued service fee (Note 2) ............................. 165
Accrued transfer agency and dividend
disbursing (Note 2) .................................... 152
Accrued management fee (Note 2) .......................... 15
Accrued distribution fee (Note 2) ........................ 13
Accrued accounting services fee (Note 2) ................. 8
Other ................................................... 23
----------
Total liabilities .................................... 20,824
----------
Total net assets ................................... $1,011,279
==========
Net Assets
$1.00 par value capital stock
Capital stock .......................................... $ 107,752
Additional paid-in capital ............................. 1,069,971
Accumulated undistributed income (loss):
Accumulated undistributed net investment income ........ 2,588
Accumulated undistributed net realized
loss on investment transactions ...................... (166,967)
Net unrealized depreciation in value of
investments .......................................... (2,065)
----------
Net assets applicable to outstanding
units of capital ................................... $1,011,279
==========
Net asset value per share (net assets divided
by shares outstanding)
Class A .................................................. $9.39
Class Y .................................................. $9.39
Capital shares outstanding
Class A .................................................. 107,477
Class Y .................................................. 275
Capital shares authorized .................................. 500,000
</TABLE>
See notes to financial statements.
16
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands)
<TABLE>
<S> <C>
Investment Income
Income (Note 1B):
Interest and amortization ................................. $95,287
Dividends ................................................. 2,832
-------
Total income ............................................ 98,119
-------
Expenses (Note 2):
Investment management fee ................................. 5,675
Service fee - Class A ..................................... 2,399
Transfer agency and dividend disbursing - Class A.......... 1,274
Distribution fee - Class A ................................ 100
Accounting services fee ................................... 99
Custodian fees ............................................ 24
Audit fees ................................................ 18
Legal fees ................................................ 12
Shareholder servicing - Class Y ........................... 5
Other ..................................................... 182
-------
Total expenses .......................................... 9,788
-------
Net investment income ................................. 88,331
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on investments ............................ 6,301
Unrealized depreciation in value of
investments during the period ............................. (78,843)
-------
Net loss on investments ................................. (72,542)
-------
Net increase in net assets resulting
from operations ...................................... $15,789
=======
</TABLE>
See notes to financial statements.
17
<PAGE>
UNITED HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
For the fiscal year ended
March 31,
-----------------------------
1999 1998
Increase (Decrease) in Net Assets ----------- ----------
Operations:
<S> <C> <C>
Net investment income ................ $ 88,331 $ 88,401
Realized net gain on
investments ........................ 6,301 22,509
Unrealized appreciation
(depreciation) ..................... (78,843) 62,830
---------- ----------
Net increase in net assets
resulting from operations ........ 15,789 173,740
---------- ----------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .............................. (86,920) (88,015)
Class Y .............................. (261) (261)
---------- ----------
(87,181) (88,276)
---------- ----------
Capital share transactions:
Proceeds from sale of shares:
Class A (11,212,153 and 11,406,679
shares, respectively) ............ 107,437 110,946
Class Y (243,388 and 43,283
shares, respectively) ............ 2,313 423
Proceeds from reinvestment
of dividends:
Class A (7,730,209 and
7,636,167 shares, respectively) 73,752 74,065
Class Y (27,373 and 26,963
shares, respectively) ............ 261 261
Payments for shares redeemed:
Class A (21,192,900 and 15,583,034
shares, respectively) ............ (203,166) (151,632)
Class Y (317,451 and 85,087
shares, respectively) ............ (3,016) (824)
---------- ----------
Net increase (decrease) in net assets
resulting from capital share
transactions .................... (22,419) 33,239
---------- ----------
Total increase (decrease) ....... (93,811) 118,703
Net Assets
Beginning of period .................... 1,105,090 986,387
---------- ----------
End of period, including
undistributed net investment
income of $2,588 and
$1,438, respectively ................. $1,011,279 $1,105,090
========== ==========
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
18
<PAGE>
UNITED HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended March 31,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $10.04 $ 9.25 $9.09 $8.70 $9.20
------ ------ ----- ----- -----
Income from investment
operations:
Net investment
income ............. 0.81 0.82 0.80 0.79 0.80
Net realized and
unrealized gain
(loss) on
investments ........ (0.66) 0.79 0.16 0.40 (0.51)
------ ------ ----- ----- -----
Total from investment
operations ........... 0.15 1.61 0.96 1.19 0.29
------ ------ ----- ----- -----
Less dividends
from net
investment income..... (0.80) (0.82) (0.80) (0.80) (0.79)
------ ------ ----- ----- -----
Net asset value,
end of period ........ $9.39 $10.04 $9.25 $9.09 $8.70
====== ====== ===== ===== =====
Total return* .......... 1.70% 18.03% 10.94% 14.16% 3.41%
Net assets, end
of period (in
millions) ............ $1,009 $1,102 $983 $972 $934
Ratio of expenses to
average net assets.... 0.94% 0.84% 0.89% 0.85% 0.84%
Ratio of net investment
income to average
net assets ........... 8.44% 8.38% 8.68% 8.74% 9.07%
Portfolio turnover
rate ................. 53.19% 63.40% 53.17% 41.67% 18.94%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
19
<PAGE>
UNITED HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal For the
year ended period
March 31, from 1/4/96*
------------------------ through
1999 1998 1997 3/31/96
------ ------ ------ --------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $10.04 $ 9.25 $9.10 $9.19
------ ------ ----- -----
Income from investment
operations:
Net investment
income ............. 0.83 0.82 0.81 0.20
Net realized and
unrealized gain (loss)
on investments ..... (0.66) 0.79 0.15 (0.10)
------ ------ ----- -----
Total from investment
operations............ 0.17 1.61 0.96 0.10
------ ------ ----- -----
Less dividends
from net
investment income..... (0.82) (0.82) (0.81) (0.19)
------ ------ ----- -----
Net asset value,
end of period......... $9.39 $10.04 $9.25 $9.10
====== ====== ===== =====
Total return ........... 1.90% 18.13% 11.07% 1.00%
Net assets, end of
period (in
millions) ............ $2 $3 $3 $2
Ratio of expenses
to average net
assets ............... 0.74% 0.77% 0.77% 0.80%**
Ratio of net
investment income
to average net
assets ............... 8.62% 8.46% 8.78% 8.55%**
Portfolio
turnover rate ........ 53.19% 63.40% 53.17% 41.67%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
20
<PAGE>
UNITED HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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 pricing service or 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 the Nasdaq Stock Market, which provides information on bid
and asked 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 and post-1984 market discount on the purchase of
bonds 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 Subchapter M of 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 business day following record date. Net
investment income dividends 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 carryovers. At March 31, 1999, the Fund reclassified
$157,217,033 between additional paid-in-capital and accumulated
undistributed net realized losses. Net investment income, net realized
gains and net assets were not affected by this change.
21
<PAGE>
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 $21.5 billion of
combined net assets at March 31, 1999) 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.
22
<PAGE>
Accounting Services Fee
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
<S> <C>
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
</TABLE>
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 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 gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$2,438,427, out of which W&R paid sales commissions of $1,408,039 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Distribution and 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 distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $38,933, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., 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 $493,273,938 while proceeds from
maturities and sales aggregated $548,068,414. Purchases of short-term securities
and U.S. Government securities aggregated $2,632,750,463 and $26,894,141,
23
<PAGE>
respectively. Proceeds from maturities and sales of short-term securities and
U.S. Government securities aggregated $2,625,781,194 and $27,400,000,
respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1999 was $1,006,863,901, resulting in net unrealized depreciation of $2,065,459,
of which $36,309,233 related to appreciated securities and $38,374,692 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital gain net
income of $13,784,884 during its fiscal year ended March 31, 1999, which
included the effect of certain losses deferred into the next fiscal year (see
discussion below). This capital gain net income was entirely offset by
utilization of capital loss carryovers. Remaining capital loss carryovers
aggregated $160,249,659 at March 31, 1999 and are available to offset future
realized capital gain net income for Federal income tax purposes but will expire
if not utilized as follows: $114,024,403 at March 31, 2000; $17,962,753 at March
31, 2003; $20,841,730 at March 31, 2004; and $7,420,773 at March 31, 2005.
Internal Revenue Code regulations permits the Fund to defer into its next
fiscal year net capital losses or net long-term capital losses incurred between
each November 1 and the end of its fiscal year ("post-October losses"). From
November 1, 1998 through March 31, 1999, the Fund incurred net capital losses of
$6,717,770, which have been deferred to the fiscal year ending March 31, 2000.
NOTE 5 -- Multiclass Operations
On July 31, 1995, the Fund was authorized to offer 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.
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.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United High Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United High Income Fund, Inc. (the "Fund") as of
March 31, 1999, and the related statement of operations for the fiscal year then
ended, the statements of changes in net assets for each of the two fiscal years
in the period then ended, and the financial highlights for each of the five
fiscal years in the period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of United
High Income Fund, Inc. as of March 31, 1999, the results of its operations for
the fiscal year then ended, the changes in its net assets for each of the two
fiscal years in the period then ended, and the financial highlights for each of
the five fiscal years in the period then ended, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
25
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits:
(a) Articles of Incorporation, as amended, filed by EDGAR on 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 by EDGAR on 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 by EDGAR on June 1, 1995 as
EX-99.B1-hiarsup2 to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
(b) Bylaws, as amended, filed by EDGAR on June 27, 1996 as
EX-99.B2-hibylaw to Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 30, 1999 as
EX-99.B(b)hibylaw2 to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement, filed by EDGAR on 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 by EDGAR on June 1,
1995 as EX-99.B5-hiassign to Post-Effective Amendment No. 24 to
the Registration Statement on Form N-1A*
Fee schedule (Exhibit A) to the Investment Management Agreement,
as amended, attached hereto as EX-99.B(d)hiimafee
(e) Underwriting Agreement, filed by EDGAR on June 1, 1995 as
EX-99.B6-hiua to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on April 30, 1999
as EX-99.B(g)-hica to Post-Effective Amendment No. 28 to the
Registration Statement on Form N-1A*
<PAGE>
(h) Shareholder Servicing Agreement, as amended, filed by EDGAR on
April 30, 1999 as EX-99.B(h)-hissa to Post-Effective Amendment No.
28 to the Registration Statement on Form N-1A*
Fund Class A application, as amended, filed by EDGAR on May 30,
1997 as EX-99.B9-hiappca to Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A*
Fund Class Y application, filed by EDGAR on 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, filed by EDGAR on June 27, 1996
as EX-99.B9-hilou to Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A*
Fund NAV application, filed by EDGAR on 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 by EDGAR on June 1, 1995 as
EX-99.B9-hiasa to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
Service Agreement filed by EDGAR on 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, filed by EDGAR on June 1, 1995 as
EX-99.B9-hisaa1 to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
Amendment to Service Agreement, filed by EDGAR on June 1, 1995 as
EX-99.B9-hisaa2 to Post-Effective Amendment No. 24 to the
Registration Statement on Form N-1A*
(i) Opinion and Consent of Counsel, attached hereto as
EX-99.B(i)hilegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B(j)-hiconsnt
(k) Not applicable
(l) Not applicable
(m) Service Plan, filed by EDGAR on June 1, 1995 as EX-99.B15-hispca
to Post-Effective Amendment No. 24 to the Registration Statement
on Form N-1A*
Distribution and Service Plan for Class A shares filed by
<PAGE>
EDGAR on June 29, 1998 as EX-99.B15-hidsp to Post-Effective
Amendment No. 27 to the Registration Statement on Form N-1A*
(n) Not applicable
(o) Multiple Class Plan, filed by EDGAR on June 27, 1996 as
EX-99.B18-himcp to Post-Effective Amendment No. 25 to the
Registration Statement on Form N-1A*
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. 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.
26. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment and to other investment advisory clients.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant. The address of the officers is
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200.
<PAGE>
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
27. 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.
United Asset Strategy Fund, Inc.
Waddell & Reed Funds, Inc.
Advantage I
Advantage II
Advantage Plus
(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.
28. 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. Kristen A. Richards, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
29. Management Services
-------------------
There is no service contract other than as discussed in Parts A and B of
<PAGE>
this Post-Effective Amendment and listed in response to Items 23.(h) and
23.(m) hereof.
30. Undertakings
------------
Not applicable
- ---------------------------------
*Incorporated herein by reference
<PAGE>
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.,
TARGET/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, HELGE K. LEE and KRISTEN A. RICHARDS, 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: May 19, 1999 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
<TABLE>
<S> <C> <C>
/s/Keith A. Tucker Chairman of the Board May 19, 1999
- ------------------- -------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal May 19, 1999
- -------------------- Financial Officer and -------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and May 19, 1999
- -------------------- Director -------------
Henry J. Herrmann
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Theodore W. Howard Vice President, Treasurer May 19, 1999
- -------------------- and Principal Accounting -------------
Theodore W. Howard Officer
/s/James M. Concannon Director May 19, 1999
- -------------------- -------------
James M. Concannon
/s/John A. Dillingham Director May 19, 1999
- -------------------- -------------
John A. Dillingham
/s/David P. Gardner Director May 19, 1999
- ------------------- -------------
David P. Gardner
/s/Linda K. Graves Director May 19, 1999
- -------------------- -------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director May 19, 1999
- -------------------- -------------
Joseph Harroz, Jr.
/s/John F. Hayes Director May 19, 1999
- -------------------- -------------
John F. Hayes
/s/Glendon E. Johnson Director May 19, 1999
- -------------------- -------------
Glendon E. Johnson
/s/William T. Morgan Director May 19, 1999
- -------------------- -------------
William T. Morgan
/s/Ronald C. Reimer Director May 19, 1999
- -------------------- -------------
Ronald C. Reimer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/Frank J. Ross, Jr. Director May 19, 1999
- -------------------- -------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director May 19, 1999
- -------------------- -------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director May 19, 1999
- -------------------- -------------
Frederick Vogel III
</TABLE>
Attest:
/s/Kristen A. Richards
- --------------------------------
Kristen A. Richards
Assistant Secretary
<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 28th day of June, 1999.
UNITED HIGH INCOME FUND, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/s/Keith A. Tucker* Chairman of the Board June 28, 1999
- ---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal June 28, 1999
- ---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and June 28, 1999
- ---------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer June 28, 1999
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director June 28, 1999
- ------------------ ----------------
James M. Concannon
/s/John A. Dillingham* Director June 28, 1999
- ------------------ ----------------
John A. Dillingham
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/David P. Gardner* Director June 28, 1999
- ------------------ ----------------
David P. Gardner
/s/Linda K. Graves* Director June 28, 1999
- ------------------ ----------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director June 28, 1999
- ------------------ ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director June 28, 1999
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director June 28, 1999
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director June 28, 1999
- ------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director June 28, 1999
- ------------------ ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director June 28, 1999
- ------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director June 28, 1999
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 28, 1999
- ------------------- ----------------
Frederick Vogel III
</TABLE>
*By
Helge K. Lee
<PAGE>
Attorney-in-Fact
ATTEST:
Kristen A. Richards
Assistant Secretary
EX-99.B(d)hiimafee
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED HIGH INCOME FUND, INC.
FEE SCHEDULE
A cash fee computed each day on net asset value for the Fund at the annual rates
listed below:
<TABLE>
<CAPTION>
Net Assets Fee
- ---------- ----
<S> <C>
Up to $500 million 0.625% of net assets
Over $500 million and up to $1 billion 0.60% of net assets
Over $1 billion and up to $1.5 billion 0.55% of net assets
Over $1.5 billion 0.50% of net assets
</TABLE>
As Amended and Effective June 30, 1999.
EX-99.B(i)hilegopn
June 28, 1999
United High Income Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: United High Income Fund, Inc.
Post-Effective Amendment No. 29
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of United High
Income Fund, Inc. (the "Fund"), I have examined such corporate records and
documents and have made such further investigation and examination as I deemed
necessary for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
Helge K. Lee
General Counsel
HKL/fr
EX-99.B(j)-hiconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 29 to Registration
Statement No. 2-63643 of United High Income Fund, Inc. on Form N-1A of our
report dated May 7, 1999 appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the caption "Financial
Highlights" in such Prospectus.
Deloitte & Touche LLP
Kansas City, Missouri
June 24, 1999
