<PAGE>
File No. 33-715
File No. 811-4427
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. 16
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 16
UNITED MUNICIPAL HIGH INCOME FUND, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on December 31, 1994 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a) of Rule 485
_____ 75 days 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 ended September 30, 1994 was filed November
22, 1994.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
=======================================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Summary of Expenses
(b) ..................... *
(c) ..................... *
3(a) ..................... Financial Highlights
(b) ..................... Financial Highlights
(c) ..................... Performance Information
(d)...................... Financial Highlights
4(a) ..................... What is United Municipal High Income Fund,
Inc.?; Goal and Investment Policies of the
Fund
(b) ..................... Goal and Investment Policies of the Fund
(c) ..................... Goal and Investment Policies of the Fund
5(a) ..................... What is United Municipal High Income Fund,
Inc.?
(b)...................... Management and Services; Inside Back Cover
(c) ..................... Management and Services
(d) ..................... Management and Services; Inside Back Cover
(e) ..................... Management and Services; Inside Back Cover
(f) ..................... Management and Services
(g)(i)................... *
(g)(ii).................. Management and Services
5A........................ **
6(a) ..................... What is United Municipal High Income Fund,
Inc.?
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... Management and Services
(f)...................... Dividends, Distributions and Taxes
(g) ..................... Dividends, Distributions and Taxes
7(a) ..................... Management and Services; Inside Back Cover
(b) ..................... Purchase of Shares
(c) ..................... Purchase of Shares
(d) ..................... Purchase of Shares
(e) ..................... *
(f) ..................... Management and Services
8(a) ..................... Redemption
(b) ..................... *
(c) ..................... Redemption
(d) ..................... Redemption
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Objective and Policies of the Fund
(b) ..................... Investment Objective and Policies of the Fund
(c) ..................... Investment Objective and Policies of the Fund
(d) ..................... Investment Objective and Policies of the Fund
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... *
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ Performance Information
(b)(iv) ................. Performance Information
23 ........................ ***
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
***Included in Prospectus
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
- -----------------------------------------------------------------
December 31, 1994
PROSPECTUS
- -----------------------------------------------------------------
United Municipal High Income Fund, Inc. (the "Fund") is an open-end
diversified management investment company. Its goal is to provide a high
level of income to shareholders which is not subject to Federal income
taxation. There is no assurance that the Fund will achieve its goal. The
securities offering the high income sought by the Fund are ordinarily in
the medium and lower rating categories of recognized rating agencies or are
unrated but if unrated are, in the opinion of the Manager, Waddell & Reed
Investment Management Company, of similar quality to rated municipal bonds
in these categories. They generally are subject to greater risks than
securities in the higher rating categories. Accordingly, investment in the
Fund is not suitable for all investors.
This Prospectus contains concise information about the Fund of
which you should be aware before investing. Additional information has
been filed with the Securities and Exchange Commission and is contained in
a Statement of Additional Information (the "SAI"), dated December 31, 1994.
You may obtain a copy of the SAI free of charge by request to the Fund or
Waddell & Reed, Inc., its Underwriter, at the address or telephone number
shown below. The SAI is incorporated by reference into this Prospectus and
you will not be aware of all facts unless you read both this Prospectus and
the SAI.
Investments in high-yield, high-risk securities (sometimes referred to
as "junk bonds") may entail risks that are different or more pronounced
than those involved in higher-rated securities. See "Risk Factors"
included in this Prospectus for a discussion of the risks associated with
non-investment grade securities.
Retain This Prospectus For Future Reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
Summary of Expenses
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Load Imposed on Purchases 4.25%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Management Fees 0.52%
12b-1 Fees* 0.09%
Other Expenses 0.15%
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)
Total Fund Operating Expenses 0.76%
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each
time period: $50 $66 $83 $133
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or lesser than
those shown.
*See "Management and Services" for further information about the 12b-1
service fees.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP.
<TABLE>
<CAPTION>
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
period
from
For the fiscal year ended September 30, 1/21/86
--------------------------------------------------------------------------- through
1994 1993 1992 1991 1990 1989 1988 1987 9/30/86*
---- ---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.53 $5.23 $5.05 $4.85 $4.96 $4.84 $4.96 $5.22 $5.00
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income .34 .35 .36 .38 .39 .41 .43 .43 .30
Net realized and unrealized gain
(loss) on investments(0.34) .34 .18 .20 (0.11) .12 (0.09) (0.24) .22
----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ......... .00 .69 .54 .58 .28 .53 .34 .19 .52
Less distributions:
Dividends declared from net
investment income . (0.34) (0.35) (0.36) (0.38) (0.39) (0.41) (0.43) (0.43) (0.30)
Distribution from
capital gains ..... (0.07) (0.04) .00 .00 .00 .00 (0.03) (0.02) .00
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions .. (0.41) (0.39) (0.36) (0.38) (0.39) (0.41) (0.46) (0.45) (0.30)
----- ----- ----- ----- ----- ----- ----- ----- -----
End of period ...... $5.12 $5.53 $5.23 $5.05 $4.85 $4.96 $4.84 $4.96 $5.22
===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ....... 0.05% 13.77% 11.08% 12.35% 5.89% 11.38% 7.27% 3.57% 15.86%***
Net assets, end of period (000
omitted) ............$345,162 $329,373 $260,777 $224,945 $192,440 $168,838 $117,838 $72,403 $27,918
Ratio of expenses to average net
assets ............. 0.76% 0.70% 0.72% 0.77% 0.75% 0.75% 0.80% 0.86% 0.52%****
Ratio of net investment income to
average net assets . 6.39% 6.49% 7.08% 7.63% 7.97% 8.36% 8.76% 8.42% 5.97%
Portfolio turnover rate 26.26% 26.13% 54.18% 60.83% 27.31% 38.94% 44.49% 56.93% 115.91%
*The Fund's inception date is September 9, 1985; however, since the Fund did not have investment activity or incur
expenses prior to the date of public offering, the per-share data and ratios are for a capital share outstanding
for the period from January 21, 1986 (initial public offering) through September 30, 1986. On an annual basis,
the ratios of expenses and net investment income to average net assets would have been approximately 0.75% and
8.65%, respectively.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
***Annualized.
****Waddell & Reed, Inc. ("W&R"), the then investment manager, for the period from January 6, 1986 through September
30, 1986 voluntarily waived any management and shareholder service fees and paid Fund expenses to the extent
necessary to assure that on each day the Fund's total expenses did not exceed 1/365th of 0.75 of 1% of the Fund's
net assets. The ratio of expenses to average net assets shown in the table would have been 0.70% without this
assumption of expenses.
</TABLE>
Information regarding the performance of the Fund is contained in
the Fund's annual report to shareholders which may be obtained without
charge by request to the Fund at the address or phone number shown on the
front cover of this Prospectus.
<PAGE>
What is United Municipal High Income Fund, Inc.?
United Municipal High Income Fund, Inc. is a corporation organized
under Maryland law on September 9, 1985. It is an open-end diversified
management investment company commonly called a "mutual fund." The Fund
has a Board of Directors which has overall responsibility for the
management of its affairs. For the names of the Directors and other
information about them, see the SAI. The Fund has only one class of
shares. Each share has the same rights to dividends and to vote. Shares
are fully paid and nonassessable when bought. The Fund does not hold
annual meetings of shareholders; however, certain significant corporate
matters, such as the approval of a new investment advisory agreement or a
change in a fundamental investment policy, which require shareholder
approval, will be presented to shareholders at an annual or special meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding
not less than 25% of all shares entitled to vote at such meeting, provided
certain conditions stated in the Bylaws of the Fund are met. There will
normally be no meeting of shareholders for the purpose of electing
directors until such time as less than a majority of directors holding
office have been elected by shareholders, at which time the directors then
in office will call a shareholders' meeting for the election of directors.
To the extent that Section 16(c) of the Investment Company Act of 1940, as
amended, applies to the Fund, the directors are required to call a meeting
of shareholders for the purpose of voting upon the question of removal of
any director when requested in writing to do so by the shareholders of
record of not less than 10% of the Fund's outstanding shares.
Performance Information
From time to time Waddell & Reed, Inc. or the Fund may include
performance data in advertisements or in information furnished to present
or prospective shareholders. Fund performance may be shown by presenting
one or more performance measurements, including yield, total return and
performance rankings.
The Fund's yield is based on a 30-day period ending on a specific date
and is computed by dividing the Fund's net investment income per share
earned during the period by the Fund's maximum offering price per share on
the last day of the period. The Fund may also advertise or include in
information furnished to present or prospective shareholders its tax
equivalent yield, which is calculated by applying the stated income tax
rate to only the net investment income exempt from taxation, according to a
standard formula.
The Fund's total return is its overall change in value for the period
shown including the effect of reinvesting dividends and capital gains
distributions and any change in the net asset value per share. A
cumulative total return reflects the Fund's change in value over a stated
period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the cumulative total
return for a stated period if the Fund's performance had been constant
during each year of that period. Average annual total returns are not
actual year-by-year results and investors should realize that total returns
will fluctuate.
Standardized total return figures reflect payment of the maximum sales
charge. The Fund may also provide non-standardized performance information
which does not reflect deduction of such sales charge or which is for
periods other than those required to be presented or which differs
otherwise from standardized performance information. See the SAI for yield
and total return and methods of computation.
From time to time in advertisements and information furnished to
present or prospective shareholders the Fund may discuss its performance
rankings as published by recognized independent mutual fund statistical
services such as Lipper Analytical Services, Inc., or by publications of
general interest such as Forbes, Money, The Wall Street Journal, Business
Week, Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may
also compare its performance to that of other selected mutual funds or
selected recognized market indicators. Performance information may be
quoted numerically or presented in a table, graph or other illustration.
All performance information which the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
Goal and Investment Policies of the Fund
The goal of the Fund is to provide a high level of income which is not
subject to Federal income tax by investing in the medium and lower quality
"municipal bonds" which provide higher yields than bonds of higher quality.
This goal is a fundamental policy of the Fund and may not be changed
without the approval of shareholders. Municipal bonds are debt securities
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions,
agencies or instrumentalities the interest on which is exempt from Federal
income tax. See "Dividends, Distributions and Taxes" concerning the
alternative minimum tax ("AMT"). The Fund anticipates that not more than
one-half of the dividends it will pay to shareholders will be subject to
treatment as a preference item for AMT purposes. It is also a fundamental
policy of the Fund that during normal market conditions the Fund will not
purchase any securities unless thereafter at least 80% of its assets will
be invested in municipal bonds.
It is anticipated that during normal market conditions at least 75%
of the Fund's assets will be invested in medium and lower quality municipal
bonds which are bonds rated in the medium and lower categories of
recognized rating agencies or if unrated are, in the opinion of the Fund's
Manager, Waddell & Reed Investment Management Company (the "Manager"), of
similar quality to rated municipal bonds in these categories. Medium and
lower categories are Baa through C by Moody's Investors Services, Inc. or
BBB through D by Standard & Poor's Ratings Group ("S&P"). See Appendix A
to this Prospectus for a description of these rating categories. To
varying degrees, bonds within these rating categories may be considered
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. See "Risk Factors" for a
discussion of the risks associated with non-investment grade debt
securities. The Fund may invest in higher quality municipal bonds and have
less than 75% of its assets in medium and lower quality municipal bonds at
times when yield spreads are narrow and the higher yields do not justify
the increased risk and when there is a lack of medium and lower quality
issues in which to invest. This might result in a decrease in the Fund's
yield.
During normal market conditions, up to 20% of the Fund's assets may be
invested in a combination of debt securities other than municipal bonds
(referred to as "taxable obligations") and Debt Futures and Municipal Bond
Index Futures (defined below). The Manager may choose to invest in taxable
obligations under normal conditions in order to keep assets invested until
appropriate investments in municipal bonds may be made and may hold such
obligations in connection with investment in futures. Income from taxable
obligations and capital gains from Debt Futures and Municipal Bond Index
Futures will be subject to Federal income tax.
Municipal bonds are issued by a wide range of governments, agencies
and authorities for various public purposes. The types of municipal bonds
in which the Fund may invest are "general obligation" bonds and "revenue"
bonds and certain "industrial development" bonds. Industrial development
bonds are revenue bonds issued by or on behalf of public authorities to
obtain funds to finance privately operated facilities. Their credit
quality is generally dependent on the credit standing of the company
involved.
Municipal obligations in which the Fund may invest also include
municipal lease obligations and participations in these obligations
(collectively, "lease obligations") of municipal authorities or entities.
The Manager determines liquidity of lease obligations in accordance with
guidelines established by the Fund's Board of Directors. Unrated municipal
lease obligations will be considered to be illiquid. In determining the
credit quality of unrated municipal lease obligations, one of the factors,
among others, to be considered will be the likelihood that the lease will
not be canceled. Certain "non-appropriation" lease obligations may present
special risks because the municipality's obligation to make future lease or
installment payments depends on money being appropriated each year for this
purpose. See the SAI for further information about lease obligations.
Municipal bonds vary widely as to interest rates, degree of security
and maturity. Factors which affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size
of a particular offering, the maturity of the obligation and the nature of
the issue.
The municipal bonds and taxable obligations which the Fund may
purchase are debt securities which go up and down in value depending in
large part on changes in prevailing interest rates. If interest rates go
up after the Fund buys a debt security, the value of that security may go
down; if interest rates go down the security value may go up. Debt
securities with longer maturities, which may produce higher yields, may go
up or down more than debt securities which have shorter maturities. The
Fund holds securities with varying maturities but under normal market
conditions will be substantially invested in bonds with maturities of 10 to
30 years. Changes in the values of the debt securities which the Fund owns
will affect its net asset value per share, but will not affect the income
the Fund receives.
The ability of the governments, agencies, companies or others to pay
principal and interest on debt securities held by the Fund may change.
Such changes, actual or expected, may also affect the value of these debt
securities. If interest is not in fact paid, the level of income the Fund
receives and the value of Fund shares may be affected; if principal is not
paid, only the value of Fund shares would be affected.
The Fund may invest 25% or more of its assets in industrial
development bonds. Certain risks are associated with industrial
development bonds as discussed further in the SAI. When market conditions
dictate, the Fund may have 25% or more of its assets in securities the
interest upon which is paid from revenues of similar type projects. As a
fundamental policy, it will not, however, have more than 25% of its assets
in industrial development bonds issued for any one industry or in any one
state. The Fund will not purchase an industrial development bond if it
would then have more than 5% of its assets invested in industrial
development bonds of companies with less than three years operating
history. Economic, business or political development or change affecting
such securities could have a greater effect than if a smaller percentage
were invested in such projects or in different types of projects. See the
SAI for examples of the types of projects in which the Fund may invest from
time to time and for a discussion of the risks associated with such
projects.
The only taxable obligations which the Fund may purchase are (i)
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities; (ii) bank obligations of domestic banks or savings and
loan associations which are subject to regulation by the U.S. Government,
including certificates of deposit and acceptances; (iii) commercial paper;
and (iv) repurchase agreements.
The Fund may purchase and write (sell) listed options on domestic debt
securities (including, without limitation, securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities) and on municipal
bond indices. Exchange-listed options on securities and on municipal bond
indices are issued by the Options Clearing Corporation.
The Fund may write options on securities for the purpose of increasing
income (which would be taxable) in the form of premiums paid by the
purchaser of the option. While writing calls may result in realization of
income, the Fund will lose the opportunity to profit from an increase in
the price of the security subject to the call over the exercise price. In
writing puts, the Fund assumes the risk of loss should the market value of
the underlying security decline below the exercise price at which the Fund
is obligated to purchase the security. The Fund will write a put only when
it has determined that it would be willing to purchase the underlying
security at the exercise price.
The Fund may purchase calls to take advantage of an expected rise in
the market value of securities that the Fund does not hold in its portfolio
and to close positions in calls it has written. It may purchase puts on
related investments it owns ("protective puts") or on related investments
it does not own ("nonprotective puts"). Buying a protective put permits
the Fund to protect itself during the put period against a decline in the
value of the related investments below the exercise price by selling them
through the exercise of the put. Buying a nonprotective put permits the
Fund, if the market price of the related investments is below the put price
during the put period, either to resell the put or to buy the related
investments and sell them at the exercise price. The Fund may also
purchase puts to close positions in puts it has written. If an option
purchased by the Fund is not exercised or sold, it will become worthless at
its expiration date and the Fund will lose the amount of the premium it
paid.
The Fund may also purchase and write (sell) listed options on
municipal bond indices. It may write options on municipal bond indices to
generate income (which would be taxable). It may also purchase calls on
municipal bond indices to hedge against an anticipated increase in the
price of securities it wishes to acquire and may purchase puts on municipal
bond indices to hedge against an anticipated decline in the market value of
its portfolio securities. Because municipal bond index options are settled
in cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on a municipal bond index by holding
the underlying securities. The Fund bears the risk that the value of the
securities it holds will vary from the value of the index.
Options offer large amounts of leverage, which will result in the
Fund's net asset value being more sensitive to changes in the value of the
related investment. There is no assurance that a liquid secondary market
will exist for exchange-listed options. If the Fund is not able to enter
into a closing transaction on an option it has written, it will be required
to maintain the securities or collateral used to "cover" the Fund's
obligations under such option until a closing transaction can be entered
into or the option expires.
For the purpose of hedging the value of the municipal bonds and
taxable obligations held by the Fund from the potentially adverse
consequences of changes in interest rates, the Fund may also buy and sell
futures contracts on domestic debt securities ("Debt Futures"), futures
contracts on municipal bond indices ("Municipal Bond Index Futures") and
options on Debt Futures.
Since futures contracts and options thereon can replicate movements
in the cash markets for the securities in which the Fund invests without
the large cash investments required for dealing in such markets, they may
subject the Fund to greater and more volatile risks than might otherwise be
the case. The principal risks associated with the use of such instruments
are (i) imperfect correlation between movements in the market price of the
portfolio investments (held or intended to be purchased) being hedged and
in the price of the futures contract or option; (ii) possible lack of a
liquid secondary market for closing out futures contract or options
positions; (iii) the need for additional portfolio management skills and
techniques; and (iv) losses due to unanticipated market price movements.
For a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security being hedged.
Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is
being hedged. The Manager will attempt to create a closely correlated
hedge, but hedging activity may not be completely successful in eliminating
market value fluctuation. The ordinary spreads between prices in the cash
and futures markets (including the options on futures market), due to the
differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate or market trends by the Manager may still not result in a
successful transaction. The Manager may be incorrect in its expectations
as to the extent of various interest rate or bond market movements or the
time span within which the movements take place. Gains and losses on
investments in options and futures contracts depend on the Manager's
ability to predict correctly the direction of stock prices, interest rates
and other economic factors. See the SAI for further information about
these instruments and their risks.
Options and futures transactions may increase the Fund's portfolio
turnover rate, creating greater commissions expenses, transaction costs and
tax consequences.
From time to time during unusual market conditions the Manager may
believe that a temporary defensive position is desirable due to present or
anticipated market or economic conditions which are affecting or could
adversely affect the values of municipal bonds. During such periods, the
Fund may invest up to all of its assets in taxable obligations which would
result in a higher proportion of the Fund's income being subject to Federal
income taxes.
The Fund may also purchase municipal bonds on a when-issued basis and
will do so in order to secure an advantageous price and yield at the time
of entering into the transaction. These bonds are subject to market value
fluctuation until delivery and payment is completed so it is possible that
their value when delivered may be less than the price paid. See the SAI
for additional information on the characteristics of these bonds.
For the purpose of increasing income the Fund may purchase securities
subject to repurchase agreements which can be considered as collateralized
loans by the Fund. The income earned on repurchase agreements is subject
to Federal income tax. The majority of the repurchase transactions in
which the Fund would engage run from day to day and delivery pursuant to
the resale typically will occur within one to five days of the purchase.
The Fund's risk is limited to the ability of the vendor to pay the agreed-
upon sum upon the delivery date.
The Fund may buy shares of other investment companies which do not
redeem their shares, subject to the conditions stated in the SAI. It may
also have up to 10% of its net assets invested in certain illiquid
securities.
The Fund may purchase restricted securities, which are securities
that cannot freely be sold for legal or contractual reasons. Restricted
securities may be illiquid due to restrictions on their resale.
The Fund may invest in zero coupon securities. Although the Manager
does not believe that investing in such securities results in material
risks, such investing may affect the Fund's ability to meet its investment
objective or meet the requirements of Subchapter M of the Internal Revenue
Code.
Risk Factors
The market for high-yield, high-risk debt securities rated in the
medium and lower rating categories or unrated is relatively new and much of
its growth paralleled a long economic expansion, during which this market
involved a significant increase in the use of high-yield debt securities to
fund highly leveraged corporate acquisitions and restructurings.
Thereafter, this market was affected by a relatively high percentage of
defaults with respect to high-yield securities as compared with higher
rated securities. An economic downturn or increase in interest rates is
likely to have a greater negative effect on this market, the value of high-
yield debt securities in the Fund's portfolio, the Fund's net asset value
and the ability of the bonds' issuers to repay principal and interest, meet
projected business goals and obtain additional financing than on higher
rated securities. Yields on lower-rated municipal bonds may not currently
fully reflect the higher risks of such bonds. Therefore, the risk of
negative effect on their market value should interest rates increase or
credit quality concerns develop may be higher than has historically been
experienced. An investment in this Fund may be considered more speculative
than investment in shares of a fund which invests primarily in higher rated
debt securities.
Prices of high-yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments.
Debt securities with longer maturities, which may have higher yields, may
increase or decrease in value more than debt securities with shorter
maturities. Market prices of high-yield debt securities structured as zero
coupon or pay-in-kind securities are affected to a greater extent by
interest rate changes and may be more volatile than securities which pay
interest periodically and in cash. Where it deems it appropriate and in
the best interests of Fund shareholders, the Fund may incur additional
expenses to seek recovery on a debt security on which the issuer has
defaulted and to pursue litigation to protect the interests of security
holders of its portfolio companies.
Because the market for lower rated securities may be thinner and less
active than for higher rated securities, there may be market price
volatility for these securities and limited liquidity in the resale market.
Unrated securities are usually not as attractive to as many buyers as rated
securities are, a factor which may make unrated securities less marketable.
These factors may have the effect of limiting the availability of the
securities for purchase by the Fund and may also limit the ability of the
Fund to sell such securities at their fair value either to meet redemption
requests or in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high-yield
debt securities, especially in a thinly traded market. To the extent the
Fund owns or may acquire illiquid or restricted high-yield securities,
these securities may involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties. Changes
in values of debt securities which the Fund owns will affect its net asset
value per share. If market quotations are not readily available for the
Fund's lower rated or unrated securities, these securities will be valued
by a method that the Fund's Board of Directors believes accurately reflects
fair value. Valuation becomes more difficult and judgment plays a greater
role in valuing high-yield debt securities than with respect to securities
for which more external sources of quotations and last sale information are
available.
New and proposed laws may have an impact on the market for high-
yield debt securities. Special tax considerations are associated with
investing in high-yield debt securities structured as zero coupon or pay-
in-kind securities. See "Taxes" in the SAI.
While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with
using credit ratings. Credit ratings evaluate the safety of principal and
interest payments, not market value risk. Credit rating agencies may fail
to timely change the credit ratings to reflect subsequent events; however,
the Manager continuously monitors the issuers of high-yield debt securities
in its portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. Achievement of the Fund's investment objective may be more
dependent upon the Manager's credit analysis than is the case for higher
quality debt securities. Credit ratings for individual securities may
change from time to time and the Fund may retain a portfolio security whose
rating has been changed.
During the Fund's fiscal year ended September 30, 1994, the
percentage of the Fund's assets invested in debt securities in each of the
rating categories of S&P, and the debt securities not rated by an
established rating service, determined on a dollar weighted average, were
as follows:
Rated by Percentage of
S&P Fund Assets
-------- -------------
AAA 2.5%
AA 0.5
A 3.4
BBB 31.0
BB 2.0
B 0.3
CCC 0.0
Unrated 57.3
-------
The percentage of assets in each category was calculated on the basis
of a monthly dollar weighted average. The monthly dollar weighted average
was calculated using the market value of the securities in the Fund's
portfolio at the end of each month in the thirteen-month period ended with
the Fund's last fiscal year, averaged over the Fund's last fiscal year.
The rating used for each security is that security's rating as of the end
of each month and, as ratings may change over time, does not necessarily
indicate past or future ratings of any particular security or the ratings
of securities in the portfolio in general. Asset composition of the Fund
by rating categories at any particular time does not necessarily indicate
future asset composition by rating categories.
The Fund's ability to invest more than 25% of its assets in municipal
bonds, the payment of principal and interest on which is derived from
revenue of similar projects, or in municipal bonds of issuers located in
the same geographic area may make the Fund more susceptible to the risks
associated with economic, political or regulatory occurrences which might
adversely affect particular projects or areas. The Fund's ability to
invest up to 25% of its assets in industrial revenue bonds issued for any
one industry may make the Fund susceptible to the risks associated with a
particular industry. See the SAI for further information concerning these
risks.
The primary risks associated with the use of futures contracts are:
(i) imperfect correlation between the change in the market value of the
securities held in the Fund's portfolio and the prices of futures contracts
purchased or sold by the Fund; (ii) incorrect forecasts by the Manager
concerning interest rate changes which may result in the hedge being
ineffective; and (iii) possible lack of a liquid secondary market for a
futures contract; the resulting inability to close a futures position could
adversely impact the Fund's hedging ability. For a hedge to be completely
effective, the price change of the hedging instrument should equal the
price change of the security being hedged. The risk of imperfect
correlation of these price changes increases as the composition of the
Fund's portfolio diverges from the debt securities underlying the future or
included in the index.
Management and Services
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of
Mutual Funds since 1940 or the inception of the investment company,
whichever was later, and to TMK/United Funds, Inc. since its inception. On
January 8, 1992, subject to the authority of the Fund's Board of Directors,
Waddell & Reed, Inc. assigned its investment management duties (and
assigned its professional staff for investment management services) to
Waddell & Reed Investment Management Company, a wholly-owned subsidiary of
Waddell & Reed, Inc. The Manager has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free
Fund, Inc. since each commenced operations in February 1993. Waddell &
Reed, Inc. serves as the Fund's underwriter and as underwriter for each of
the investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. Waddell & Reed, Inc. is an
indirect subsidiary of Torchmark Corporation, a holding company, and United
Investors Management Company, a holding company, and a direct subsidiary of
Waddell & Reed Financial Services, Inc., a holding company.
Subject to authority of the Fund's Board of Directors, the Manager
provides investment advice and supervises investments for which it is paid
a fee consisting of two elements: (i) a "Specific" fee computed on the
Fund's net asset value as of the close of business each day at the annual
rate of .10 of 1% of net assets and (ii) a pro rata participation based on
the relative net asset size of the Fund in a "Group" fee computed each day
on the combined net asset values of all of the funds in the United Group at
the annual rates shown in the following table. The fee is accrued and paid
daily. Prior to the above-described assignment to the Manager on January
8, 1992, the fees were paid to Waddell & Reed, Inc.
Group Fee Rate
Group Net Asset Level Annual Group
(all dollars in millions) Fee Rate for Each Level
- ------------------------- -----------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc.,
acts as transfer agent ("Shareholder Servicing Agent") for the Fund and
processes the payments of dividends. See the SAI for the fees paid for
these services. Inquiries concerning shareholder accounts should be sent
to that company at the address shown on the inside back cover of this
Prospectus or to the Fund at the address shown on the front cover of this
Prospectus.
Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays the Accounting Services Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund may pay monthly a fee to
Waddell & Reed, Inc., the principal underwriter for the Fund, in an amount
not to exceed .25% of the Fund's average annual net assets. The fee is to
be paid to reimburse Waddell & Reed, Inc. for amounts it expends in
connection with the provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts. In particular, the Service
Plan and a related Service Agreement between the Fund and Waddell & Reed,
Inc. contemplate that these expenditures may include costs and expenses
incurred by Waddell & Reed, Inc. and its affiliates in compensating,
training and supporting registered sales representatives, sales managers
and/or other appropriate personnel in providing personal services to Fund
shareholders and/or maintaining shareholder accounts; increasing services
provided to Fund shareholders by office personnel located at field sales
offices; engaging in other activities useful in providing personal services
to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers, and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. See the SAI for additional information and terms of
the Service Plan.
The combined net asset values of all of the funds in the United Group
were approximately $11.2 billion on September 30, 1994. Management fees
for the fiscal year ended September 30, 1994 were 0.52% of the Fund's
average net assets. The Fund's total expenses for that year were 0.76% of
the average net assets.
The Manager places transactions for the Fund's portfolio and in doing
so may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions. See
the SAI for further information.
John M. Holliday is primarily responsible for the day-to-day
management of the portfolio of the Fund. Mr. Holliday has held his Fund
responsibilities since the Fund's inception. He is Senior Vice President
of the Manager and Senior Vice President of Waddell & Reed Asset Management
Company, an affiliate of the Manager. He is Vice President of the Fund and
Vice President of other investment companies for which the Manager serves
as investment manager. Mr. Holliday has served as the portfolio manager
for investment companies managed by Waddell & Reed, Inc. or the Manager
since August 1979 and has been an employee of Waddell & Reed, Inc. or its
successor, the Manager, since April 1978. Other members of the Manager's
investment management department provide input on market outlook, economic
conditions, investment research and other considerations relating to the
Fund's investments.
Dividends, Distributions and Taxes
Dividends are declared daily from net investment income, which
includes accrued interest, earned discount (both original issue discount
and, if the Fund so elects, market discount on municipal securities
purchased after April 30, 1993) and other income earned on portfolio
securities less expenses. Ordinarily, dividends are paid on the 27th day
of each month or on the last business day prior to the 27th if the 27th
falls on a weekend or a holiday. When shares are redeemed, any declared
but unpaid dividends on those shares will be paid with the next regular
dividend payment and not at the time of redemption. The Fund also
distributes substantially all of its net capital gains (the excess of net
long-term capital gains over net short-term capital losses) and net short-
term capital gains, if any, after deducting any available capital loss
carryovers, with its regular dividend at the end of the calendar year. The
Fund may make additional distributions if necessary to avoid Federal income
or excise taxes on certain undistributed income and capital gains.
You have the option to receive dividends and distributions in cash, to
reinvest them without charge or to receive dividends in cash and reinvest
distributions, as you may instruct. In the absence of instructions,
dividends and distributions will be reinvested.
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986 so that it will
be relieved of Federal income tax on that part of its investment company
taxable income (consisting generally of taxable net investment income and
net short-term capital gains) and net capital gains that is distributed to
its shareholders. In addition, the Fund intends to continue to qualify to
pay "exempt-interest" dividends, which requires, among other things, that
at the close of each quarter of its taxable year at least 50% of the value
of its total assets must consist of municipal bonds.
Most of the distributions by the Fund will be designated by it as
exempt-interest dividends, which generally may be excluded by you from your
gross income. Dividends from the Fund's investment company taxable income
are taxable to you as ordinary income, to the extent of the Fund's earnings
and profits, whether received in cash or reinvested in additional Fund
shares. Distributions of the Fund's realized net capital gains, when
designated as such, are taxable to you as long-term gains, whether received
in cash or reinvested in additional Fund shares and regardless of the
length of time you have owned your shares. None of the dividends paid by
the Fund is expected to be eligible for the dividends-received deduction
allowed to corporations. The Fund notifies you after each calendar year-
end as to the amounts and status of dividends and distributions paid (or
deemed paid) to you for that year.
Dividends exempt from Federal income tax may be subject to income
taxation under state and local tax laws.
The Tax Reform Act of 1986 eliminated the availability of tax-exempt
financing for certain functions and limited the availability of such
financing for certain other functions. This has resulted in a decrease in
the number of tax-exempt issues in which the Fund may invest. Interest on
indebtedness incurred or continued to purchase or carry Fund shares will
not be deductible for Federal income tax purposes to the extent the Fund's
distributions consist of exempt-interest dividends.
The Fund may invest in private activity bonds ("PABs") the interest
on which is treated as a tax preference item for purposes of determining
your liability for the AMT. If you may be subject to the AMT, you should
consult with your tax adviser concerning investment in the Fund. The Fund
provides you with information concerning the amount of distributions
subject to the AMT after the end of each calendar year.
Entities or other persons who are "substantial users" (or persons
related to "substantial users") of facilities financed by PABs should
consult their tax adviser before purchasing Fund shares because, for users
of certain of these facilities, the interest on PABs is not exempt from
Federal income tax. For these purposes, the term "substantial user" is
defined generally to include a "non-exempt person" who regularly uses in
trade or business a part of a facility financed from the proceeds of PABs.
Proposals may be introduced before Congress for the purpose of
restricting or eliminating the Federal income tax exemption for interest on
municipal bonds. If such a proposal were enacted, the availability of
municipal bonds for investment by the Fund and the value of its portfolio
would be affected. In such event, the Fund would reevaluate its investment
objective and policies.
The Fund is required to withhold 31% of all taxable dividends, capital
gains distributions and redemption proceeds payable to you if you are an
individual or certain other noncorporate shareholder and do not furnish the
Fund with a correct taxpayer identification number. Withholding at that
rate from taxable dividends and capital gains distributions also is
required if you otherwise are subject to backup withholding.
Your redemption of Fund shares will result in taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than
your adjusted basis for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other
fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within 90 days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day
reinvestment privilege or exchange privilege. In these cases, any gain on
the disposition of the Fund shares would be increased, or loss decreased,
by the amount of the sales charge you paid when those shares were acquired,
and that amount will increase the adjusted basis of the shares subsequently
acquired. In addition, if you purchase Fund shares within thirty days
after redeeming other Fund shares at a loss, all or part of that loss will
not be deductible and will increase the basis of the newly purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the
SAI for a further discussion. There may be other Federal, state or local
tax considerations applicable to a particular investor; for example,
exempt-interest dividends paid by the Fund may be partially or wholly
taxable under some state and local laws. You are urged to consult your own
tax adviser.
Purchase of Shares
You may purchase shares through Waddell & Reed, Inc. and its sales
representatives. To open an account you must complete an application.
Orders are accepted only at the home office of Waddell & Reed, Inc. (see
inside back cover of this Prospectus for address), and it need not accept
any orders. The offering price of a share is its net asset value next
determined following acceptance plus the sales charge shown in the table
below. This net asset value per share is the value of the Fund's assets,
less liabilities, divided by the number of shares outstanding. Net asset
value is determined once each day as of the later of the close of the
regular session of the New York Stock Exchange or the close of the regular
session of any domestic securities or commodities exchange on which a
future or option held by the Fund is traded on each day the New York Stock
Exchange is open. The Fund's portfolio securities are valued according to
the prices quoted by a dealer in bonds which offers a pricing service for
valuation of municipal bonds or, if not available, at their fair value in a
manner determined in good faith by the Board of Directors. Short-term debt
securities are valued at amortized cost which approximates market value.
Other assets are valued at their fair value.
Sales Charge
Sales Charge as Approximate
as Percent of Percent of
Size of Purchase Offering PriceAmount Invested
Under $100,000 ...................... 4.25% 4.44%
$ 100,000 to less than $ 300,000 .. 3.25 3.36
300,000 to less than 500,000 .. 2.50 2.56
500,000 to less than 1,000,000 .. 1.75 1.78
1,000,000 to less than 2,000,000 .. 1.00 1.01
2,000,000 and over ................. 0.00 0.00
Ordinarily, the minimum initial investment is $500. A $100 minimum
initial investment pertains to certain exchanges of shares from other funds
in the United Group. A $50 minimum initial investment pertains to accounts
for which an investor has arranged, at the time of initial investment, to
make subsequent purchases for the account through automatic bank
withdrawals, as described below.
A shareholder may arrange with Waddell & Reed, Inc. to purchase shares
by having regular monthly withdrawals of $25 or more made from a bank
account. A shareholder may also arrange with Waddell & Reed, Inc. to
purchase shares by having regular monthly exchanges of shares with a value
of $25 or more made from United Cash Management, Inc., subject to certain
conditions explained in the SAI.
Lower sales charges are available by combining additional purchases of
the Fund, United Municipal Bond Fund, Inc. and United Government Securities
Fund, Inc. with the net asset value of shares already held ("rights of
accumulation") and by grouping all purchases made during a thirteen-month
period ("Statement of Intention"). Purchases by certain related persons
may be grouped. Shares of the Fund held for at least six months may be
exchanged for shares of another fund in the United Group (listed on the
back cover of this Prospectus), unless the exchange is for shares of United
Government Securities Fund, Inc. or United Municipal Bond Fund, Inc. or
unless the Fund shares were acquired by reinvestment of a dividend or
distribution, in which cases there is no holding period. There are no
sales charges on such exchanges. Subject to certain conditions, automatic
monthly exchanges of shares of United Cash Management, Inc. may be made
into any other fund in the United Group (listed on the back cover of this
Prospectus). These exchange privileges may be eliminated or modified at
any time, upon notice in certain instances. Information as to rights of
accumulation, Statements of Intention, grouping by related persons,
exchange privileges, and Flexible Withdrawal Service is contained in the
SAI. Applicable forms are available from Waddell & Reed, Inc.'s
representatives.
Fund shares may be purchased at net asset value by the Directors and
officers of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, sales representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and sales representative. Purchases in certain
trusts for these persons may also be made at net asset value. Shares may
also be issued at net asset value in a merger, acquisition or exchange
offer made pursuant to a plan of reorganization to which the Fund is a
party. See the SAI for additional information.
Redemption
You have the right to sell your shares back to the Fund (redeem) at
any time by sending a written request to the address on the front cover of
this Prospectus, stating how many shares or the amount in dollars you wish
to redeem. The written request must be in good order which requires that
if more than one person owns the shares, each owner must sign the written
request. If you hold a certificate, it must be properly endorsed and sent
to the Fund. The Fund reserves the right to require a signature guarantee
by a national bank, a federally chartered savings and loan or a member firm
of a national stock exchange or other eligible guarantor in accordance with
procedures of the Fund's transfer agent in certain situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary, or the redemption request is made by, or redemption proceeds are
payable to, someone other than the owner of record. If you recently
purchased the shares by check, the payment of redemption proceeds on these
shares may be delayed. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption proceeds
on these shares will be delayed until the earlier of 10 days or when the
Fund has been able to verify that your purchase check has cleared and been
honored.
The Fund will redeem your shares at their net asset value (which may
be more or less than what you paid) next computed after receipt of your
written request for redemption in good order at the Fund's address shown on
the front cover of this Prospectus. Payment is made within seven days,
unless delayed because of emergency conditions determined by the Securities
and Exchange Commission, when the New York Stock Exchange is closed (other
than on weekends and holidays) or when trading on the Exchange is
restricted. Payment is made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
You may reinvest in the Fund all or part of the amount you redeemed
without charge by sending to the Fund the amount you wish to reinvest. The
reinvested amounts must be received within thirty days after the date of
your redemption. You may do this only once as to Fund shares.
The Fund reserves the right to redeem at net asset value all shares
owned by a particular shareholder in the Fund having an aggregate net asset
value less than $500. The Fund will give the shareholder notice of
intention to redeem and a 60-day opportunity to purchase a sufficient
number of additional shares to bring the net asset value of his or her
shares in the Fund to $500. See the SAI for further information.
Information concerning the establishment of automatic payments from
an account is available from sales representatives of Waddell & Reed,
Inc.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities
which the Fund may use. The Fund may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate or
municipal bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished to Standard
& Poor's by the issuer or obtained by Standard & Poor's from other sources
it considers reliable. Standard & Poor's does not perform any audit in
connection with any ratings and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended or withdrawn
as a result of changes in, or unavailability of, such information, or based
on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal
in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors'
rights.
A brief description of the applicable Standard & Poor's rating
symbols and their meanings follow:
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to
pay interest and repay principal is very strong and debt rated AA differs
from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as
having predominantly speculative characteristics with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the
applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace periods. The D rating
will also be used upon a filing of a bankruptcy petition if debt service
payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of
credit quality, the ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
NR -- Indicates that no public rating has been requested, that
there is insufficient information on which to base a rating, or that
Standard & Poor's does not rate a particular type of obligation as a matter
of policy.
Debt Obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories (AAA, AA, A, BBB, commonly known as "Investment Grade"
ratings) are generally regarded as eligible for bank investment. In
addition, the Legal Investment Laws of various states governing legal
investments may impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
Moody's Investors Service. A brief description of the applicable
Moody's Investors Service rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the
rating.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect
to principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity factors and
market access risks unique to notes. Notes maturing in 3 years or less
will likely receive a note rating. Notes maturing beyond 3 years will most
likely receive a long-term debt rating. The following criteria will be
used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the
term of the note.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings -- Moody's ratings for state and
municipal short-term obligations will be designated Moody's Investment
Grade (MIG). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Factors affecting the liquidity
of the borrower are uppermost in importance in short-term borrowing, while
various factors of major importance in bond risk are of lesser importance
over the short run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security
elements are accounted for but this is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific
risk.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALABAMA - 1.49%
The Medical Clinic Board of the City of
Birmingham-North, Revenue Bonds, Series
1991-A (Carraway Methodist Hospitals Project),
7.5%, 7-1-2015 ........................ $2,000 $ 2,050,000
The Colbert County-Northwest Alabama Health
Care Authority, Hospital Revenue Bonds,
Helen Keller Hospital, Series 1990,
8.75%, 6-1-2009 ....................... 1,000 1,093,750
The Medical Clinic Board of the City of Ozark,
Alabama, First Mortgage Revenue Bonds (United
States Health & Housing Foundation, Inc.
Project), Series 1988-A,
10.0%, 10-1-2015 ...................... 1,000 1,045,000
The Marshall County Health Care Authority,
Hospital Revenue Refunding Bonds,
Series 1992 (Guntersville-Arab
Medical Center),
7.0%, 10-1-2013 ....................... 1,000 970,000
Total ................................. 5,158,750
ALASKA - 0.98%
Alaska Industrial Development and Export
Authority, Refunding Revenue Bonds, Series
1989 (American President Lines Project),
8.0%, 11-1-2009 ....................... 1,820 1,901,900
Anchorage Parking Authority, Lease Revenue
Refunding Bonds, Series 1993 (5th Avenue
Garage Project),
6.75%, 12-1-2008 ...................... 1,500 1,490,625
Total ................................. 3,392,525
ARIZONA - 0.46%
The Industrial Development Authorities of
the City of Tucson, Arizona, and the
County of Pima, Subordinated Mortgage
Revenue Bonds, Series 1983B,
0.0%, 12-1-2016 ....................... 7,215 1,605,338
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ARKANSAS - 1.01%
Baxter County, Arkansas, Industrial
Development Revenue Refunding Bonds
(Aeroquip Corporation Project),
Series 1993,
5.8%, 10-1-2013 ....................... $2,000 $ 1,797,500
The Fayetteville Public Facilities Board,
Refunding and Improvement Revenue Bonds,
Series 1989A (Butterfield Trail Village
Project),
9.5%, 9-1-2014 ........................ 1,600 1,694,000
Total ................................. 3,491,500
CALIFORNIA - 3.17%
San Joaquin Hills Transportation Corridor
Agency (Orange County, California):
Junior Lien Toll Road Revenue Bonds,
0.0%, 1-1-2002 ........................ 2,755 1,687,438
Senior Lien Toll Road Revenue Bonds,
0.0%, 1-1-2011 ........................ 2,500 1,496,875
Huntington Beach Public Financing Authority
(Orange County, California), 1992 Revenue
Bonds (Huntington Beach Redevelopment
Projects),
7.0%, 8-1-2024 ........................ 3,000 2,921,250
Certificates of Participation (1991 Capital
Improvement Project), Bella Vista Water
District (California),
7.375%, 10-1-2017 ..................... 1,500 1,561,875
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2,
Refunding Tax Allocation Bonds,
Series 1993,
6.0%, 10-1-2016 ....................... 1,500 1,338,750
Central Valley Financing Authority,
Cogeneration Project Revenue Bonds
(Carson Ice-Gen Project), 1993 Series,
6.1%, 7-1-2013 ........................ 1,000 921,250
Inglewood Public Financing Authority,
1992 Revenue Bonds, Series C (In-Town,
Manchester-Prairie and North Inglewood
Industrial Park Redevelopment Projects-
Housing Set-Aside Loans),
7.0%, 5-1-2022 ........................ 900 905,625
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
CALIFORNIA (Continued)
Madera-Chowchilla Power Authority, California,
Floating Rate Bond,
3.3%, 9-1-2009 ........................ $ 95 $ 95,000
Total ................................. 10,928,063
COLORADO - 8.38%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1991A,
8.75%, 11-15-2023 ..................... 6,000 6,330,000
Series 1994A,
7.5%, 11-15-2023 ...................... 3,000 2,868,750
Colorado Health Facilities Authority:
Hospital Revenue Bonds (PSL Healthcare
System Project), Series 1991B,
8.5%, 2-15-2021 ....................... 3,000 3,255,000
Retirement Housing Revenue Bonds (Liberty
Heights Project), 1990 Series A Term Bonds,
10.0%, 7-1-2019 (A) ................... 1,500 975,000
City and County of Denver, Colorado,
Revenue Bonds (Jewish Community Centers
of Denver Project), Series 1994:
8.25%, 3-1-2024 ....................... 2,390 2,357,138
7.875%, 3-1-2019 ...................... 815 803,794
City of Colorado Springs, Colorado,
Airport System Revenue Bonds, Series 1992A,
7.0%, 1-1-2022 ........................ 2,200 2,208,250
City of Central, Gilpin County, Colorado:
General Obligation Water Bonds,
Series 1992,
7.5%, 12-1-2012 ....................... 1,500 1,496,250
Water Revenue Bonds, Series 1991,
8.625%, 9-15-2011 ..................... 500 521,250
Brush Creek Village Water District, Pitkin
County, Colorado, General Obligation
Water Bonds, Series 1990,
8.875%, 11-15-2009 .................... 1,500 1,796,250
Pitkin County, Colorado, Lease Purchase
Agreement, Certificates of Participation
(County Administration Building Project),
Series 1991,
7.4%, 10-1-2011 ....................... 1,500 1,569,375
Mountain Village Metropolitan District, San
Miguel County, Colorado, General
Obligation Refunding Bonds, Series 1992,
8.1%, 12-1-2011 ....................... 1,435 1,553,388
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
COLORADO (Continued)
Columbia Metropolitan District, Arapahoe
County, Colorado, General Obligation Bonds,
Series 1986,
9.5%, 12-1-2005 ....................... $1,165 $ 1,181,019
School District No. 20, El Paso County,
Colorado, General Obligation Refunding
Bonds, Series 1993A, Capital
Appreciation Bonds,
0.0%, 6-15-2008 ....................... 2,600 1,020,500
Arapahoe Water and Sanitation District,
Arapahoe County, Colorado, General
Obligation Refunding Bonds, Series 1988B,
9.25%, 12-1-2013 ...................... 1,000 1,001,250
Total ................................. 28,937,214
CONNECTICUT - 1.71%
Connecticut Development Authority, First
Mortgage Gross Revenue Health Care
Project Bonds, Church Homes, Inc.:
Congregational Avery Heights Project -
1990 Series,
9.0%, 4-1-2020 ........................ 2,500 2,687,500
Congregational Avery Nursing Facilities
Project - 1991 Series,
8.5%, 4-1-2021 ........................ 1,490 1,549,600
Eastern Connecticut Resource Recovery
Authority, Wheelabrator Technologies, Inc.,
5.5%, 1-1-2014 ........................ 2,000 1,665,000
Total ................................. 5,902,100
DISTRICT OF COLUMBIA - 1.48%
Certificates of Participation, Series 1993,
District of Columbia,
7.3%, 1-1-2013 ........................ 3,000 3,030,000
District of Columbia Revenue Bonds
(National Public Radio Issue),
Series 1992,
7.625%, 1-1-2013 ...................... 2,000 2,067,500
Total ................................. 5,097,500
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
FLORIDA - 2.12%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... $2,500 $ 2,215,625
Highlands County (Florida), Industrial
Development Authority, Industrial
Development Revenue Refunding Bonds
(Beverly Enterprises - Florida, Inc.
Project), Series 1991,
9.25%, 7-1-2007 ....................... 1,490 1,642,725
City of Fort Walton Beach, First Mortgage
Industrial Development Revenue Bonds,
Series 1986 (Ft. Walton Beach Ventures,
Inc. Project),
10.5%, 12-1-2016 ...................... 1,350 1,404,000
City of Winter Garden, Florida, Industrial
Development Revenue Refunding Bonds
(Beverly Enterprises-Florida, Inc. Project),
Series 1991,
8.75%, 7-1-2012 ....................... 1,000 1,082,500
The Lee County (Florida) Industrial
Development Authority, Economic Development
Revenue Refunding Bonds (Encore Nursing
Center Partners, Ltd.-85 Project),
Series 1992,
8.125%, 12-1-2007 ..................... 950 982,063
Total ................................. 7,326,913
GEORGIA - 1.35%
Hospital Authority of Savannah, Revenue
Refunding and Improvement Bonds
(Candler Hospital), Series 1992,
7.0%, 1-1-2011 ........................ 3,180 3,136,275
City of Atlanta, Special Purpose Facilities
Revenue Bonds, Series 1989B (Delta Air
Lines, Inc. Project),
7.9%, 12-1-2018 ....................... 1,500 1,518,750
Total ................................. 4,655,025
GUAM - 0.86%
Guam Airport Authority, General Revenue
Bonds, 1993 Series B,
6.6%, 10-1-2010 ....................... 3,000 2,966,250
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
IDAHO - 0.59%
Idaho Health Facilities Authority, Hospital
Revenue Refunding Bonds, Series 1992
(IHC Hospitals, Inc.), Indexed Inverse
Floating Rate Securities,
8.21%, 2-15-2021 ...................... $2,000 $ 2,035,000
ILLINOIS - 4.81%
City of Hillsboro, Montgomery County,
Illinois, General Obligation Bonds
(Alternate Revenue Source), Series 1991,
7.5%, 12-1-2021 ....................... 2,640 2,735,700
Illinois Health Facilities Authority,
Revenue Bonds, Series 1992A
(Fairview Obligated Group Project),
8.75%, 10-1-2002 ...................... 2,500 2,590,625
Illinois Development Finance Authority
Revenue Bonds, Series 1993C (Catholic
Charities Housing Development
Corporation Project),
6.1%, 1-1-2020 ........................ 2,500 2,253,125
Village of Hanover Park, Cook and DuPage
Counties, Illinois, First Mortgage
Revenue Bonds, Series 1989 (Windsor
Park Manor Project),
9.5%, 12-1-2014 ....................... 2,000 2,062,500
Village of Lansing, Illinois, Landings
Redevelopment Project Area, Tax Increment
Refunding Revenue Bonds (Limited Sales
Tax Pledge), Series 1992,
7.0%, 12-1-2008 ....................... 2,000 1,950,000
City of Blue Island, Cook County, Illinois,
Golf Course Revenue Bonds (Utility Tax
Pledge), Series 1992,
7.375%, 5-1-2014 ...................... 2,000 1,920,000
Village of Bourbonnais, Kankakee County,
Illinois, Sewerage Revenue Bonds,
Series 1993,
7.25%, 12-1-2012 ...................... 1,085 1,079,575
City of Loves Park, Illinois, First Mortgage
Revenue Bonds, Series 1989A (Hoosier Care,
Inc. Project),
9.75%, 8-1-2019 ....................... 1,025 1,049,344
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ILLINOIS (Continued)
City of Eureka, Woodford County, Illinois,
General Obligation Refunding Bonds
(Alternate Revenue Source), Series 1993,
6.25%, 7-1-2013 ....................... $1,000 $ 948,750
Total ................................. 16,589,619
INDIANA - 2.67%
Indiana Health Facility Financing Authority,
Hospital Revenue Bonds, Series 1990
(Hancock Memorial Hospital Project),
8.3%, 8-15-2020 ....................... 3,000 3,217,500
City of East Chicago, Indiana,
Pollution Control:
Refunding Revenue Bonds, Inland
Steel Company Project No. 10,
Series 1993,
6.8%, 6-1-2013 ........................ 2,000 1,917,500
Revenue Bonds, Inland Steel
Company Project No. 5,
Series 1977,
5.75%, 2-1-2007 ....................... 1,000 915,000
City of Carmel, Indiana, Retirement Rental
Housing Revenue Refunding Bonds (Beverly
Enterprises - Indiana, Inc. Project),
Series 1992,
8.75%, 12-1-2008 ...................... 1,500 1,627,500
Indiana Health Facility Financing
Authority, Hospital Revenue Bonds,
Series 1992 (Fayette Memorial Hospital
Project),
7.2%, 10-1-2022 ....................... 1,000 992,500
Indiana Housing Finance Authority, Residential
Mortgage Bonds, 1988 Series R-A,
0.0%, 1-1-2013 ........................ 2,525 542,875
Total ................................. 9,212,875
IOWA - 0.39%
City of Ottumwa, Iowa, Hospital Facility
Revenue Refunding and Improvement Bonds,
Series 1993 (Ottumwa Regional Health
Center, Incorporated),
6.0%, 10-1-2018 ....................... 1,550 1,334,938
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
KANSAS - 2.55%
Kansas Development Finance Authority,
Community Provider Loan Program (Community
Living Opportunities, Inc.), Series
1992A Revenue Bonds,
8.875%, 9-1-2011 ...................... $2,790 $ 2,929,500
Baldwin City, Kansas, Educational Facilities
Revenue Bonds (Baker University Project),
Series 1988,
9.5%, 10-1-2008 ....................... 2,000 2,102,500
City of Prairie Village, Kansas, Claridge
Court Project Revenue Bonds, Series 1993A:
8.5%, 8-15-2004 ....................... 1,000 976,250
8.75%, 8-15-2023 ...................... 1,000 973,750
Johnson County Park and Recreation District,
Johnson County, Kansas, Park and Recreation
Revenue Bonds, Series 1994A,
6.5%, 1-1-2019 ........................ 1,855 1,817,900
Total ................................. 8,799,900
KENTUCKY - 0.58%
County of Jefferson, Kentucky, Health
Facilities Revenue Refunding Bonds
(Beverly Enterprises Project),
Series 1985B,
9.75%, 8-1-2007 ....................... 900 999,000
County of Perry, Kentucky, Solid Waste
Disposal Revenue Bonds (TJ International
Project), Series 1994,
7.0%, 6-1-2024 ........................ 1,000 975,000
Total ................................. 1,974,000
LOUISIANA - 2.74%
Parish of St. Charles, State of Louisiana:
Environmental Revenue Bonds (Louisiana
Power & Light Company Project),
Series 1994-A,
6.875%, 7-1-2024 ...................... 2,750 2,688,125
Pollution Control Revenue Bonds
(Union Carbide Project),
Series 1992,
7.35%, 11-1-2022 ...................... 2,000 2,030,000
Board of Commissioners of the Port of New
Orleans, Industrial Development Revenue
Refunding Bonds (Continental Grain Company
Project), Series 1993,
7.5%, 7-1-2013 ........................ 2,000 1,962,500
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
LOUISIANA (Continued)
Parish of West Feliciana, State of Louisiana,
Pollution Control Revenue Bonds (Gulf
States Utilities Company Project),
Series 1984-II,
7.7%, 12-1-2014 ....................... $1,500 $ 1,573,125
LaFourche Parish Home Mortgage Authority,
Tax-Exempt Capital Appreciation Refunding
Bonds, Series 1990-B, Class B-2,
0.0%, 5-20-2014 ....................... 3,300 709,500
Parish of Pointe Coupee, Louisiana,
Pollution Control Revenue Refunding Bonds
(Gulf States Utilities Company Project),
Series 1993,
6.7%, 3-1-2013 ........................ 500 490,625
Total ................................. 9,453,875
MARYLAND - 0.29%
Baltimore County, Maryland, Pollution
Control Revenue Refunding Bonds,
Series 1994A (Bethlehem Steel
Corporation Project),
7.55%, 6-1-2017 ....................... 1,000 1,015,000
MASSACHUSETTS - 2.43%
Massachusetts Industrial Finance Agency:
Resource Recovery Revenue Bonds (SEMASS
Project), Series 1991B,
9.25%, 7-1-2015 ....................... 3,000 3,337,500
First Mortgage Revenue Bonds, Reeds
Landing Project, Series 1993,
8.625%, 10-1-2023 ..................... 3,000 2,880,000
Revenue Bonds, Beaver Country Day School
Issue, Series 1992, Subseries A,
8.1%, 3-1-2008 ........................ 1,665 1,640,025
Industrial Development Revenue Refunding
Bonds (Beverly Enterprises-Mass./Gloucester
and Lexington Projects), Series 1992,
8.375%, 5-1-2009 ...................... 500 527,500
Total ................................. 8,385,025
MICHIGAN - 3.24%
Pontiac Hospital Finance Authority,
Hospital Revenue Bonds (NOMC Obligated
Group), Series 1993,
6.0%, 8-1-2023 ........................ 3,000 2,493,750
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MICHIGAN (Continued)
Michigan State Hospital Finance Authority,
Hospital Revenue Refunding Bonds
(Crittenton Hospital), Series 1994A,
5.25%, 3-1-2014 ....................... $3,000 $ 2,460,000
Portage Lake Water and Sewage Authority,
Houghton County, Michigan, General
Obligation Limited Tax Bonds:
Series II,
7.625%, 10-1-2020 ..................... 1,000 1,062,500
Series III,
7.75%, 10-1-2020 ...................... 1,000 1,040,000
The Economic Development Corporation of
the Charter Township of Waterford
(Michigan), Limited Obligation Revenue
Bonds, Series 1993 (Canterbury Health
Care, Inc. Project),
8.375%, 7-1-2023 ...................... 2,000 2,075,000
Michigan Strategic Fund, Limited Obligation
Revenue Bonds:
Knollwood Corporation Project, Series A,
10.5%, 10-1-2016 (B) .................. 1,300 1,105,000
Mercy Services for Aging Project,
Series 1990,
9.4%, 5-15-2020 ....................... 900 957,375
Total ................................. 11,193,625
MINNESOTA - 1.31%
City of St. Anthony, Minnesota, Housing
Development Refunding Revenue Bonds
(Autumn Woods Project), Series 1992,
6.875%, 7-1-2022 ...................... 2,500 2,481,250
City of Mounds View, Minnesota, Gross
Revenue Golf Course Bonds, Series 1994A,
6.125%, 1-1-2014 ...................... 1,250 1,146,875
Housing and Redevelopment Authority of the
City of Saint Paul, Minnesota, Nursing Home
Development Revenue Bonds, Series 1988
(St. Mary's Home Project),
10.0%, 12-1-2018 ...................... 880 905,300
Total ................................. 4,533,425
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MISSISSIPPI - 0.95%
Lowndes County, Mississippi, Solid Waste
Disposal and Pollution Control Refunding
Revenue Bonds (Weyerhaeuser Company
Project), Series 1992B, Indexed Inverse
Floating/Fixed Term Bonds,
8.21%, 4-1-2022 ....................... $2,000 $ 2,025,000
Adams County, Mississippi, Hospital Revenue
Bonds, Series 1991 (Jefferson Davis Memorial
Hospital Project),
8.0%, 10-1-2016 ....................... 1,200 1,260,000
Total ................................. 3,285,000
MISSOURI - 7.00%
State Environmental Improvement and Energy
Resources Authority (State of Missouri),
Water Facilities Revenue Bonds
(Tri-County Water Authority Project),
Series 1992,
8.75%, 4-1-2022 ....................... 3,000 3,273,750
Bi-State Development Agency of the Missouri-
Illinois Metropolitan District, Adjustable
Rate Terminal Facilities, Revenue Refunding
Bonds (American Commercial Terminals, Inc.
Project), Series 1985,
7.75%, 6-1-2010 ....................... 3,000 3,210,000
The Industrial Development Authority of the
City of Hannibal, Missouri, Health
Facilities Revenue Bonds (Hannibal
Regional Healthcare System - Medical
Center of Northeast Missouri Project),
Series 1992,
9.5%, 3-1-2022 ........................ 2,500 2,890,625
Regional Convention and Sports Complex
Authority, Convention and Sports Facility
Project Bonds, Series C 1991 (The City of
St. Louis, Missouri, Sponsor):
7.9%, 8-15-2021 ....................... 1,500 1,571,250
7.75%, 8-15-2001 ...................... 1,100 1,142,625
Citizens Memorial Hospital District of
Polk County, Missouri, Hospital
Refunding and Improvement Revenue Bonds:
Series 1993,
6.5%, 8-1-2012 ........................ 1,500 1,365,000
Series 1994,
6.375%, 8-1-2007 ...................... 750 713,438
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MISSOURI (Continued)
Cape Girardeau County, Missouri, Single
Family Mortgage Revenue Bonds,
Series 1993,
0.0%, 12-1-2014 ....................... $7,500 $ 1,912,500
The City of Lake Saint Louis, Missouri,
Public Facilities Authority, Certificates
of Participation (Municipal Golf Course
Project), Series 1993,
7.55%, 12-1-2014 ...................... 2,000 1,872,500
The Industrial Development Authority of
the City of St. Louis, Missouri,
Industrial Revenue Refunding Bonds
(Kiel Center Multipurpose Arena Project),
Series 1992,
7.75%, 12-1-2013 ...................... 1,500 1,522,500
The Industrial Development Authority
of the City of Lee's Summit, Missouri,
Health Facilities Refunding and
Improvement Revenue Bonds (John Knox
Village Project), Series 1992,
7.125%, 8-15-2012 ..................... 1,500 1,509,375
The Industrial Development Authority of the
City of Springfield, Missouri,
Industrial Development Refunding Revenue
Bonds (Health Care Realty of Springfield,
Ltd. Project), Series 1988,
10.25%, 12-1-2010 ..................... 1,240 1,284,950
East Central Missouri Water and Sewer
Authority, St. Charles County, Missouri,
Water System Refunding Revenue Bonds,
Series 1992 (St. Charles County Public
Water Supply District No. 2 Project),
7.0%, 8-1-2011 ........................ 1,000 1,000,000
The Industrial Development Authority of
Callaway County, Missouri, Industrial
Development Revenue Bonds (A.P. Green
Refractories Co. Project), Series 1984,
8.6%, 11-1-2014 ....................... 900 883,125
Total ................................. 24,151,638
MONTANA - 0.82%
Montana Board of Investments, Resource Recovery
Revenue Bonds, Series 1993 (Yellowstone Energy
Limited Partnership Project),
7.0%, 12-31-2019 ...................... 3,000 2,827,500
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEVADA - 1.18%
Clark County, Nevada,
Industrial Development Revenue Bonds
(Southwest Gas Corporation),
1992 Series B,
7.5%, 9-1-2032 ........................ $4,000 $ 4,080,000
NEW HAMPSHIRE - 4.55%
New Hampshire Higher Educational and Health
Facilities Authority:
Hospital Revenue Bonds, Catholic Medical
Center Issue, Series 1989,
8.25%, 7-1-2013 ....................... 2,000 2,135,000
First Mortgage Revenue Bonds, RiverWoods
at Exeter Issue, Series 1993,
9.0%, 3-1-2023 ........................ 2,000 2,045,000
First Mortgage Revenue Bonds, RiverMead
at Peterborough Issue, Series 1994,
8.5%, 7-1-2024 ........................ 2,000 1,932,500
Revenue Bonds, New Hampshire Catholic
Charities Issue, Series 1991,
8.4%, 8-1-2011 ........................ 1,700 1,793,500
Hospital Revenue Bonds, Monadnock
Community Hospital Issue, Series 1990,
9.125%, 10-1-2020 ..................... 1,485 1,598,231
Hospital Revenue Bonds, St. Joseph Hospital
Issue, Series 1991,
7.5%, 1-1-2016 ........................ 1,000 1,035,000
The Industrial Development Authority of the
State of New Hampshire, Pollution Control
Revenue Bonds, Public Service Company of
New Hampshire Project:
1991 Tax-Exempt Series A,
7.65%, 5-1-2021 ....................... 2,000 2,052,500
1991 Tax-Exempt Series C,
7.65%, 5-1-2021 ....................... 2,000 2,052,500
Lisbon Regional School District, New
Hampshire, General Obligation Capital
Appreciation School Bonds,
0.0%, 2-1-2013 ........................ 2,050 1,066,000
Total ................................. 15,710,231
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW JERSEY - 2.19%
New Jersey Economic Development Authority:
First Mortgage Revenue Bonds
(The Evergreens-Series 1992),
9.25%, 10-1-2022 ...................... $2,000 $ 2,017,500
First Mortgage Revenue Fixed Rate Bonds
(Franciscan Oaks Project-Series 1992A),
8.5%, 10-1-2023 ....................... 1,500 1,548,750
Pollution Control Financing Authority of
Camden County (Camden County, New Jersey),
Solid Waste Disposal and Resource
Recovery System Revenue Bonds,
Series 1991B (AMT),
7.5%, 12-1-2009 ....................... 3,000 2,992,500
New Jersey Housing Finance Agency,
Multi-Family Mortgage Revenue Bonds,
1976 Series A,
8.25%, 11-1-2020 ...................... 1,000 1,000,000
Total ................................. 7,558,750
NEW MEXICO - 1.17%
New Mexico Educational Assistance
Foundation, Student Loan Purchase Bonds,
Second Subordinate 1994 Series II-C (AMJ),
6.0%, 12-1-2008 ....................... 3,000 2,748,750
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2014 ........................ 5,000 1,300,000
Total ................................. 4,048,750
NEW YORK - 1.72%
The Port Authority of New York and New
Jersey, Special Project, Series 2,
Continental Airlines, Inc. and Eastern Air
Lines, Inc. Project, LaGuardia Airport
Passenger Terminal, Third Installment Bonds,
9.125%, 12-1-2015 ..................... 1,945 2,173,538
New York State Energy Research and
Development Authority, Solid Waste
Disposal Revenue Bonds (New York State
Electric & Gas Corporation Project),
1993 Series A,
5.7%, 12-1-2028 ....................... 2,000 1,735,000
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW YORK (Continued)
New York City Industrial Development Agency,
Civic Facility Revenue Bonds (YMCA of
Greater New York Project),
8.0%, 8-1-2016 ........................ $1,000 $ 1,043,750
Tompkins County Industrial Development
Agency, Life Care Community Revenue Bonds,
1994 (Kendal at Ithaca, Inc. Project),
7.875%, 6-1-2024 ...................... 1,000 980,000
Total ................................. 5,932,288
OHIO - 1.18%
Hamilton County, Ohio, Health System Revenue
Bonds, Providence Hospital Issue,
Series 1992,
6.875%, 7-1-2015 ...................... 2,000 1,940,000
County of Lorain, Ohio, First Mortgage
Revenue Bonds, 1992 Series A (Kendal at
Oberlin Project),
8.625%, 2-1-2022 ...................... 1,000 1,080,000
City of Fairfield, Ohio, Economic
Development Revenue Refunding Bonds
(Beverly Enterprises-Ohio, Inc. Project),
Series 1992,
8.5%, 1-1-2003 ........................ 1,000 1,058,750
Total ................................. 4,078,750
OKLAHOMA - 4.09%
Oklahoma County Industrial Authority,
Industrial Development Revenue Bonds:
1986 Series B (Choctaw Nursing
Center Project):
10.25%, 9-1-2016 ...................... 1,230 1,274,588
10.125%, 9-1-2006 ..................... 525 541,406
1986 Series A (Westlake Nursing Center
Project):
10.25%, 9-1-2016 ...................... 905 938,938
10.125%, 9-1-2006 ..................... 430 443,975
The Clinton Public Works Authority,
Refunding and Improvement Revenue
Bonds, Series 1994,
6.25%, 1-1-2019 ....................... 2,575 2,314,281
Trustees of the Tulsa Municipal Airport
Trust, Adjustable Rate Revenue
Obligations,
7.375%, 12-1-2020 ..................... 2,000 1,940,000
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA (Continued)
Trustees of the Oklahoma Ordnance Works
Authority, Industrial Development Revenue
Refunding Bonds (A.P. Green Industries,
Inc. Project), Series 1992,
8.5%, 5-1-2008 ........................ $1,600 $ 1,600,000
Pawnee Public Works Authority (Pawnee,
Oklahoma), Utility System Revenue Bonds,
Series 1993,
6.5%, 12-1-2018 ....................... 1,610 1,485,225
The Guthrie Public Works Authority
(Guthrie, Oklahoma), Utility System
Revenue Bonds, Series 1994A,
6.75%, 9-1-2019 ....................... 1,415 1,369,013
Cushing Municipal Authority (Cushing,
Oklahoma), Utility System Revenue Bonds,
Series 1993,
6.0%, 7-1-2016 ........................ 1,345 1,244,125
Oklahoma City Public Property Authority
(Oklahoma City, Oklahoma), Revenue Bonds,
Series 1991 (Oklahoma City Golf System),
8.0%, 10-1-2013 ....................... 1,000 966,250
Total ................................. 14,117,801
OREGON - 1.00%
Klamath Falls Intercommunity Hospital
Authority, Gross Revenue Bonds,
Series 1994 (Merle West Medical Center
Project),
7.1%, 9-1-2024 ........................ 3,500 3,434,375
PENNSYLVANIA - 6.71%
Delaware County Authority (Pennsylvania):
First Mortgage Revenue Bonds, Series 1992
(Riddle Village Project):
8.0%, 6-1-99 .......................... 1,500 1,522,500
9.25%, 6-1-2022 ....................... 1,000 1,073,750
Health Facilities Revenue Bonds, Series
1993B (Mercy Health Corporation of
Southeastern Pennsylvania Obligated Group),
6.0%, 11-15-2007 ...................... 2,750 2,512,813
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
PENNSYLVANIA (Continued)
Luzerne County Industrial Development
Authority:
Exempt Facilities Revenue Refunding Bonds,
1992 Series A (Pennsylvania Gas and
Water Company Project),
7.2%, 10-1-2017 ....................... $2,000 $ 1,995,000
Exempt Facilities Revenue Bonds, 1992
Series B (Pennsylvania Gas and Water
Company Project),
7.125%, 12-1-2022 ..................... 1,000 988,750
Allegheny County Industrial Development
Authority (Pennsylvania), Environmental
Improvement Revenue Bonds (USX Corporation
Project), Refunding Series A 1994,
6.7%, 12-1-2000 ....................... 3,000 2,891,250
Pennsylvania Economic Development Financing
Authority, Rescue Recovery Revenue Bonds
(Colver Project), Series 1994 D,
7.125%, 12-1-2015 ..................... 2,500 2,462,500
McKeesport Hospital Authority (Commonwealth
of Pennsylvania), Hospital Revenue Bonds,
Series of 1993 (McKeesport Hospital Project),
6.5%, 7-1-2008 ........................ 2,500 2,409,375
The Hospitals and Higher Education Facilities
Authority of Philadelphia, Hospital Revenue
Bonds, Series of 1993 (Temple University
Hospital),
6.5%, 11-15-2008 ...................... 2,335 2,250,356
South Wayne County Water and Sewer Authority
(Wayne County, Pennsylvania), Sewer Revenue
Bonds, Series of 1992,
8.2%, 4-15-2013 ....................... 1,925 1,888,906
Clarion County Industrial Development Authority
(Pennsylvania), Health Facilities Revenue
Refunding Bonds (Beverly Enterprises
Project), Series 1985,
10.125%, 5-1-2007 ..................... 900 1,009,125
Erie, Pennsylvania Sewer Authority,
Sewer Revenue Bonds,
6.0%, 6-1-2011 ........................ 1,000 921,250
The Hospitals Authority of Philadelphia,
Hospital Revenue Bonds, Series of 1979
(James C. Giuffre Medical Center),
8.25%, 7-1-2009 (A) ................... 1,415 636,750
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
PENNSYLVANIA (Continued)
Wilkins Area Industrial Development Authority
(Pennsylvania), First Mortgage Revenue
Bonds (Longwood at Oakmont, Inc. Continuing
Care Retirement Community Project),
Series 1991A,
10.0%, 1-1-2021 ....................... $ 525 $ 589,313
Total ................................. 23,151,638
RHODE ISLAND - 1.40%
Providence Public Buildings Authority
(Veazie Street School and Modular Classrooms
Projects), Revenue Bonds, Series 1991:
7.3%, 12-1-2010 ....................... 1,000 1,041,250
7.3%, 12-1-2011 ....................... 1,000 1,037,500
Pawtucket Public Buildings Authority (Water
System Project), Revenue Bonds, Series 1991:
7.6%, 7-1-2010 ........................ 840 898,800
7.6%, 7-1-2009 ........................ 785 839,950
Rhode Island Health and Educational Building
Corporation, Hospital Financing Revenue Bonds,
South County Hospital Issue - Series 1991,
7.25%, 11-1-2011 ...................... 1,000 1,018,750
Total ................................. 4,836,250
SOUTH CAROLINA - 2.95%
Charleston County, South Carolina, Industrial
Refunding Revenue Bonds, 1982 Series (Massey
Coal Terminal, South Carolina Corporate Project),
Adjustable Convertible Extendible Securities,
3.95%, 1-1-2007 ....................... 3,000 3,000,000
South Carolina State Housing, Finance
and Development Authority, Multifamily
Housing Mortgage Revenue Bonds (United
Dominion-Plum Chase), Series 1991,
8.5%, 10-1-2021 ....................... 2,000 2,192,500
McCormick County, South Carolina, Hospital
Facilities Revenue Bonds, Series 1988
(McCormick Health Care Center Project),
10.5%, 3-1-2018 ....................... 1,485 1,516,556
South Carolina Jobs-Economic Development Authority,
Economic Development Revenue Bonds (Carolinas
Hospital System Project), Series 1992,
7.0%, 9-1-2014 ........................ 1,500 1,460,625
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
SOUTH CAROLINA (Continued)
County of Chester, South Carolina, Industrial
Development Refunding Revenue Bonds (Springs
Industries, Inc. Project), Series 1992,
7.35%, 2-1-2014 ....................... $1,000 $ 1,047,500
Horry County, South Carolina, Hospital
Revenue Refunding Bonds, Series 1992
(Conway Hospital, Inc.),
6.75%, 7-1-2012 ....................... 1,000 966,250
Total ................................. 10,183,431
SOUTH DAKOTA - 0.54%
South Dakota Health and Educational
Facilities Authority, Refunding Revenue
Bonds (Westhills Village Retirement
Community Issue), Series 1993,
7.25%, 9-1-2013 ....................... 2,000 1,870,000
TENNESSEE - 3.10%
Memphis-Shelby County Airport Authority,
Special Facilities Revenue Bonds,
Series 1993 (Federal Express Corporation),
6.2%, 7-1-2014 ........................ 3,000 2,752,500
The Industrial Development Board of the
Metropolitan Government of Nashville and
Davidson County:
Multi-Family Housing Revenue Bonds
(River Retreat II, Ltd. Project),
Series 1986,
9.5%, 5-1-2017 ........................ 1,500 1,498,125
Industrial Development Revenue Bonds, Series
1986 (Shoney's Inn of Opryland Project),
10.0%, 12-1-2016 ...................... 1,100 1,119,250
The Industrial Development Board of the
County of McMinn, Solid Waste Recycling
Facilities Revenue Bonds, Series 1992
(Calhoun Newsprint Company Project -
Bowater Incorporated Obligor),
7.4%, 12-1-2022 ....................... 2,000 2,070,000
The Health and Educational Facilities
Board of the City of Crossville, Tennessee,
Hospital Revenue Improvement Bonds,
Series 1992 (Cumberland Medical Center),
6.75%, 11-1-2012 ...................... 2,000 1,942,500
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TENNESSEE (Continued)
The Health and Educational Facilities Board
of the Metropolitan Government of
Nashville and Davidson County, Tennessee,
First Mortgage Revenue Bonds (Metropolitan
Nashville Teachers' Nursing Facility,
Inc. Project), Series 1989,
10.25%, 10-1-2019 (A) ................. $1,585 $ 1,307,625
Total ................................. 10,690,000
TEXAS - 4.43%
Alliance Airport Authority, Inc., Special
Facilities Revenue Bonds, Series 1991
(American Airlines, Inc. Project),
7.0%, 12-1-2011 ....................... 4,500 4,297,500
Retama Development Corporation, Special
Facilities Revenue Bonds (Retama Park
Racetrack Project), Series 1993,
8.75%, 12-15-2018 ..................... 3,500 3,456,250
Dallas-Fort Worth International Airport
Facility Improvement Corporation, American
Airlines, Inc. Revenue Bonds, Series 1990,
7.5%, 11-1-2025 ....................... 2,000 1,957,500
Dallas County Utility and Reclamation
District, Unlimited Ad Valorem Tax
Refunding Bonds, Series 1993,
0.0%, 2-15-2016 ....................... 7,915 1,889,706
Dallas-Fort Worth International Airport,
Facility Improvement Corporation, Delta
Air Lines, Inc. Revenue Bonds, Series 1994,
7.6%, 11-1-2011........................ 1,300 1,300,000
Texas Health Facilities Development
Corporation, Hospital Revenue Bonds (All
Saints Episcopal Hospitals of Fort Worth
Project), Series 1989A,
6.25%, 8-15-2010 ...................... 1,350 1,260,563
Housing Authority of the City of Odessa,
Texas, Multifamily Mortgage Revenue Bonds,
Series 1993A (Section 8 Assisted Project),
6.375%, 10-1-2010 ..................... 1,225 1,127,000
Total ................................. 15,288,519
UTAH - 1.25%
Carbon County, Utah, Solid Waste Disposal
Refunding Revenue Bonds, Series 1991
(Sunnyside Cogeneration Associates Project),
9.25%, 7-1-2018 ....................... 2,500 2,615,625
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
UTAH (Continued)
Brigham City, Box Elder County, Utah,
Special Assessment Bonds, Series 1990
(Brigham City, Utah, Special Improvement
District No. 22),
9.25%, 8-1-2010 ....................... $1,690 $ 1,706,900
Total ................................. 4,322,525
VERMONT - 0.73%
Vermont Industrial Development Authority,
Mortgage Revenue Bonds, Wake Robin
Corporation Project, Series 1993A,
8.75%, 3-1-2023 ....................... 2,500 2,518,750
VIRGIN ISLANDS - 0.41%
Virgin Islands Public Finance Authority,
Revenue Refunding Bonds (Virgin Islands
General Obligation/Matching Fund Loan
Notes), Series 1992 A,
7.25%, 10-1-2018 ...................... 1,400 1,431,500
VIRGINIA - 1.37%
Industrial Development Authority of the
County of Prince William (Virginia),
Residential Care Facility First Mortgage
Revenue Bonds (Westminster at Lake Ridge),
Series 1992A,
10.0%, 1-1-2022 ....................... 2,500 2,681,250
Virginia Housing Development Authority,
Commonwealth Mortgage Bonds:
1988 Series C, Subseries C-2,
8.0%, 1-1-2038 ........................ 1,000 1,025,000
1988 Series B, Subseries B-5,
7.8%, 7-1-2008 ........................ 1,000 1,020,000
Total ................................. 4,726,250
WASHINGTON - 0.26%
Stevens County Public Corporation, Pollution
Control Revenue Refunding Bonds (The
Washington Water Power Company Kettle
Falls Project), Series 1993,
6.0%, 12-1-2023 ....................... 1,000 892,500
See Notes to Schedule of Investments on page 38.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WEST VIRGINIA - 0.60%
West Virginia Hospital Finance Authority,
State of West Virginia, Hospital Revenue
Refunding Bonds, Series of 1986 (Logan
General Hospital Project),
8.75%, 4-1-2013 ....................... $2,000 $ 2,067,500
WYOMING - 0.71%
Sweetwater County, Wyoming, Solid Waste
Disposal Revenue Bonds (FMC Corporation
Project), Series 1994B,
6.9%, 9-1-2024 ........................ 2,500 2,453,125
TOTAL MUNICIPAL BONDS - 94.92% $327,645,531
(Cost: $327,129,369)
TOTAL SHORT-TERM SECURITIES - 4.35% $ 14,998,560
(Cost: $14,998,560)
TOTAL INVESTMENT SECURITIES - 99.27% $342,644,091
(Cost: $342,127,929)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.73% 2,517,765
NET ASSETS - 100.00% $345,161,856
Notes to Schedule of Investments
(A) Non-income producing as the issuer has either missed its most recent
interest payment or declared bankruptcy.
(B) Security is paying partial interest.
See Note 1 to financial statements for security valuation and other
significant accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $342,644,091
Cash ............................................. 10,125
Receivables:
Interest ........................................ 6,878,454
Investment securities sold ...................... 4,079,125
Fund shares sold ................................ 866,787
Prepaid insurance premium ........................ 13,612
------------
Total assets .................................. 354,492,194
------------
Liabilities
Payable for investment securities purchased ...... 8,069,296
Payable for Fund shares redeemed ................. 967,321
Dividends payable ................................ 186,875
Accrued service fee .............................. 66,289
Accrued transfer agency and dividend disbursing .. 22,685
Accrued accounting services fee .................. 4,167
Other ............................................ 13,705
------------
Total liabilities ............................. 9,330,338
------------
Total net assets ............................. $345,161,856
============
Net Assets
$1.00 par value capital stock, authorized --
100,000,000; shares outstanding -- 67,365,646
Capital stock ................................... $ 67,365,646
Additional paid-in capital ...................... 275,905,442
Accumulated undistributed gain:
Accumulated undistributed net realized
gain on investment transactions ............... 1,374,606
Net unrealized appreciation in value of
investments at end of period .................. 516,162
------------
Net assets applicable to outstanding
units of capital ............................. $345,161,856
============
Net asset value per share (net assets divided
by shares outstanding) ........................... $5.12
Sales load (offering price x 4.25%)................. .23
-----
Offering price (net asset value divided by 95.75%).. $5.35
=====
On sales of $100,000 or more the sales load
is reduced as set forth on page 14.
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1994
Investment Income
Interest (taxable portion - $163,691) ............ $24,334,359
-----------
Expenses (Note 2):
Investment management fee ....................... 1,756,750
Service fee ..................................... 310,860
Transfer agency and dividend disbursing ......... 280,665
Accounting services fee ......................... 50,000
Audit fees ...................................... 30,450
Custodian fees .................................. 23,325
Legal fees ...................................... 16,255
Other ........................................... 120,894
-----------
Total expenses ................................ 2,589,199
-----------
Net investment income ........................ 21,745,160
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on investments ................. 1,527,051
Unrealized depreciation in value of investments
during the period ............................... (22,927,131)
-----------
Net loss on investments ......................... (21,400,080)
-----------
Net increase in net assets
resulting from operations .................... $ 345,080
===========
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
-------------------------
1994 1993
------------ ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 21,745,160 $ 18,845,213
Realized net gain on investments .... 1,527,051 5,051,945
Unrealized appreciation
(depreciation) .................... (22,927,131) 14,102,680
------------ ------------
Net increase in net assets
resulting from operations ........ 345,080 37,999,838
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (21,745,160) (18,845,213)
Realized net gain from investment
transactions ...................... (4,619,821) (2,193,823)
------------ ------------
(26,364,981) (21,039,036)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(10,978,008 and 11,521,464 shares,
respectively) ..................... 58,602,026 61,425,292
Proceeds from reinvestment of
dividends and/or capital gains
distribution (4,126,763 and 3,220,064
shares, respectively) ............. 21,969,625 17,133,052
Payments for shares redeemed
(7,325,581 and 5,063,005 shares,
respectively) ..................... (38,763,374) (26,922,626)
------------ ------------
Net increase in net assets
resulting from capital
share transactions ............... 41,808,277 51,635,718
------------ ------------
Total increase ................... 15,788,376 68,596,520
Net Assets
Beginning of period .................. 329,373,480 260,776,960
------------ ------------
End of period ........................$345,161,856 $329,373,480
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on page 42.
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the
period
from
For the fiscal year ended September 30, 1/21/86
--------------------------------------------------------------------------- through
1994 1993 1992 1991 1990 1989 1988 1987 9/30/86*
---- ---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $5.53 $5.23 $5.05 $4.85 $4.96 $4.84 $4.96 $5.22 $5.00
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income .34 .35 .36 .38 .39 .41 .43 .43 .30
Net realized and unrealized gain
(loss) on investments(0.34) .34 .18 .20 (0.11) .12 (0.09) (0.24) .22
----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ......... .00 .69 .54 .58 .28 .53 .34 .19 .52
Less distributions:
Dividends declared from net
investment income . (0.34) (0.35) (0.36) (0.38) (0.39) (0.41) (0.43) (0.43) (0.30)
Distribution from
capital gains ..... (0.07) (0.04) .00 .00 .00 .00 (0.03) (0.02) .00
----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions .. (0.41) (0.39) (0.36) (0.38) (0.39) (0.41) (0.46) (0.45) (0.30)
----- ----- ----- ----- ----- ----- ----- ----- -----
End of period ...... $5.12 $5.53 $5.23 $5.05 $4.85 $4.96 $4.84 $4.96 $5.22
===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ....... 0.05% 13.77% 11.08% 12.35% 5.89% 11.38% 7.27% 3.57% 15.86%***
Net assets, end of period (000
omitted) ............$345,162 $329,373 $260,777 $224,945 $192,440 $168,838 $117,838 $72,403 $27,918
Ratio of expenses to average net
assets ............. 0.76% 0.70% 0.72% 0.77% 0.75% 0.75% 0.80% 0.86% 0.52%****
Ratio of net investment income to
average net assets . 6.39% 6.49% 7.08% 7.63% 7.97% 8.36% 8.76% 8.42% 5.97%
Portfolio turnover rate 26.26% 26.13% 54.18% 60.83% 27.31% 38.94% 44.49% 56.93% 115.91%
*The Fund's inception date is September 9, 1985; however, since the Fund did not have investment activity or incur
expenses prior to the date of public offering, the per-share data and ratios are for a capital share outstanding
for the period from January 21, 1986 (initial public offering) through September 30, 1986. On an annual basis,
the ratios of expenses and net investment income to average net assets would have been approximately 0.75% and
8.65%, respectively.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
***Annualized.
****Waddell & Reed, Inc. ("W&R"), the then investment manager, for the period from January 6, 1986 through September
30, 1986 voluntarily waived any management and shareholder service fees and paid Fund expenses to the extent
necessary to assure that on each day the Fund's total expenses did not exceed 1/365th of 0.75 of 1% of the Fund's
net assets. The ratio of expenses to average net assets shown in the table would have been 0.70% without this
assumption of expenses.
</TABLE>
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
NOTE 1 -- Significant Accounting Policies
United Municipal High Income Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements. The policies are in conformity with generally
accepted accounting principles.
A. Security valuation -- Municipal bonds and the taxable obligations in
the Fund's investment portfolio are not listed or traded on any
securities exchange. Therefore, municipal bonds are valued using
prices quoted by Muller and Company, a dealer in bonds which offers a
pricing service. Short-term debt securities, whether taxable or
nontaxable, are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Securities gains and losses are calculated
on the identified cost basis. Original issue discount (as defined by
the Internal Revenue Code) and premiums on the purchase of bonds are
amortized for both financial and tax reporting purposes over the
remaining lives of the bonds. Interest income is recorded on the
accrual basis. See Note 3 -- Investment Security Transactions.
C. Federal income taxes -- The Fund intends to distribute all of its net
investment income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue
Code. The Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made
for Federal income taxes. In addition, the Fund intends to meet
requirements of the Internal Revenue Code which will permit it to pay
dividends from net investment income, substantially all of which will
be exempt from Federal income tax. See Note 4 -- Federal Income Tax
Matters.
D. Dividends and distributions -- All of the Fund's net investment income
is declared and recorded by the Fund as dividends payable on each day
to shareholders of record at the time of the previous determination of
net asset value. During the period ended September 30, 1994, the Fund
adopted Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies. Accordingly,
permanent book and tax basis differences relating to future
shareholder distributions have been reclassified to additional paid-in
capital. As of October 1, 1993, the cumulative effect of such
differences totaling $1,050 was reclassified from accumulated
undistributed net realized gain on investment transactions to
additional paid-in capital. Net investment income, net realized gains
and net assets were not affected by this change.
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 .10% of
net assets and (ii) a "Group" fee computed each day on the combined net
asset values of all of the funds in the United Group of mutual funds
(approximately $11.2 billion of combined net assets at September 30, 1994)
at annual rates of .51% of the first $750 million of combined net assets,
.49% on that amount between $750 million and $1.5 billion, .47% between
$1.5 billion and $2.25 billion, .45% between $2.25 billion and $3 billion,
.43% between $3 billion and $3.75 billion, .40% between $3.75 billion and
$7.5 billion, .38% between $7.5 billion and $12 billion, and .36% of that
amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays WARSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge for transfer
agency and dividend disbursement services of $1.0208 for each shareholder
account which was in existence at any time during the prior month, plus
$0.30 for each account on which a dividend or distribution of cash or
shares was paid in that month. The Fund also reimburses W&R and WARSCO for
certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct
and indirect gross sales commissions (which are not an expense of the Fund)
of $1,486,258, out of which W&R paid sales commissions of $836,974 and all
expenses in connection with the sale of Fund shares, except for
registration fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund may pay monthly a fee to W&R
in an amount not to exceed .25% of the Fund's average annual net assets.
The fee is to be paid to reimburse W&R for amounts it expends in connection
with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $12,320.
W&R is an indirect subsidiary of Torchmark Corporation, a holding
company, and United Investors Management Company, a holding company, and a
direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and
short-term securities, aggregated $117,232,226, while proceeds from
maturities and sales aggregated $86,678,656. Purchases of short-term
securities aggregated $119,198,168, while proceeds from maturities and
sales aggregated $112,431,990. No U.S. Government securities were bought
or sold during the period ended September 30, 1994.
For Federal income tax purposes, cost of investments owned at
September 30, 1994 was $342,127,929, resulting in net unrealized
appreciation of $516,162, of which $8,822,996 related to appreciated
securities and $8,306,834 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $1,527,051 during the year ended September 30, 1994, of which a
portion was paid to shareholders during the period ended september 30,
1994. Remaining net capital gains will be distributed to the Fund's
shareholders.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Municipal High Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of United
Municipal High Income Fund, Inc. (the "Fund") at September 30, 1994, the
results of its operations for the year then ended and the changes in its
net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at September 30, 1994 by correspondence
with the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
October 31, 1994
<PAGE>
United Municipal High Income Fund, Inc.
Custodian Underwriter
United Missouri Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas 66201-9217
Kirkpatrick & Lockhart (913) 236-2000
1800 M Street, N. W.
Washington, D. C. Shareholder Servicing Agent
Waddell & Reed Services Company
Independent Accountants 6300 Lamar Avenue
Price Waterhouse LLP P. O. Box 29217
Kansas City, Missouri Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Investment Manager
Waddell & Reed Investment Accounting Services Agent
Management Company Waddell & Reed Services Company
6300 Lamar Avenue 6300 Lamar Avenue
P. O. Box 29217 P. O. Box 29217
Shawnee Mission, Kansas 66201-9217 Shawnee Mission, Kansas 66201-9217
(913) 236-2000 (913) 236-2000
<PAGE>
United Municipal High Income Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROSPECTUS
December 31, 1994
The United Group of Mutual Funds
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
TABLE OF CONTENTS
Summary of Expenses ....... 2
Financial Highlights ...... 3
What is United Municipal High
Income Fund, Inc.? ...... 4
Performance Information ... 4
Goal and Investment Policies
of the Fund ............. 5
Risk Factors............... 8
Management and Services ... 10
Dividends, Distributions
and Taxes ................ 12
Purchase of Shares ........ 14
Redemption ................ 15
Appendix A ................ 16
Financial Statements....... 20
NUP1014(12-94)
printed on recycled paper
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
December 31, 1994
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the
prospectus (the "Prospectus") of United Municipal High Income Fund, Inc.
(the "Fund") dated December 31, 1994, which may be obtained from the Fund
or its Underwriter, Waddell & Reed, Inc., at the address or telephone
number shown above.
TABLE OF CONTENTS
Performance Information ............................ 2
Investment Objective and Policies .................. 4
Investment Management and Other Services ........... 23
Purchase, Redemption and Pricing of Shares ......... 27
Directors and Officers ............................. 37
Payments to Shareholders ........................... 41
Taxes .............................................. 43
Portfolio Transactions and Brokerage ............... 45
Other Information .................................. 46
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from
time to time publish the Fund's total return information, yield information
and/or performance rankings in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the
average annual compounded rates of return over the one-, five-, and ten-
year periods that would equate the initial amount invested to the ending
redeemable value. Standardized total return information is calculated by
assuming an initial $1,000 investment from which the maximum sales load of
4.25% is deducted. All dividends and distributions are assumed to be
reinvested at net asset value as of the day the dividend or distribution is
paid. No sales load is charged on reinvested dividends or distributions.
The formula used to calculate the total return is
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for
the periods shown.
Non-standardized performance information may also be presented and it
may not reflect the sales charge. For example, the Fund may also compute
total return without deduction of the sales load in which case the same
formula noted above will be used but the entire amount of the $1,000
initial payment will be assumed to have been invested. If the sales charge
were reflected, it would reduce the performance quoted.
The average annual total return quotations as of September 30,
1994, which is the most recent balance sheet included in the Prospectus,
for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from October 1, 1993 to
September 30, 1994: -4.21% 0.05%
Five-year period from October 1, 1989 to
September 30, 1994: 7.57% 8.50%
Period from January 21, 1986* to
September 30, 1994: 8.06% 8.60%
*initial public offering date
The Fund may also quote unaveraged or cumulative total return which
reflects the change in value of an investment over a stated period of time.
Cumulative total returns will be calculated according to the formula
indicated above but without averaging the rate for the number of years in
the period.
Yield
A yield quoted for the Fund is computed by dividing the net investment
income per share earned during the period for which the yield is shown by
the maximum offering price per share on the last day of that period
according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yield computed according to the formula for the 30-day period
ended on September 30, 1994, the date of the most recent balance sheet
included in the Prospectus, is 6.70%.
The Fund may also advertise or include in sales material its tax
equivalent yield, which is calculated by applying the stated income tax
rate to only the net investment income exempt from taxation according to a
standard formula which provides for computation of tax equivalent yield by
dividing that portion of the Fund's yield which is tax exempt by one minus
a stated income tax rate and adding the product to that portion, if any, of
the yield of the Fund that is not tax exempt.
The tax equivalent yield computed according to the formula for the
30-day period ended on September 30, 1994, the date of the most recent
balance sheet included in this SAI, is 7.86%, 9.26%, 9.66%, 10.40% and
11.02% for marginal tax brackets of 15%, 28%, 31%, 36% and 39.6%,
respectively.
Change in yields primarily reflect different interest rates received
by the Fund as its portfolio securities change. Yield is also affected by
portfolio quality, portfolio maturity, type of securities held and
operating expenses.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. The Fund may also compare its performance
to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
All performance information which the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of a Fund's shares when redeemed may
be more or less than their original cost.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Municipal Bonds
Municipal bonds are issued by a wide range of governments, agencies
and authorities for various public purposes. The two main kinds of
municipal bonds are "general obligation" bonds and "revenue" bonds. In
"general obligation" bonds, the issuer has pledged its full faith, credit
and taxing power for the payment of principal and interest. "Revenue"
bonds are payable only from specific sources; these may include revenues
from a particular facility or class of facilities or special tax or other
revenue source.
A special class of municipal bonds are some, but not all,
"industrial development bonds." The Fund may purchase industrial
development bonds only if the interest on them is free from Federal income
taxation, though such interest is an item of tax preference for purposes of
the alternative minimum tax. In general, industrial development bonds are
revenue bonds and are issued by or on behalf of public authorities to
obtain funds to finance privately operated facilities. They generally
depend for their credit quality on the credit standing of the company
involved. The Fund may invest an unlimited percentage of its assets in
municipal bonds which are industrial development bonds. As of September
30, 1994, 10.01% of the Fund's net assets were invested in industrial
development bonds.
Another specific type of municipal bond in which the Fund may invest
includes municipal leases and participation interests therein. The factors
to be considered in determining whether or not any rated municipal lease
obligations are liquid include (i) the frequency of trades and quotes for
the obligations; (ii) the number of dealers willing to purchase or sell the
security and the number of other potential buyers; (iii) the willingness of
dealers to undertake to make a market in the securities; (iv) the nature of
marketplace trades, including the time needed to dispose of the security,
the method of soliciting offers and the mechanics of transfer; (v) the
likelihood that the marketability of the obligation will be maintained
through the time the instrument is held; (vi) the credit quality of the
issuer and the lessee; and (vii) the essentiality to the lessee of the
property covered by the lease. Unrated municipal lease obligations will be
considered to be illiquid. These obligations, which may take the form of a
lease, an installment purchase, or a conditional sale contract, are issued
by state and local governments and authorities to acquire land and a
variety of equipment and facilities. The Fund has not held and does not
intend to hold such obligations directly as a lessor of the property, but
may from time to time purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest
gives the Fund a specified, undivided interest in the obligation in
proportion to its purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set
forth requirements that states or municipalities must meet to incur debt,
including voter referenda, interest rate limits or public sale
requirements. Leases, installment purchases or conditional sale contracts
have evolved as a means for governmental issuers to acquire property and
equipment without being required to meet these constitutional and statutory
requirements. Many leases and contracts include "non-appropriation
clauses" providing that the governmental issuer has no obligation to make
future payments under the lease or contract unless money is appropriated
for such purpose by the legislative body on a yearly or other periodic
basis. Non-appropriation clauses free the issuer from debt issuance
limitations. In determining the liquidity of a municipal lease obligation,
Waddell & Reed Investment Management Company (the "Manager"), the Fund's
investment Manager, will differentiate between direct interests in
municipal leases and municipal lease-backed securities, the latter of which
may take the form of a lease-backed revenue bond, a tax-exempt asset-backed
security or any other investment structure using a municipal lease-
purchased agreement as its base. While the former may present liquidity
issues, the latter are based on a well established method of securing
payment of a municipal lease obligation.
For the purposes of the percentage investment restrictions noted in
the Prospectus and this SAI, the "issuer" of a municipal bond is considered
to be the entity (public or private) ultimately responsible for the payment
of the principal and interest on the bond. For example, the bond may be
created by a governmental entity but be backed only by the assets and
revenues of a subdivision of the entity such as an agency, instrumentality
or authority. The subdivision would be deemed to be the "issuer." In the
case of industrial development bonds, the private user of facilities
financed by the bonds is considered to be the "issuer."
The Fund and the Manager rely on the opinion of bond counsel for the
issuer in determining whether obligations are municipal bonds. If a court
should hold that obligations held by the Fund are not municipal bonds
(i.e., that the interest on them is taxable), the Fund will sell them as
soon as possible, but it might incur losses if it sold them in other than
an orderly manner.
When-Issued Municipal Bonds
The Fund may also purchase municipal bonds on a when-issued basis;
their value may be less when delivered than the purchase price paid. For
example, delivery to the Fund and payment by the Fund may take place a
month or more after the date of the transaction. The purchase price is
fixed on the transaction date. The Fund will enter into when-issued
transactions in order to secure what is considered to be an advantageous
price and yield at the time of entering into the transaction. The
municipal bonds so purchased by the Fund are subject to market value
fluctuation; their value may be less when delivered than the purchase price
paid. No interest accrues to the Fund until delivery and payment is
completed. When the Fund makes a commitment to purchase securities on a
when-issued basis the Fund will record the transaction and thereafter
reflect the value of the securities in determining its net asset value per
share.
Ordinarily the Fund purchases municipal bonds on a when-issued basis
with the intention of actually taking delivery of the securities. However,
before the securities are delivered to the Fund and before it has paid for
them (the "settlement date"), the Fund could sell the securities if the
Manager decided it was advisable to do so for investment reasons. The Fund
will hold aside or segregate cash or other municipal bonds, other than
those purchased on a when-issued basis, at least equal to the amount it
will have to pay on the settlement date; these other municipal bonds will
mature or be sold at or before the settlement date. There are no
percentage limitations on the Fund's right to buy municipal bonds on a
when-issued basis.
Investments in Unseasoned Issuers
In order to comply with the regulations of certain states, the Fund
will not purchase a security if, as a result, more than 5% of its assets
would be in industrial development bonds for which the payment of principal
and interest are the responsibility of a company with less than three years
operating history, including predecessors.
Restricted Securities
Restricted securities, which are also referred to as private
placements, are subject to legal or contractual restrictions on resale
because they are not registered under the Securities Act of 1933, as
amended, and are not exempt from registration as a security issued by a
government entity. In many cases, issuers expect to sell these securities
to institutional investors, such as the Fund, initially under an exemptive
provision and then file a registration statement to register the securities
for public distribution. Once the securities have been registered, they
may sell at a premium over the initial offering price.
In the event that the securities are not registered by the issuer, the
Fund's ability to resell the unregistered securities may be limited.
Limitation on the resale of unregistered securities may have an adverse
effect on their marketability and may prevent the Fund's prompt disposition
of them at reasonable prices. The Fund may have to bear the expense of
registering such securities for resale and the risk of substantial delays
in effecting such registration. Valuation for restricted securities for
which market quotations are readily available will be at market value.
Valuation for restricted securities for which market quotations are not
available will be at fair value as determined in good faith under
procedures established by the Board of Directors.
Illiquid Investments
Due to their possible limited liquidity, the Fund may not purchase the
following investments if after such purchase more than 10% of its net
assets would consist of a combination of such investments: (i) repurchase
agreements not terminable within seven days; (ii) fixed time deposits
subject to withdrawal penalties other than overnight deposits; (iii)
securities for which market quotations are not readily available and (iv)
restricted securities which are securities which are subject to legal or
contractual restrictions on resale. However, this 10% limit does not
include any obligations payable at principal amount plus interest on demand
or within seven days after demand.
Risks of Certain Types of Municipal Bonds
At any one time the Fund may have more than 25% of its assets in
similar type projects in which low quality municipal bonds are likely to be
issued, including the following: electrical utilities, steel, health care
and life care facilities and small industries. A substantial amount of the
assets of the Fund may therefore be invested in securities which are
related in such a way that an economic, business or political development
or change affecting one such security would likewise affect the other
securities. For example, a declining market for health care facilities
might adversely affect the ability of municipalities to make timely
payments of principal and interest on revenue bonds to be paid from
hospital revenues. The Fund could also have more than 25% of its assets
invested in issuers in the same geographic area, but will not have more
than 25% of its assets in securities of issuers located in any one state.
Many of the low quality municipal bonds in which the Fund seeks to
invest will be industrial development bonds. It is likely that more than
25% of the Fund's assets will be invested in industrial development bonds.
As discussed above under "Municipal Bonds," the entity responsible for
payment of the principal and interest on industrial development bonds is
usually the nongovernmental user of the facility being financed by the bond
issue. Consequently, to the extent the Fund invests up to 25% of its
assets in bonds issued by entities in any one industry, it will be subject
to the risks inherent in the industry to which the issuer belongs.
For example, a hospital's gross receipts and net income available to
service its debt are influenced by demand for hospital services, the
ability of the hospital to provide the services required, management and
medical capabilities, economic developments in the service area, efforts by
insurers and government agencies to limit rates and expenses, confidence in
the hospital, service area economic developments, competition, availability
and expense of malpractice insurance, Medicaid and Medicare funding, and
possible Federal legislation limiting the rates of increase of hospital
charges. Significant events impacting the hospital industry in any one of
these areas might adversely affect the industry's ability to service its
debt or to pay principal when due.
Life care facilities are an alternative form of long-term housing for
the elderly. They are subject to a wide variety of risks. Primarily, the
projects must maintain adequate occupancy levels to be able to provide
revenues adequate to maintain debt service payments. Moreover, since a
portion of housing, medical care and other services may be financed by an
initial deposit it is important that the facility maintain adequate
financial reserves to secure estimated actuarial liabilities. The ability
of management to accurately forecast inflationary cost pressures weighs
importantly in the process. The facilities may also be impacted by
regulatory cost restrictions applied to health care delivery in general,
particularly state regulations or changes in Medicare and Medicaid payments
or qualifications, or restrictions imposed by medical insurance companies.
They may also face competition from alternative health care or conventional
housing facilities in the private or public sector.
The electrical utility industry is facing certain problems, which may
or may not affect its ability to meet obligations on bonds. These problems
include the effects of: inflation on financing large construction
programs; cost increases and delays arising out of environmental
considerations; limitation of the capital market to absorb additional debt;
the effect of shortages and high prices of fuel on operations and profits;
and the effect of energy conservation on sales. Problems of these types
generally affect the values of and the dividends paid on utility common
stocks rather than the ability to pay bond obligations.
Pollution control and other industrial development bonds are issued by
various state and local agencies to finance various projects, including
those of domestic steel producers, and are secured solely by agreements
with such companies. Domestic steel companies are suffering the
consequences of such adverse trends as high labor costs, high foreign
imports encouraged by foreign productivity increases and a strong U.S.
dollar, and other cost pressures such as are imposed by antipollution
legislation. Domestic steel capacity is being reduced currently by large-
scale plant closings.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements.
A repurchase transaction occurs when, at the time the Fund purchases
securities, it also agrees to resell them to the vendor (normally a
commercial bank or broker-dealer), and must deliver those securities and/or
securities substituted for them under the repurchase agreement to the
vendor on an agreed-upon date in the future. In this section, such
securities, including any securities so substituted, are referred to as the
"Resold Securities." The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the
period of time during which the Fund's money is invested in the Resold
Securities. The majority of the repurchase transactions in which the Fund
would engage run from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund's
risk is limited to the ability of the vendor to pay the agreed-upon sum
upon the delivery date. In the event of bankruptcy or other default by the
vendor, there may be possible delays or expenses in liquidating the Resold
Securities, decline in their value or loss of interest. Upon default, the
Resold Securities constitute collateral security for the repurchase
obligation. The return on such collateral may be more or less than that
from the repurchase agreement. The Fund's repurchase agreements will be
structured so as to fully collateralize the loans, i.e., the value of the
Resold Securities is and, during the entire term of the agreement, remains
at least equal to the value of the loan, including the accrued interest
earned thereon. Such collateral will be held by the Fund's custodian bank,
or a third party that qualifies as a custodian under section 17(f) of the
Investment Company Act of 1940. Repurchase agreements are entered into
only with those entities approved on the basis of criteria established by
the Board of Directors.
Options, Futures Contracts and Options on Futures Contracts
The use of options, futures contracts and options on futures contracts
is subject to applicable regulations of the Securities and Exchange
Commission ("SEC"), the several exchanges on which they are traded, the
Commodity Futures Trading Commission ("CFTC") and various state regulatory
authorities. In addition, the Fund's ability to use these instruments will
be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below
and in the Prospectus, the Manager expects to discover additional
opportunities in connection with options, futures contracts, options on
futures contracts and other similar or related techniques. These
opportunities may become available as the Manager develops new techniques,
as regulatory authorities broaden the range of permitted transactions and
as new options, futures contracts, options on futures contracts and other
techniques are developed. The Manager may utilize these opportunities to
the extent that they are consistent with the Fund's investment goals and
are permitted by the Fund's investment limitations and applicable
regulatory authorities. The Fund's Prospectus or Statement of Additional
Information will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or
in the Prospectus.
Writing Calls on Securities. The Fund may write call options on
securities, but only if the investments to which the call relates (the
"related investments") are domestic debt securities, including, without
limitation, securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government Securities"). The above
limitation is a fundamental policy, which cannot be changed without a
shareholder vote.
The Fund may write call options on domestic debt securities to attempt
to enhance the Fund's income or to reduce the overall risk of its
investments. The Fund may only write call options on securities if they
are listed on a national securities exchange.
If the Fund writes a call, it agrees to sell to the purchaser of the
call the securities subject to the call at a fixed price; this is referred
to as the exercise price. This price may be equal to, or more or less
than, the market price of the securities covered by the call. During the
period of a call the Fund must, if the call is exercised, sell at the
exercise price no matter what happens to the market price of the securities
subject to the call.
As compensation for entering into this contract, the Fund receives a
premium. Should the market price of the security on which the Fund has
written a call go down during the call period, the premium would help to
offset that decline. However, the Fund would lose the opportunity to
profit from an increase in the market price of the securities that are
subject to the call over the exercise price except to the extent that the
premium represents such a profit. The Fund will write calls when the
Manager believes that the amount of the premium represents adequate
compensation for the loss of the opportunity.
Writing calls is a highly specialized activity, which involves
investment techniques and risks different from those ordinarily associated
with investment companies. The personnel engaging in this activity have
had experience with other Funds in the United Group and in managed accounts
engaging in this activity. It is believed that the Fund's limitations on
writing calls will tend to reduce these risks.
The Fund may purchase calls to close its position in a call that it
has written. To do this, it will make a "closing transaction." (As
discussed below, it may also purchase calls other than as part of a closing
transaction.) This involves buying a call on the same security with the
same exercise price and expiration date as the call it has written. When
the Fund sells a security on which it has written a call, it may effect a
closing transaction. The Fund may also effect a closing transaction to
avoid having to sell a security on which it has written a call if the call
is exercised. The Fund will have a profit or loss from a closing
transaction, depending on the amount of option transaction costs and on
whether the amount it pays to purchase the call is less or more than the
premium it received on the call that is closed out. A profit will also be
realized if the call lapses unexercised because the Fund retains the
premium received. There is no assurance that the Fund will be able to
effect a closing transaction if there is no market for the call in
question; if the Fund cannot do so, it may be required to hold the security
on which the call was written until the call expires or is exercised even
though it might otherwise be desirable to sell the security. If a call
that the Fund wrote is exercised, it could deliver the securities that it
owns (or the securities that it has the right to get). It could also
deliver other securities that it purchases.
Fund securities will be bought and sold in order to attempt to achieve
the goals of the Fund. However, the fact that listed calls can be written
on a particular security may be a factor in buying or keeping it if it is
otherwise considered suitable for the Fund.
Writing Puts on Securities. The Fund may write put options on
securities, but only if the related investments are domestic debt
securities, including, without limitation, U.S. Government Securities. The
above limitation is a fundamental policy, which cannot be changed without a
shareholder vote.
The Fund may write put options on domestic debt securities to attempt
to enhance the Fund's income or to reduce the overall risk of its
investments. The Fund may only write put options on securities if they are
listed on a national securities exchange.
As with covered call writing, the Fund may write puts on securities
for the purpose of increasing income by receiving premiums from the
purchaser of the option. When the Fund writes a put, it receives a premium
and agrees to purchase the related investments from the purchaser of the
put during the put period at a fixed exercise price (which may differ from
the market price of the related investments) regardless of market price
changes during the put period. If the put is exercised, the Fund must
purchase the related investments at the exercise price. Puts are
ordinarily sold when the Fund anticipates that, during the option period,
the market price of the underlying security will decline by less than the
amount of the premium. In writing puts, the Fund assumes the risk of loss
should the market value of the underlying security decline below the
exercise price of the option. The Fund's cost of purchasing the
investments will be adjusted by the amount of the premium it has received.
The Fund will write a put only when it has determined that it would be
willing to purchase the underlying security at the exercise price.
To terminate its obligation on a put that it has written, the Fund may
purchase a put in a "closing transaction." (As discussed below, it may
also purchase puts other than as part of a closing transaction.) A profit
or loss will be realized depending on the amount of option transaction
costs and whether the premium previously received is more or less than the
cost of the put purchased. A profit will also be realized if the put
lapses unexercised because the Fund retains the premium received.
Purchasing Calls and Puts on Securities. The Fund may purchase call
and put options on securities, but only if the related investments are
domestic debt securities, including, without limitation, U.S. Government
Securities. The above limitation is a fundamental policy, which cannot be
changed without a shareholder vote.
The Fund may purchase call and put options on domestic debt securities
to attempt to enhance the Fund's income or to attempt to reduce the overall
risk of its investments. The Fund may only purchase put and call options
on securities if they are listed on a national securities exchange.
The Fund may purchase a call in a closing transaction in order to
terminate its obligation on a call it has written. In addition, the Fund
may purchase calls on securities for the purpose of taking advantage of a
rise in the market value of the underlying securities.
When the Fund buys a call, it pays a premium and has the right to buy
the related investments from the seller of a call during the call period at
a fixed exercise price. The Fund benefits only if the market price of the
related investments is above the call price prior to the expiration date
and the call is either exercised or sold at a profit. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at
its expiration date and the Fund will lose the premium paid and the right
to purchase the related investments.
The Fund may purchase puts on securities to protect against price
declines in the value of its portfolio securities. The Fund may purchase a
put on a security it owns ("protective put") or on a security it does not
own ("nonprotective put"). When the Fund buys a put, it pays a premium and
has the right to sell the related investments to the seller of the put
during the put period at a fixed exercise price. Buying a protective put
(as defined above) permits the Fund to protect itself prior to the time the
put expires against a decline in the value of the related investments below
the exercise price by selling them through the exercise of the put. Buying
a nonprotective put (as defined above) permits the Fund, if the market
price of the related investments is below the put price during the put
period, either to resell the put or to buy the related investments and sell
them at the exercise price. If the market price of the related investments
is above the exercise price and as a result the put is not exercised or
resold (whether or not at a profit), the put will become worthless at its
expiration date.
Risks of Options on Securities. The Fund is only authorized to write
and purchase options on securities that are listed. Exchange-listed options
are issued by a clearing organization affiliated with the exchange on which
the option is listed. A position in an exchange-listed option may be
closed out only on an exchange that provides a secondary market for options
covering the same related investment having the same exercise price and
expiration date. There is no assurance that a liquid secondary market will
exist for any particular option.
The Fund's put and call activities may affect its turnover rate and
brokerage commission payments. The exercise of calls or puts written by
the Fund may cause it to sell or purchase related investments, thus
increasing its turnover rate in a manner beyond its control. Once the Fund
has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the
exercise price. The exercise of puts purchased by the Fund may also cause
the sale of related investments, also increasing turnover; although such
exercise is within the Fund's control, holding a protective put might cause
it to sell the related investments for reasons that would not exist in the
absence of the put. The Fund will pay a brokerage commission each time it
buys or sells a put or call. Such commissions may be higher than those
that would apply to direct purchases or sales.
Option premiums paid to control an amount of related investments are
small in relation to the market value of related investments and,
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options will result in the Fund's net asset
value being more sensitive to changes in the value of the related
investment.
Options on Municipal Bond Indices. The Fund may write and purchase
options on indices, but only if the indices are municipal bond indices.
The above limitation is a fundamental policy, which cannot be changed
without a shareholder vote.
The Fund may write and purchase options on municipal bond indices to
attempt to enhance the Fund's income or to reduce the overall risk of its
investments. The Fund may only write and purchase options on municipal
bond indices if they are listed on a national securities exchange.
The Fund may write options on municipal bond indices, primarily to
generate income, when the Manager anticipates that the index price will not
increase or decrease by more than the premium received by the Fund. The
Fund may purchase calls on municipal bond indices to hedge against
anticipated increases in the price of debt securities it wishes to acquire
and purchase puts on municipal bond indices to hedge against anticipated
declines in the market value of portfolio securities. Puts and calls on
municipal bond indices are similar to puts and calls on securities or
futures contracts except that all settlements are in cash and gain or loss
depends on changes in the index in question (and thus on price movements in
the municipal bond market generally) rather than on price movements in
individual securities or futures contracts. When the Fund writes a call on
a municipal bond index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the
municipal bond index upon which the call is based is greater than the
exercise price of the call. The amount of cash is equal to the difference
between the closing price of the index and the exercise price of the call
times a specified multiple ("multiplier"), which determines the total
dollar value for each point of such difference. When the Fund buys a call
on a municipal bond index, it pays a premium and has the same rights as to
such call as are indicated above. When the Fund buys a put on a municipal
bond index, it pays a premium and has the right, prior to the expiration
date, to require the seller of the put, upon the Fund's exercise of the
put, to deliver to the Fund an amount of cash if the closing level of the
municipal bond index upon which the put is based is less than the exercise
price of the put, which amount of cash is determined by the multiplier, as
described above for calls. When the Fund writes a put on a municipal bond
index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the municipal bond
index and the exercise price times the multiplier if the closing level is
less than the exercise price.
Risks of Options on Municipal Bond Indices. The risks of investment
in options on municipal bond indices may be greater than options on
securities. Because municipal bond index options are settled in cash, when
the Fund writes a call on a municipal bond index it cannot provide in
advance for its potential settlement obligations by acquiring and holding
the underlying securities. The Fund can offset some of the risk of writing
a call index option by holding a diversified portfolio of municipal bonds
similar to those on which the underlying index is based. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same municipal bonds as 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 municipal bond portfolio that
exactly reproduced the composition of the underlying index, it still would
not be fully covered from a risk standpoint because of the "timing risk"
inherent in writing index options. When an index option is exercised, the
amount of cash that the holder is entitled to receive is determined by the
difference between the exercise price and the closing index level on the
date when the option is exercised. As with other kinds of options, the
Fund as the call writer will not learn that it has been assigned until the
next business day at the earliest. The time lag between exercise and
notice of assignment poses no risk for the writer of a covered call on a
specific underlying security, such as a municipal bond, because there the
writer's obligation is to deliver the underlying security, not to pay its
value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by
simply delivering it, and the risk that its value may have declined since
the exercise date is borne by the exercising holder. In contrast, even if
the writer of an index call holds municipal bonds that exactly match the
composition of the underlying index, it will not be able to satisfy its
assignment obligations by delivering those municipal bonds against payment
of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date. By the time
it learns that it has been assigned, the index may have declined, with a
corresponding decline in the value of its municipal bond portfolio. This
"timing risk" is an inherent limitation on the ability of index call
writers to cover their risk exposure by holding municipal bond positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the
level of the underlying index may subsequently change. If such a change
causes the exercised option to fall out-of-the-money, the Fund will be
required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the
assigned writer.
Futures Contracts and Options Thereon. The Fund may engage in buying
and selling interest rate futures contracts, but only "Debt Futures"
(futures relating to domestic debt securities) and "Municipal Bond Index
Futures" (futures contracts relating to municipal bond indices). The Fund
may also buy and sell options on Debt Futures. The limitation on buying
and selling futures contracts to Debt Futures and Municipal Bond Index
Futures, and the limitation on buying and selling options on futures
contracts to options on Debt Futures, are fundamental policies, which
cannot be changed without a shareholder vote.
When the Fund purchases a futures contract, it incurs an obligation to
take delivery of a specified amount of the obligation underlying the
contract at a specified time in the future for a specified price. When the
Fund sells a futures contract, it incurs an obligation to deliver the
specified amount of the underlying obligation at a specified time in return
for an agreed upon price. In the case of a Municipal Bond Index Future,
the obligation underlying the futures contract is an amount of cash equal
to a specified dollar amount times the difference between the index value
at the close of the last trading day of the futures contract and the price
at which the futures contract is originally struck. In the case of a Debt
Future, the underlying obligation is the related domestic debt security.
When the Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the
futures contract at a specified exercise price at any time during the term
of the option. If the Fund has written a call, it becomes obligated to
assume a "short" position in the futures contract, which means that it is
required to deliver the underlying securities. If it has written a put, it
becomes obligated to assume a "long" position in the futures contract,
which means that it is required to take delivery of the underlying
securities. When the Fund purchases an option on a futures contract, it
acquires the right, in return for the premium it paid, to assume a position
in the futures contract, a "long" position if the option is a call and a
"short" position if the option is a put.
The Fund will not purchase or sell futures contracts or options
thereon for speculative purposes but rather only for the purpose of hedging
against changes in the market value of its portfolio securities or changes
in the market value of securities that the Manager anticipates that it may
wish to include in the portfolio of the Fund. The Fund may sell a
Municipal Bond Index Future if the Manager anticipates that a general
market or market sector decline may adversely affect the market value of
any or all of the Fund's municipal bond holdings. The Fund may buy a
Municipal Bond Index Future if the Manager anticipates a significant market
sector advance in the municipal bonds it intends to purchase for the Fund's
portfolio. The Fund may purchase a Municipal Bond Index Future as a
temporary substitute for the purchase of individual bonds that may then be
purchased in an orderly fashion. In the case of debt securities, the Fund
could sell a Debt Future, or write a call or buy a put on a Debt Future, to
attempt to protect against the risk that the value of the debt securities
held by the Fund might decline. The Fund could purchase a Debt Future, or
purchase a call or write a put on a Debt Future, to protect against the
risk of an increase in the value of debt securities at a time when the Fund
is not invested in debt securities to the extent permitted by its
investment policies. As securities are purchased, corresponding futures or
options positions would be terminated.
Futures strategies also can be used to manage the average duration of
the Fund's portfolio. If the Manager wishes to shorten the average
duration of the Fund, the Fund may sell a Debt Future or a call option
thereon, or purchase a put option on a Debt Future. If the Manager wishes
to lengthen the average duration of the Fund, the Fund may buy a Debt
Future or a call option thereon, or sell a put option on a Debt Future.
Unlike when the Fund purchases or sells a municipal bond or taxable
obligation, no price is paid or received by it when it purchases or sells a
futures contract. Initially, the Fund will be required to deposit an
amount of cash or U.S. Treasury Bills equal to a varying specified
percentage of the contract amount. This amount is known as initial margin.
Cash held in the margin account is not income producing. Subsequent
payments, called variation margin, to and from the broker will be made on a
daily basis as the price of the underlying debt securities or index
fluctuates making the futures contract more or less valuable, a process
known as "marking-to-market."
If the Fund writes an option on a futures contract, it will be
required to deposit initial and variation margin pursuant to the
requirements similar to those applicable to futures contracts. Premiums
received from the writing of an option on a futures contract are included
in the initial margin deposit.
Changes in variation margin are recorded by the Fund as unrealized
gains or losses. Initial margin payments will be deposited with the Fund's
Custodian bank in an account registered in the broker's name; access to the
assets in that account may be made by the broker only under specified
conditions. At any time prior to expiration of a futures contract or
option thereon, the Fund may elect to close the position by taking an
opposite position, which will operate to terminate its position in the
futures contract or option. A final determination of variation margin is
then made, additional cash is required to be paid by or released to the
Fund and the Fund realizes a loss or a gain. Although futures contracts by
their terms call for the actual delivery or acquisition of the underlying
obligation, in most cases the contractual obligation is fulfilled without
having to make or take delivery. The Fund does not generally intend to
make or take delivery of the underlying obligation. All transactions in
futures contracts and options thereon are made, offset or fulfilled through
a clearing house associated with the exchange on which the contracts are
traded. Although the Fund intends to buy and sell futures contracts and
options thereon only on exchanges where there appears to be an active
secondary market, there is no assurance that a liquid secondary market will
exist for any particular futures contract or option thereon at any
particular time. In such event, it may not be possible to close a futures
contract or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or option thereon
can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing the liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or option
thereon due to the absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, the Fund would be required to make daily variation margin
payments and might be required to maintain the position being hedged by the
futures contract or option or to maintain cash or securities in a
segregated account.
The Fund must operate within certain restrictions as to positions in
futures contracts and options thereon under a rule ("CFTC Rule") adopted by
the CFTC under the Commodity Exchange Act ("CEA") to be eligible for the
exclusion provided by the CFTC Rule from registration by the Fund with the
CFTC as a "commodity pool operator" (as defined under the CEA), and must
represent to the CFTC that it will operate within such restrictions. Under
these restrictions, to the extent that the Fund enters into futures
contracts and options on futures contracts that are not for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums on these positions (excluding the amount by which options are "in-
the-money") may not exceed 5% of the Fund's net assets. (In general, a
call option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of
the call; a put option on a futures contract is "in-the-money" if the value
of the underlying futures contract is exceeded by the strike price of the
put.)
Risks of Futures Contracts and Options Thereon. Since futures
contracts and options thereon can replicate movements in the cash markets
for the securities in which the Fund invests without the large cash
investments required for dealing in such markets, they may subject the Fund
to greater and more volatile risks than might otherwise be the case. The
principal risks associated with the use of such instruments are (i)
imperfect correlation between movements in the market price of the
portfolio investments (held or intended to be purchased) being hedged and
in the price of the futures contract or option; (ii) possible lack of a
liquid secondary market for closing out futures contract or options
positions; (iii) the need for additional portfolio management skills and
techniques; and (iv) losses due to unanticipated market price movements.
For a hedge to be completely effective the price change of the hedging
instrument should equal the price change of the security being hedged.
Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is
being hedged. The Manager will attempt to create a closely correlated
hedge, but hedging activity may not be completely successful in eliminating
market value fluctuation. (See below for additional discussion of
correlation as it relates to Municipal Bond Index Futures.)
The ordinary spreads between prices in the cash and futures markets
(including the options on futures market), due to differences in the
natures of those markets, are subject to the following factors, which may
create distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through offsetting transactions, which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of
the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. 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 or municipal bond market trends
by the Manager may still not result in a successful transaction. The
Manager may be incorrect in its expectations as to the extent of various
interest rate or bond market movements or the time span within which the
movements take place.
The risk of imperfect correlation between movements in the price of a
Municipal Bond Index Future and movements in the price of the municipal
bonds that are the subject of the hedge increases as the composition of the
Fund's municipal bond portfolio diverges from the municipal bonds included
in the index. The price of the Municipal Bond Index Futures may move more
than or less than the price of the securities being hedged. If the price of
the Municipal Bond Index Future moves less than the price of the securities
that are the subject of the hedge, the hedge will not be fully effective
but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it
had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, this advantage will be partially offset by
the futures contract. If the price of the futures contract moves more than
the price of the security, the Fund will experience either a loss or a gain
on the futures contract that will not be completely offset by movements in
the price of the securities that are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of the
securities being hedged and movements in the price of the Municipal Bond
Index Futures, the Fund may buy or sell Municipal Bond Index Futures in a
greater dollar amount than the dollar amount of the securities being hedged
if the historical volatility of the prices of such securities being hedged
is more than the historical volatility of the municipal bonds included in
the index. It is also possible that, where the Fund has sold futures
contracts to hedge its portfolio against decline in the market, the market
may advance and the value of the municipal bonds and taxable obligations
held in the portfolio may decline. If this occurred the Fund would lose
money on the futures contract and also experience a decline in value of its
portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio of municipal bonds will tend to move in the same direction as the
municipal bond indices on which the futures contracts are based.
Where Municipal Bond Index Futures are purchased to hedge against a
possible increase in the price of municipal bonds and/or taxable
obligations before the Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund
then concludes not to invest in them at that time because of concern as to
possible further market decline or for other reasons, it will realize a
loss on the futures contract that is not offset by a reduction in the price
of the municipal bonds and/or taxable obligations it had anticipated
purchasing.
Limitations on the Use of Options on Securities, Municipal Bond
Indices and Futures Contracts. The Fund's use of options is governed by
the following guidelines, which can be changed by the Fund's Board of
Directors without a shareholder vote:
(1) options may be purchased or written only when the Manager
believes that there exists a liquid secondary market in such options;
(2) the Fund may not write call options having aggregate exercise
prices greater than 25% of its net assets; and
(3) the Fund may purchase a put or a call option (including straddles
or spreads) only if the value of its premium, when aggregated with the
premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets.
Cover for Futures Contracts and Options on Securities, Municipal Bond
Indices and Futures Contracts. Transactions using futures contracts and
options (other than options that the Fund has purchased) expose the Fund to
an obligation to another party. The Fund will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position
in securities or other options or futures contracts or (2) cash,
receivables and short-term debt securities with a value sufficient at all
times to cover its potential obligations not covered as provided in (1)
above. The Fund will comply with SEC guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S.
Government Securities or other liquid, high-grade debt securities in a
segregated account with its Custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding futures contract or option is open,
unless they are replaced with similar assets. As a result, the commitment
of a large portion of the Fund's assets to cover or segregated accounts
could impede portfolio management or the Fund's ability to meet redemption
requests or other current obligations.
Investment Restrictions
Certain of the Fund's investment restrictions and policies are
described in the Prospectus. The following are fundamental policies and,
together with certain restrictions described in the Prospectus, cannot be
changed without shareholder approval. Under these additional restrictions,
the Fund:
(i) May not make any investments other than in municipal bonds and in
the taxable obligations, options, futures contracts and other
financial instruments described in the Prospectus;
(ii) May not purchase any voting securities, any commodities or
commodity contracts (except that it may buy and sell the options,
futures contracts and other financial instruments described in
the Prospectus whether or not any of them is considered to be a
commodity or a commodity contract), or any real estate or
interests in real estate investment trusts;
(iii) May not lend money or other assets; (neither purchasing the
securities in which the Fund may invest or engaging in repurchase
agreements is considered "lending.");
(iv) May not borrow money or pledge any of its assets except that, as
a temporary measure for extraordinary or emergency purposes and
not for investment purposes, the Fund may borrow from banks up to
5% of the value of its total assets (this does not prohibit the
escrow and collateral arrangements contemplated in connection
with investment in options and futures contracts);
(v) May not invest for the purpose of exercising control or
management of other companies;
(vi) May not buy or continue to hold securities if any one of the
Fund's Directors or officers or certain others own more than .5
of 1% of the securities of an issuer and if the persons who own
that much or more own 5% of that issuer's securities;
(vii) May not sell short, buy on margin, engage in arbitrage
transactions or participate on a joint, or a joint and several,
basis in any trading account in securities; however, it may make
margin deposits in connection with options and futures contracts;
(viii) May not engage in the underwriting of securities;
(ix) May not purchase the securities of any "issuer" if more than 5%
of the Fund's total assets, taken at market, would then be
invested in that "issuer." See "Municipal Bonds" for a
description of an "issuer." This restriction does not apply to
cash or cash items, U.S. Government Securities, i.e., securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
In applying this 5% restriction, the Fund applies the same
standards set forth under "Municipal Bonds" for determining who
is an "issuer"; however, it also considers for the purpose of
this 5% restriction that a guarantee by a government or other
entity of a municipal bond is a separate security which would be
given a value and included in the 5% restriction if the value of
all municipal bonds created by the government or entity and owned
by the Fund should exceed 10% of the value of its total assets;
or
(x) May not buy shares of other investment companies which redeem
their shares. The Fund may buy shares of investment companies
which 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. 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 fees, including management and
administrative fees.
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 was 26.26% for the
fiscal year ended September 30, 1994 and 26.13% for the fiscal year ended
September 30, 1993.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to Waddell & Reed Investment Management
Company, a wholly-owned subsidiary of Waddell & Reed, Inc. Under the
Management Agreement, the Manager is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of the
Manager and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer
agency services ("Shareholder Servicing Agreement") and a separate
agreement for accounting services ("Accounting Services Agreement") with
the Fund. The Management Agreement contains detailed provisions as to the
matters to be considered by the Fund's Directors prior to approving any
Shareholder Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
The Manager is a wholly-owned subsidiary of Waddell & Reed, Inc.
Waddell & Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc., a holding company. Waddell & Reed Financial
Services, Inc. is a wholly-owned subsidiary of United Investors Management
Company. United Investors Management Company is a wholly-owned subsidiary
of Torchmark Corporation. Torchmark Corporation is a publicly held
company. The address of Torchmark Corporation and United Investors
Management Company is 2001 Third Avenue South, Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of
Mutual Funds since 1940 or the company's inception date, whichever was
later, and to TMK/United Funds, Inc. since that fund's inception, until
January 8, 1992 when it assigned its duties as investment manager for these
funds (and the related professional staff) to the Manager. The Manager has
also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and Torchmark Government Securities Fund, Inc.
and Torchmark Insured Tax-Free Fund, Inc. since they each commenced
operations in February 1993. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the United Group of Mutual
Funds, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between Waddell
& Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., and the Fund, the Agent performs shareholder servicing functions,
including the maintenance of shareholder accounts, the issuance, transfer
and redemption of shares, distribution of dividends and payment of
redemptions, the furnishing of related information to the Fund and handling
of shareholder inquiries. A new Shareholder Servicing Agreement, or
amendments to the existing one, may be approved by the Fund's Directors
without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records,
pricing of the Fund's shares, and preparation of prospectuses for existing
shareholders, proxy statements and certain reports. A new Accounting
Services Agreement, or amendments to an existing one, may be approved by
the Fund's Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for the Manager's management services,
the Fund pays the Manager a fee as described in the Prospectus.
Prior to the above-described assignment from Waddell & Reed, Inc.
to Waddell & Reed Investment Management Company, all fees were paid to
Waddell & Reed, Inc. The management fee paid to the investment manager for
the fiscal years ended September 30, 1994, 1993 and 1992 were $1,756,750,
$1,510,519 and $1,273,348, respectively. For purposes of calculating the
daily fee the Fund does not include money owed to it by Waddell & Reed,
Inc. for shares which it has sold but not yet paid to the Fund. The Fund
accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account which was in existence
at any time during the prior month, plus $0.30 for each account on which a
dividend or distribution, of cash or shares, was paid in that month. It
also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs; microfilm and storage costs for
certain documents; forms, printing and mailing costs; and costs of legal
and special services not provided by Waddell & Reed, Inc., the Manager or
the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
fee for accounting services as described in the Prospectus. Fees paid to
the Agent for the fiscal years ended September 30, 1994, 1993 and 1992 were
$50,000, $50,000 and $50,000, respectively.
The State of California imposes limits on the amount of certain
expenses the Fund can pay and requires the Manager to reduce its fee if
these expense amounts are exceeded. The Manager must reduce the amount of
such expenses to the extent they exceed these expense limits. Not all of
the Fund's expenses are included in the limit. The excluded expenses
include interest, taxes, brokerage commissions and extraordinary expenses
such as litigation that usually do not arise in the normal operations of a
mutual fund. The Fund's other expenses, including its management fee, are
included.
The Manager must, under California law, reduce the cost of any
included expenses which are over 2.5% of the Fund's first $30 million of
average net assets, 2% of the next $70 million of average net assets, and
1.5% of any remaining average net assets during a fiscal year. The Fund
will notify shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the
Manager and the Agent, respectively, pay all of their own expenses in
providing these services. Amounts paid by the Fund under the Shareholder
Servicing Agreement are described above. Waddell & Reed, Inc. and
affiliates pay the Fund's Directors and officers who are affiliated with
the Manager and its affiliates. The Fund pays the fees and expenses of the
Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the
Management Agreement, Shareholder Servicing Agreement and Accounting Ser-
vices 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 amount of underwriting commissions for the
fiscal years ended September 30, 1994, 1993 and 1992 were $1,486,258,
$1,688,436 and $1,338,253, respectively. The amounts retained by Waddell &
Reed, Inc. for each period were $649,284, $744,476 and $590,487,
respectively.
A major portion of the sales charge is paid to sales representatives
and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate
its sales representatives as to purchases for which there is no sales
charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Fund under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Under a Service Plan (the "Plan") adopted by the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940, the Fund may pay Waddell &
Reed, Inc., the principal underwriter for the Fund, a fee not to exceed
.25% of the Fund's average annual net assets, paid monthly, to reimburse
Waddell & Reed, Inc. for its costs and expenses in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Plan and a related Service Agreement between the Fund and
Waddell & Reed, Inc. contemplate that Waddell & Reed, Inc. may be
reimbursed for amounts it expends in compensating, training and supporting
registered sales representatives, sales managers and/or other appropriate
personnel in providing personal services to Fund shareholders and/or
maintaining shareholder accounts; increasing services provided to Fund
shareholders by office personnel located at field sales offices; engaging
in other activities useful in providing personal service to Fund
shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers, and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. Service fees in the amount of $310,860 were paid (or
accrued) by the Fund for the fiscal year ended September 30, 1994.
The Plan and the Service Agreement were approved by the Fund's Board
of Directors, including the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter,
the "Plan Directors"). The Plan was also approved by shareholders of the
Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding shares of the Fund, and (iv) while the Plan remains in
effect, the selection and nomination of the Directors who are Plan
Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is United Missouri Bank, n.a., Kansas City,
Missouri. In general, the Custodian is responsible for holding the Fund's
cash and securities. Price Waterhouse LLP, Kansas City, Missouri, the
Fund's independent accountants, audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each of the shares of the Fund is the value
of the Fund's assets, less what it owes, divided by the total number of
shares. For example, if on a particular day the Fund owned securities
worth $100 and had cash of $15, the total value of the assets would be
$115. If it owed $5, the net asset value would be $110 ($115 minus $5).
If it had 11 shares outstanding, the net asset value of one share would be
$10 ($110 divided by 11).
Shares of the Fund are sold at their next determined net asset value
plus the sales charge described in the Prospectus. The price makeup as of
September 30, 1994 was as follows:
Net asset value per share (net assets divided
by capital shares outstanding) .....................$5.12
Add: selling commission (4.25% of offering price) ..... .23
-----
Maximum offering price per share (net asset
value per share divided by 95.75%) .................$5.35
=====
The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge. The number
of shares you receive for your purchase depends on the next offering price
after Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value per share and offering price are ordinarily
computed once on each day that the New York Stock Exchange is open for
trading as of the later of the close of the regular session of the New York
Stock Exchange (ordinarily, 4:00 p.m. Eastern time) or the close of the
regular session of any domestic securities or commodities exchange on which
an option or future held by the Fund is traded. The New York Stock
Exchange annually announces the days on which it will not be open for
trading. The most recent announcement indicates that the New York Stock
Exchange will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the New
York Stock Exchange may close on other days. The net asset value will
change every business day, since the value of the assets changes every day
and so does the number of shares.
The Board of Directors has decided to use the prices quoted by a
dealer in bonds which offers a pricing service to value municipal bonds.
The Board believes that such a service does quote their fair value. The
Board, however, may hereafter determine to use another service or use the
bid price quoted by dealers if it should determine that such service or
quotes more accurately reflect the fair value of municipal bonds held by
the Fund.
Short-term debt securities are valued at amortized cost, which
approximates market. Securities or other assets which are not valued by
either of the foregoing methods and for which market quotations are not
readily available would be valued by appraisal at their fair value as
determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Directors.
Options and futures contracts purchased and held by the Fund are
valued at the last sales price thereof on the securities or commodities
exchanges on which they are traded, or, if there are no transactions, at
the mean between bid and asked prices. Ordinarily, the close of the
regular session for option trading on national securities exchanges is 4:10
p.m. Eastern time and the close of the regular session for commodities
exchanges is 4:15 p.m. Eastern time. Futures contracts will be valued with
reference to established futures exchanges. The value of a futures
contract purchased by the Fund will be either the closing price of that
contract or the bid price. Conversely, the value of a futures contract
sold by the Fund will be either the closing price or the asked price.
Minimum Initial and Subsequent Investments
Initial investments must be at least $500 with the exceptions
described in this paragraph. A minimum initial investment of $25 is
applicable to purchases made through payroll deduction for or by employees
of the Manager, Waddell & Reed, Inc. or their affiliates. A $50 minimum
initial investment pertains to accounts for which an investor has arranged,
at the time of initial investment, to make subsequent purchases for the
account by having regular monthly withdrawals of $25 or more made from a
bank account. A $100 minimum initial investment pertains to certain
exchanges of shares from another fund in the United Group. Except with
respect to certain exchanges and automatic withdrawals from a bank account,
a shareholder may make subsequent investments of any amount. See
"Exchanges for Shares of Other Funds in the United Group."
Reduced Sales Charges
Account Grouping
Large purchases are subject to lower sales charges. The schedule of
sales charges appears in the Prospectus. For the purpose of taking
advantage of the lower sales charges available for large purchases, a
purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with
purchases in any other of these categories. References to purchases in an
Individual Retirement Account ("IRA") or other retirement plan (for which
investments in the Fund would not be appropriate) are made only to
illustrate how purchases of Fund shares may be grouped with purchases made
in other funds in the United Group.
1. Purchases by an individual for his or her own account (includes
purchases under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or spouse
in a Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to
Minors Act account;
6. Purchases by that individual or his or her spouse for his or her IRA,
tax sheltered annuity account ("T.S.A.") or Keogh plan account,
provided that the individual and spouse are the only participants in
the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or
her spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has
an account in her own name; A's father has an account in his own
name; the UGMA account may be grouped with A's father's account
but may not be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made
in the trust account is eligible for grouping with an IRA account
of W, H's wife;
C. H's will provides for the establishment of a trust for the
benefit of his minor children upon H's death; his bank is named
as trustee; upon H's death, an account is established in the name
of the bank, as trustee; a purchase in the account may be grouped
with an account held by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son,
as successor trustee and R and S as beneficiaries; upon X's
death, the account is transferred to R as trustee; a purchase in
the account may not be grouped with R's individual account. (If
X's spouse, Y, was successor trustee, this purchase could be
grouped with Y's individual account.)
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase in accounts eligible for grouping may be combined
for purposes of determining the availability of a reduced sales charge. In
order for an eligible purchase to be grouped, the investor must advise
Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $100,000; at the
same time, H's parents open up two UGMA accounts for H and W's
two minor children and invest $100,000 in each child's name; the
combined purchases are subject to the reduced sales load
applicable to a purchase of $300,000 provided that Waddell &
Reed, Inc. is advised that the purchases are entitled to
grouping.
Rights of Accumulation
If shares are held in any account and an additional purchase is made
in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the
existing account as of the date the new purchase is accepted by Waddell &
Reed, Inc. for the purpose of determining the availability of a reduced
sales charge.
Example: H is a current shareholder who invested in the Fund three years
ago. His account has a net asset value of $100,000. His wife,
W, now wishes to invest $15,000 in the Fund. W's purchase will
be combined with H's existing account and will be entitled to the
reduced sales charge applicable to a purchase in excess of
$100,000. H's original purchase was subject to a full sales
charge and the reduced charge does not apply retroactively to
that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced
charge and provide Waddell & Reed, Inc. with the name and number of the
existing account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under the plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases is also
available under a Statement of Intention. By signing a Statement of
Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount
which is sufficient to qualify for a reduced sales charge. The 13-month
period begins on the date the first purchase made under the Statement is
accepted by Waddell & Reed, Inc. Each purchase made from time to time
under the Statement is treated as if the purchaser were buying at one time
the total amount which he or she intends to invest. The sales charge ap-
plicable to all purchases made under the terms of the Statement will be the
sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account;
that is, shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest
in his own name a dollar amount sufficient to entitle him to
purchase shares at the sales charge applicable to a purchase of
$300,000. H has an UGMA for his child and the shares held in the
account have a net asset value as of the date the Statement is
accepted by Waddell & Reed, Inc. of $50,000; H's wife, W, has an
account in her own name invested in another fund in the United
Group which charges the same sales load as the Fund, with a net
asset value as of the date of acceptance of the Statement of
$75,000; H needs to invest $175,000 over the 13-month period in
order to qualify for the reduced sales load applicable to a
purchase of $300,000.
A copy of the Statement of Intention signed by a purchaser will be
returned to the purchaser after it is accepted by Waddell & Reed, Inc. and
will set forth the dollar amount which must be purchased within the 13-
month period in order to qualify for the reduced sales charge.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement. An amount
equal to 5% of the purchase required under the Statement will be held "in
escrow." If a purchaser does not, during the period covered by the
Statement, invest the amount required to qualify for the reduced sales
charge under the terms of the Statement, he or she will be responsible for
payment of the sales charge applicable to the amount actually invested.
The additional sales charge owed on purchases made under a Statement which
is not completed will be collected by redeeming part of the shares
purchased under the Statement and held "in escrow" unless the purchaser
makes payment of this amount to Waddell & Reed, Inc. within 20 days of
Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the Statement of Intention, the lower sales
charge will apply.
A Statement of Intention does not bind the purchaser to buy, or
Waddell & Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement
of Intention, the initial investment must be at least $200,000, and the
value of any shares redeemed during the 13-month period which were acquired
under the Statement will be deducted in computing the aggregate purchases
under the Statement.
Other Funds in the United Group
Reduced sales charges for larger purchases apply to purchases of any
of the funds in the United Group which are subject to a sales charge. A
purchase of, or shares held, in any of the funds in the United Group which
are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group are subject to a maximum
5.75% ("full") sales charge as described in the prospectus of each Fund:
United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United
Retirement Shares, Inc., United High Income Fund, Inc., United New Concepts
Fund, Inc., United Gold & Government Fund, Inc. and United High Income Fund
II, Inc. The following funds in the United Group are subject to a
"reduced" sales charge as described in the prospectus of each fund: United
Municipal Bond Fund, Inc., United Government Securities Fund, Inc. and
United Municipal High Income Fund, Inc. For the purposes of obtaining the
lower sales charge which applies to large purchases, purchases in a fund in
the United Group which is subject to a full sales charge may not be grouped
with purchases in a fund in the United Group which is subject to a reduced
sales charge; conversely, purchases made in a fund with a reduced sales
charge may not be grouped or combined with purchases of a fund which is
subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge.
Purchases in that fund are not eligible for grouping with purchases in any
other fund.
Net Asset Value Purchases
As stated in the Prospectus, Fund shares may be purchased at net asset
value by the Directors and officers of the Fund, employees of Waddell &
Reed, Inc., employees of their affiliates, sales representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouses and
spouse's parents of each such Director, officer, employee and sales
representative. "Child" includes stepchild; "parent" includes stepparent.
Trusts under which the grantor and the trustee or a co-trustee are each an
eligible purchaser are also eligible for net asset value purchases.
"Employees" includes retired employees. A retired employee is an
individual separated from service from Waddell & Reed, Inc. or affiliated
companies with a vested interest in any Employee Benefit Plan sponsored by
Waddell & Reed, Inc. or its affiliated companies. "Sales representatives"
includes retired sales representatives. A "retired sales representative"
is any sales representative who was, at the time of separation from service
from Waddell & Reed, Inc., a Senior Account Representative. A custodian
under the Uniform Gifts (or Transfers) to Minors Act purchasing for the
child or grandchild of any employee or sales representative may purchase at
net asset value whether or not the custodian himself is an eligible
purchaser.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number of
instances in which the Fund's shares are sold or issued on a basis other
than the maximum public offering price, that is, the net asset value plus
the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases, whether made at one time or over a
period of time as under a Statement of Intention or right of accumulation.
See the table of sales charges in the Prospectus. The reasons for these
quantity discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts;
(ii) certain quantity discounts are required by rules of the National
Association of Securities Dealers, Inc. (as are elimination of sales
charges on the reinvestment of dividends and distribution); and (iii) they
are designed to avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses. Quantity
discounts are made available to certain related persons for reasons of
family unity and to provide a benefit to tax exempt plans and
organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares
exchanged. Sales without sales charge are permitted to Directors, officers
and certain others due to reduced or eliminated selling expenses and since
such sales may aid in the development of a sound employee organization,
encourage incentive, responsibility and interest in the United Group and an
identification with its aims and policies. Limited reinvestments of
redemptions at no sales charge are permitted to attempt to protect against
mistaken or not fully informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or eliminated
sales expenses and since, in some cases, such issuance is exempted by the
Investment Company Act of 1940 from the otherwise applicable restrictions
as to what sales charge must be imposed. In no case in which there is a
reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund receives the
net asset value per share of all shares sold or issued.
Redemptions
The Prospectus gives information as to redemption procedures; the
emergency or other extraordinary conditions there indicated under which
payment may be delayed beyond seven days are certain emergency conditions
determined by the Securities and Exchange Commission, when the New York
Stock Exchange is closed other than for weekends or holidays, or when
trading on the Exchange is restricted. The extraordinary conditions
mentioned in the Prospectus under which redemptions may be made in
portfolio securities are that the Fund's Board of Directors can decide that
conditions exist making cash payments undesirable. If they should,
redemption payments could be made in securities. They would be valued at
the value used in figuring net asset value. There would be brokerage costs
to the redeeming shareholder in selling such securities. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment
Company Act, pursuant to which it is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of its net asset value during any
90-day period for any one shareholder.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments; this can be done by redeeming shares on a
regular basis. The shares on which this can be done are not only Fund
shares but also the shares of any of the funds in the United Group. It
would be a disadvantage to an investor to make additional purchases of
shares while a withdrawal program is in effect as this would result in
duplication of sales charges.
To qualify for these arrangements, you must have invested at least
$10,000 in shares which you still own of any of the funds in the United
Group; or, you must own shares having a value of at least $10,000. The
value for this purpose is not the net asset value but the value at the
offering price, i.e., the net asset value plus the sales charge.
These arrangements are called a Flexible Withdrawal Service (the
"Service"). To start this Service, you must fill out a form (available
from Waddell & Reed, Inc.), advising Waddell & Reed, Inc. of the manner in
which you want your shares redeemed to make the payments. You have three
choices:
First. To get a monthly, quarterly, semiannual or annual payment of
$50 or more;
Second. To get a monthly payment, which will change each month, equal
to one-twelfth of a percentage of the value of the shares in the account;
you fix the percentage; or
Third. To get a monthly or quarterly payment, which will change each
month or quarter, by redeeming a fixed number of shares (at least five
shares).
Shares are redeemed on the 20th day of the month in which the payment
is to be made, or on the prior business day if the 20th is not a business
day. Payments are made within five days of the redemption.
The Fund, not Waddell & Reed, Inc., pays the costs of this Service.
Having the Service costs you nothing extra individually.
If you have a share certificate for the shares you want to make
available for this Service, you must enclose the certificate with the form
initiating the Service.
The dividends and distributions on shares you have made available for
this Service are reinvested in additional shares. All payments are made by
redeeming shares, which may involve a gain or loss for tax purposes. To
the extent that payments exceed dividends and distributions, the number of
shares you own will decrease. When all of the shares in your account are
redeemed, you will not receive any more payments. Thus, the payments are
not an annuity or an income or return on your investment.
You may, at any time change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to
you. For example, if you started out with a $50 monthly payment, you could
change to a $200 quarterly payment. You can at any time redeem part or all
of the shares in your account; if you redeem all of the shares, the Service
is terminated. The Fund can also terminate the Service by notifying you in
writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax
return.
Exchanges for Shares of Other Funds in the United Group
You may decide you would rather own shares of one or more of the other
funds in the United Group rather than Fund shares. An exchange of Fund
shares may be made only if you have held the shares for at least six months
unless the exchange is for shares of United Government Securities Fund,
Inc. or United Municipal Bond Fund, Inc. or unless the Fund shares were
acquired by reinvestment of a dividend or distribution, in which cases
there is no holding period. You may exchange for shares of another fund
without payment of an additional sales charge. You should ask for and read
the prospectus for the fund into which you are thinking of making an
exchange before doing so.
Fund shares may be received in exchange for shares of any of the other
funds in the United Group, except for shares of United Cash Management,
Inc. acquired by direct purchase or received in payment of dividends on
those shares.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of shares of United Cash Management, Inc.
automatically exchanged each month into the Fund or any other fund in the
United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must
own shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange
monthly is $100, which may be allocated among different funds in the United
Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange. The
relative values are those next figured after the fund receives your written
exchange request in good order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can in most instances be eliminated or modified
at any time and any such exchange may not be accepted.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege under which, if
you redeem and then decide it was not a good idea, you may reinvest. If
Fund shares are then being offered, you can put all or part of your
redemption payment back into Fund shares without any sales charge at the
net asset value next determined after you have returned the amount. Your
written request to do this must be received within 30 days after your
redemption request was received. You can do this only once as to Fund
shares.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under
any account or any plan if the aggregate net asset value of such shares
(taken at cost or value as the Board of Directors may determine) is less
than $500. The Board has no intent to compel redemptions in the
foreseeable future. If it should elect to compel redemptions, shareholders
who are affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this redemption is
processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside
organizations selected by the Board of Directors. The Board has
responsibility for establishing broad corporate policies for the Fund and
for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors.
Each of the Fund's Directors is also a Director of each of the other
funds in the United Group, TMK/United Funds, Inc., Waddell & Reed Funds,
Inc., Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-
Free Fund, Inc. and each of its officers is also an officer of one or more
of these funds. The principal occupation of each Director and officer
during at least the past five years is given below. Each of the persons
listed through and including Mr. Wright is a member of the Fund's Board of
Directors. The other persons are officers but not Board members.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund; Chairman of the
Board of Directors of Waddell & Reed Financial Services, Inc., United
Investors Management Company and United Investors Life Insurance Company;
Chairman of the Board of Directors and Chief Executive Officer of Torchmark
Corporation; Chairman of the Board of Directors of Vesta Insurance Group,
Inc.; formerly, Chairman of the Board of Directors of Waddell & Reed,
Inc.
KEITH A. TUCKER*
President of the Fund; President, Chief Executive Officer and
Director of Waddell & Reed Financial Services, Inc.; Chairman of the Board
of Directors of the Manager, Waddell & Reed, Inc., Waddell & Reed Services
Company, Waddell & Reed Asset Management Company and Torchmark
Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice Chairman of
the Board of Directors, Chief Executive Officer and President of United
Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of
Atlantis Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the
United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc.,
he served in such capacity for the funds in the United Group and TMK/United
Funds, Inc.
DODDS I. BUCHANAN
University of Colorado
Campus Box 419
Boulder, Colorado 80309
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corp.; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Chairman, Department
of Marketing, Transportation and Tourism, University of Colorado; formerly,
Professor of Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards
Company; formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financing
Corporation; formerly, President of Gilliland & Hayes, P.A., a law
firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial
Corporation and related subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund, each Fund in the United Group, TMK/United Funds, Inc., Waddell &
Reed Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. (Mr. Morgan retired as Chairman of the Board of
Directors and President of these Funds on April 30, 1993); formerly,
President, Director and Chief Executive Officer of the Manager and Waddell
& Reed, Inc.; formerly, Chairman of the Board of Directors of Waddell &
Reed Services Company; formerly, Director of Waddell & Reed Asset
Management Company, United Investors Management Company and United
Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate
management and investment; formerly, Director of The Vendo Company, a
manufacturer and distributor of vending machines.
FREDERICK VOGEL, III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Formerly, President and Director of Univest Corporation, a real estate
investment company; formerly, Director of Classified Financial Corp., an
insurance company.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund; Vice
President, Chief Operations Officer, Director and Treasurer of Waddell &
Reed Financial Services, Inc.; Executive Vice President, Principal
Financial Officer, Director and Treasurer of the Manager; President, Chief
Executive Officer, Principal Financial Officer, Director and Treasurer of
Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed Asset
Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund; Vice President, Chief Investment Officer
and Director of Waddell & Reed Financial Services, Inc.; Director of
Waddell & Reed, Inc.; President, Chief Executive Officer, Chief Investment
Officer and Director of the Manager and Waddell & Reed Asset Management
Company; Senior Vice President and Chief Investment Officer of United
Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the
Fund; Vice President of Waddell & Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund; Vice
President, Secretary and General Counsel of Waddell & Reed Financial
Services, Inc.; Senior Vice President, Secretary and General Counsel of the
Manager and Waddell & Reed, Inc.; Director, Senior Vice President,
Secretary and General Counsel of Waddell & Reed Services Company; Director,
Secretary and General Counsel of Waddell & Reed Asset Management Company;
Vice President, Secretary and General Counsel of Torchmark Distributors,
Inc.; formerly, Assistant General Counsel of the Manager, Waddell & Reed
Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
John M. Holliday
Vice President of the Fund; Senior Vice President of the Manager and
Waddell & Reed Asset Management Company; formerly, Senior Vice President of
Waddell & Reed, Inc.
Carl E. Sturgeon
Vice President of the Fund; Vice President of the Manager; formerly,
Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, four of the Fund's Directors may be
deemed to be "interested persons" as defined in the Investment Company Act
of 1940 of its underwriter, Waddell & Reed, Inc., or the Manager. The
Directors who may be deemed to be "interested persons" are indicated as
such by an asterisk.
The Board has created an honorary position of Director Emeritus, which
position a director may elect after resignation from the Board provided the
director has attained the age of 75 and has served as a director of the
funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Fund.
Currently, no person serves as Director Emeritus.
The funds in the United Group, TMK/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $40,000 per year, plus
$500 for each meeting of the Board of Directors attended and $500 for each
committee meeting attended which is not in conjunction with a Board of
Directors' meeting, other than Directors who are affiliates of Waddell &
Reed, Inc. The fees to the Directors who receive them are divided among
the funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. based on their relative size. During the Fund's fiscal year
ended September 30, 1994, its share was $12,320. The officers are paid by
the Manager or an affiliate of the Manager.
Shareholdings
As of November 30, 1994, all of the Fund's Directors and officers
as a group owned less than 1% of the outstanding shares of the Fund. As of
such date no person owned of record or was known by the Fund to own
beneficially 5% or more of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are two sources for the payments the Fund makes to you as a
shareholder, other than payments when you redeem your shares. The first
source is the Fund's net investment income, which is derived from the
interest and earned discount on the securities it holds less its expenses.
The second source is realized gains, which are derived from the proceeds
received from the sale of securities at a price higher than the Fund's tax
basis (usually cost) in such securities; these gains can be either long-
term or short-term, depending on how long the Fund has owned the securities
before it sells them. The payments made to shareholders from net
investment income and net short-term capital gains are called dividends.
Payments, if any, from long-term capital gains are called distributions.
The Fund pays distributions only if it has net realized capital gains
(the excess of net long-term capital gains over net short-term capital
losses). It may or may not have such gain, depending on whether or not
securities are sold and at what price. If the Fund has net capital gains,
it will ordinarily pay distributions once each year, in the latter part of
the fourth calendar quarter. Even if it has capital gains for a year, the
Fund does not pay out the gains if it has applicable prior year losses to
offset the gains.
Choices You Have on Your Dividends and Distributions
In your application form, you can give instructions that (i) you
want cash for your dividends and distributions, (ii) you want your
dividends and distributions reinvested in Fund shares or (iii) you want
cash for your dividends and want your distributions reinvested in Fund
shares. You can change your instructions at any time. If you give no
instruction, your dividends and distributions will be reinvested in Fund
shares. All reinvestments are at net asset value without any sales charge.
The net asset value used for this purpose is that computed as of the record
date for the dividend or distribution, although this could be changed by
the Directors.
Even if you get dividends and distributions in cash, you can
thereafter reinvest them (or distributions only) in Fund shares at net
asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment.
The reinvestment must be within 45 days after the payment.
TAXES
In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as
amended ("Code"), the Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable
income (consisting generally of net investment income, net short-term
capital gains and net gains from certain foreign currency transactions)
plus its net interest income excludable from gross income under section
103(a) of the Code, and must meet several additional requirements. These
requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures contracts or forward contracts) derived with
respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or forward contracts or (ii) foreign currencies
(or options, futures contracts or forward contracts thereon) that are not
directly related to the Fund's principal business of investing in
securities (or in options and futures with respect to securities) ("Short-
Short Limitation"); (3) at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must be represented by
cash and cash items, U.S. Government Securities, securities of other RICs
and other securities that are limited, in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the outstanding voting securities
of the issuer; and (4) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government Securities or the securities of
other RICs) of any one issuer.
Dividends paid by the Fund will qualify as "exempt-interest
dividends," and thus will be excludable from your gross income, if the Fund
satisfies the additional requirement that, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
securities the interest on which is excludable from gross income under
section 103(a); the Fund intends to continue to satisfy this requirement.
The aggregate dividends excludable from all shareholders' gross income may
not exceed the Fund's net tax-exempt income. The treatment of dividends
from the Fund under local and state income tax laws may differ from the
treatment thereof under the Code.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income
(including income from tax-exempt sources such as the Fund) plus 50% of
their benefits exceeds certain base amounts. Exempt-interest dividends
from the Fund still are tax-exempt to the extent described above; they are
only included in the calculation of whether a recipient's income exceeds
the established amounts.
If the Fund invests in any instruments that generate taxable income,
under the circumstances described in the Prospectus, distributions of the
interest earned thereon will be taxable to you as ordinary income to the
extent of the Fund's earnings and profits. Moreover, if the Fund realizes
capital gains as a result of market transactions, any distribution of that
gain will be taxable to you. There also may be collateral federal income
tax consequences regarding the receipt of tax-exempt dividends by
shareholders such as S corporations, financial institutions and property
and casualty insurance companies. Any shareholder that falls into any of
these categories should consult its tax adviser concerning its investment
in Fund shares.
Dividends and distributions declared by the Fund in October,
November or December of any year and payable to shareholders of record on a
date in any of those months are deemed to have been paid by the Fund and
received by you on December 31 of that year even if they are paid by the
Fund during the following January. Accordingly, those dividends and
distributions will be taxed to shareholders for the year in which that
December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares and any balance of the loss that is not
disallowed will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for a taxable dividend or distribution, the purchaser will
pay tax thereon, even though he is receiving some portion of the purchase
price back.
The Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for
the one-year period ending on October 31 of that year, plus certain other
amounts. It is the Fund's policy to make sufficient distributions each
year to avoid imposition of the Excise Tax. The Code permits the Fund to
defer into the next calendar year net capital losses incurred between each
November 1 and the end of the current calendar year.
The use of hedging strategies, such as writing (selling) and
purchasing options and futures, involves complex rules that will determine
for income tax purposes the character and timing of recognition of the
gains and losses the Fund realizes in connection therewith. Income from
transactions in options and futures derived by the Fund with respect to its
business of investing in securities will qualify as permissible income
under the Income Requirement. However, income from the disposition of
options and futures will be subject to the Short-Short Limitation if they
are held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining whether
the Fund satisfies the Short-Short Limitation. Thus, only the net gain (if
any) from the designated hedge will be included in gross income for
purposes of that limitation. The Fund intends that, when it engages in
hedging transactions, they will qualify for this treatment, but at the
present time it is not clear whether this treatment will be available for
all of the Fund's hedging transactions. To the extent this treatment is
not available, the Fund may be forced to defer the closing out of certain
options and futures beyond the time when it otherwise would be advantageous
to do so, in order for the Fund to continue to qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-
term capital gains. If the Fund enters into a closing purchase
transaction, it will have a short-term capital gain or loss based on the
difference between the premium it receives for the option it wrote and the
premium it pays for the option it buys. If an option written by the Fund
expires without being exercised, the premium it receives also will be a
short-term gain. If such an option is exercised and the Fund thus sells
the securities subject to the option, the premium the Fund receives will be
added to the exercise price to determine the gain or loss on the sale. The
Fund will not write so many options that it could fail to continue to
qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at
the end of each taxable year, other than section 1256 contracts that are
part of a "mixed straddle" with respect to which the Fund has made an
election not to have the following rules apply, are "marked-to-market"
(that is, treated as sold for their fair market value) for Federal income
tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gain or loss
recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, are treated as long-term
capital gains or losses, and the balance is treated as short-term capital
gains or losses. Section 1256 contracts also may be marked-to-market for
purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the
taxation of options and futures contracts in which the Fund may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which
apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short
sale" rules applicable to straddles. If the Fund makes certain elections,
the amount, character and timing of the recognition of gains and losses
from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely
clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by the Manager pursuant to the
Management Agreement is to arrange the purchase and sale of securities for
the portfolio of the Fund. Purchases are made directly from issuers or
from underwriters, dealers or banks. Purchases from underwriters include a
commission or concession paid by the issuer to the underwriter. Purchases
from dealers will include the spread between the bid and asked prices.
Brokerage commissions are paid primarily for effecting transactions in
securities traded on an exchange and otherwise only if it appears likely
that a better price or execution can be obtained. The Fund has not
effected transactions through brokers and does not anticipate doing so.
The individual who manages the Fund may manage other advisory accounts with
similar investment objectives. It can be anticipated that the manager will
frequently place concurrent orders for all or most accounts for which the
manager has responsibility. Transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with
the purchase or sale orders actually placed for each fund or advisory
account.
To effect the portfolio transactions of the Fund, the Manager is
authorized to engage broker-dealers ("brokers") which, in its best judgment
based on all relevant factors, will implement the policy of the Fund to
achieve "best execution" (prompt and reliable execution at the best price
obtainable) for reasonable and competitive commissions. The Manager need
not seek competitive commission bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies
of the Fund. Subject to review by the Board of Directors, such policies
include the selection of brokers which provide execution and/or research
services and other services, including pricing or quotation services
directly or through others ("brokerage services") considered by the Manager
to be useful or desirable for its investment management of the Fund and/or
the other funds and accounts over which the Manager or its affiliates have
investment discretion.
Brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers;
(ii) furnishing analyses and reports; or (iii) effecting securities
transactions and performing functions incidental thereto (such as
clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such brokerage services
may be higher than another qualified broker would charge for effecting
comparable transactions if a good faith determination is made by the
Manager that the commission is reasonable in relation to the brokerage
services provided. Subject to the foregoing considerations, the Manager
may also consider the willingness of particular brokers and dealers to sell
shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to the Manager or
its affiliates.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of the Manager or its
affiliates and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such other
accounts. To the extent that electronic or other products provided by such
brokers to assist the Manager in making investment management decisions are
used for administration or other non-research purposes, a reasonable
allocation of the cost of the product attributable to its non-research use
is made by the Manager.
Such investment research (which may be supplied by a third party at
the instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager to obtain market information on the
price of securities held in the Fund's portfolio or being considered for
purchase.
In placing transactions for the Fund's portfolio, the Manager may
consider sales of shares of the Fund and other funds managed by the Manager
and its affiliates as a factor in the selection of brokers to execute
portfolio transactions. The Manager intends to allocate brokerage on the
basis of this factor only if the sale is $2 million or more and there is no
sales charge. This results in the consideration only of sales which by
their nature would not ordinarily be made by Waddell & Reed, Inc.'s direct
sales force and is done in order to prevent the direct sales force from
being disadvantaged by the fact that it cannot participate in Fund
brokerage.
OTHER INFORMATION
The Shares of the Fund
The Fund presently has only one kind (class) of shares. Each share
has the same rights to dividends, to vote and to receive assets if the Fund
liquidates (winds up). Each fractional share has the same rights, in
proportion, as a full share. Shares are fully paid and nonassessable when
bought.
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Municipal High Income Fund, Inc.
Included in Part B:
-------------------
As of September 30, 1994
Statements of Assets and Liabilities
For the year ended September 30, 1994
Statements of Operations
For each of the two years in the period ended September 30, 1994
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1994
Report of Independent Accountants
Included in Part C:
-------------------
Consent of Independent Accountants
Amended Schedule A to Custodian Agreement dated October 20, 1994-
EX-99.B8-MHCAA
Amended Schedule B to Custodian Agreement dated July 5, 1994-EX-
99.B8-MHCAA2
Amendment to Service Agreement-EX-99.B9-MHSAA
Financial Data Schedule-EX-27.B-17-MHFDS
Other schedules prescribed by Regulation S-X are not filed
because the required matter is not present or is insignificant.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 16 to the Registration Statement on Form N-1A
of our report dated October 31, 1994 relating to the financial statements
and the financial highlights of United Municipal High Income Fund, Inc.,
which appears in such Prospectus. We further consent to the reference to
us under the heading "Financial Highlights" in such Prospectus and to the
reference to us under the heading "Custodial and Auditing Services" in the
Statement of Additional Information constituting part of this Post-
Effective Amendment.
PRICE WATERHOUSE
Kansas City, Missouri
December 29, 1994
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation filed October 7, 1985 as Exhibit
(b)(1) to the initial Registration Statement on Form N-1A*
(2) (a) Bylaws filed October 7, 1985 as Exhibit (b)(2) to the
initial Registration Statement on Form N-1A*
(b) Amendment to Bylaws filed December 21, 1989 as Exhibit
(b)(2)(b) to Post-Effective Amendment No. 7 to the
initial Registration Statement on Form N-1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, filed October 7, 1985 as
Exhibit (b)(1) to the initial Registration Statement on Form
N-1A*; Article I, Article IV and Article VII of the Bylaws
of the Registrant, as amended, filed October 7, 1985 as
Exhibit (b)(2)(a) to the initial Registration Statement on
Form N-1A*
(5) Investment Management Agreement filed December 28, 1990 as
Exhibit (b)(5) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreement filed May
26, 1992 as Exhibit No. 2 on Form SE to From N-SAR for the
six months ended march 31, 1992*
(6) Underwriting Agreement filed October 7, 1985 as Exhibit
(b)(6) to the initial Registration Statement on Form N-1A*
(7) Not applicable
(8) (a) Custodian Agreement filed December 9, 1991 as Exhibit
(b)(8) on Form SE to Post-Effective Amendment No. 10 to
the initial Registration Statement on Form N-1A*
Amended Schedule A to the Custodian Agreement dated
October 20, 1994 attached hereto
Amended Schedule B to the Custodian Agreement dated
July 5, 1994 attached hereto
Amendment to the Custodian Agreement dated February 17,
1993 filed March 24, 1993 as Exhibit (b)(8) to Post-
Effective Amendment No. 13 to the Registration
Statement on Form N-1A*
(9) (a) Shareholder Servicing Agreement filed March 24, 1993 as
Exhibit (b)(8) to Post-Effective Amendment No. 13 to
the Registration Statement on Form N-1A*
(b) Fund application filed December 9, 1991 as Exhibit
(b)(9)(b) on Form SE to Post-Effective Amendment No. 10
to the initial Registration Statement on Form N-1A*
(c) Accounting Services Agreement filed November 21, 1990
as Exhibit No. 3 on Form SE to Form N-SAR for the six
months ended September 30, 1990*
- ---------------------------------
*Incorporated herein by reference
(d) Service Agreement filed by electronic format on July
30, 1993 as Exhibit (b)(15) to Post-Effective Amendment
no. 14 to the Registration Statement on Form N-1A*
Amendment to Service Agreement attached hereto
(10) Opinion and Consent of Counsel filed November 25, 1985 as
Exhibit (b)(10) to Pre-Effective Amendment No. 1 to the
initial Registration Statement on Form N-1A*
(11) Consent of Independent Accountants filed October 7, 1985 as
Exhibit (b)(11) to Pre-Effective Amendment No. 1 to the
initial Registration Statement on Form N-1A*
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc.,
filed November 25, 1985 as Exhibit (b)(13) to Pre-Effective
Amendment No. 1 to the initial Registration Statement on
Form N-1A*
(14) Not Applicable
(15) Service Plan filed by electronic format on July 30, 1993 as
Exhibit (b)(15) to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A*
(16) (1) Computation of average annual total return performance
quotations filed by electronic format on July 30, 1993
as Exhibit (b)(16)(1) to Post-Effective Amendment No.
14 to the Registration Statement on Form N-1A*
(2) Computation of Yield Performance Quotation and Tax
Equivalent Yield Performance Quotation filed June 26,
1992 as Exhibit (b)(16)(2) on Form SE to Post-Effective
Amendment No. 11 to the Registration Statement on Form
N-1A*
(17) Financial Data Schedule attached hereto
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Holders of Securities
Title of Class September 30, 1994
-------------- -------------------------------
Common 15,962
27. Indemnification
---------------
Reference is made to Section (7)(c) of Article SEVENTH of the Articles
of Incorporation of Registrant, filed October 7, 1985 as Exhibit
(b)(1) to the initial Registration Statement on Form N-1A*, and to
Article IV of the Underwriting Agreement filed October 7, 1985 as
Exhibit (b)(6) to the initial Registration Statement on Form N-1A*,
both of which provide indemnification. Also refer to Section 2-418 of
the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
- ---------------------------------
*Incorporated herein by reference
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is not engaged in any business other than the provision of
investment management services to those registered investment
companies described in Part A and Part B of this Post-Effective
Amendment.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation
or employment during the past two years only his duties as an
executive officer and/or employee of Waddell & Reed Investment
Management Company or its predecessors, except as to persons who are
directors and/or officers of the Registrant and have served in the
capacities shown in the Statement of Additional Information of the
Registrant, and except for Mr. Ronald K. Richey. Mr. Richey is
Chairman of the Board and Chief Executive Officer of Torchmark
Corporation, the parent company of Waddell & Reed, Inc., and Chairman
of the Board of United Investors Management Company, a holding company
of which Waddell & Reed, Inc. is an indirect subsidiary. Mr. Richey's
address is 2001 Third Avenue South, Birmingham, Alabama 35233. The
address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment
Management Company, reference is made to the Prospectus and SAI of
this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the
Registrant. It is also the principal underwriter to the
following investment companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United High Income Fund II, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United
Science and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on
form BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or
any affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B
of this Post-Effective Amendment and as listed in response to Items
(b)(9) and (b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to
shareholders upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if
requested in writing by the shareholders of record of not less
than 10% of the Fund's outstanding shares, to call a meeting of
the shareholders of the Fund for the purpose of voting upon the
question of removal of any director and to assist in
communications with other shareholders as required by Section
16(c).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(b) of the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Overland Park, and
State of Kansas, on the 29th day of December, 1994.
UNITED MUNICIPAL HIGH INCOME FUND, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been
signed below by the following persons in the capacities and on the date
indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board December 29, 1994
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 29, 1994
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 29, 1994
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 29, 1994
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 29, 1994
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director December 29, 1994
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 29, 1994
- -------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director December 29, 1994
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 29, 1994
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director December 29, 1994
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director December 29, 1994
- ------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director December 29, 1994
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director December 29, 1994
- ------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director December 29, 1994
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
- -------------------- --------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
- -------------------- (Principal Executive Officer) --------------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
- -------------------- and Principal Accounting --------------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
- -------------------- Principal Financial --------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
- -------------------- --------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
- -------------------- --------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
- -------------------- --------------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
- -------------------- --------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 1, 1994
- -------------------- --------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
- -------------------- --------------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
- -------------------- --------------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
- -------------------- --------------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
- -------------------- --------------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
- -------------------- --------------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
December 29, 1994
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, Northwest
Judiciary Plaza
Washington, D. C. 20549
RE: United Municipal High Income Fund, Inc.
Post-Effective Amendment No. 16
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:sw
EX-99.B8-MHCAA
APPENDIX A
This Appendix A relates to the Custodian Agreements between United Missouri
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as amended:
Fund Date
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
Global Income Fund April 24, 1992
Growth Fund April 24, 1992
Torchmark Government Securities Fund, Inc. December 9, 1992
Torchmark Insured Tax-Free Fund, Inc. December 9, 1992
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De France
Germany Berliner Handels Und Frankfurter KASSENVEREIN
Bank
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing Company
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities
Depository Corporation
(KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank, n.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche
Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. None
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Thailand HongKong & Shanghai Banking Corp. Share Depository Center
(SDC)
Turkey Citibank, n.a. TvS, Central Bank of
Turkey
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
EX-99.B8-MHCAA2
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED MUNICIPAL HIGH INCOME FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of November 26, 1991
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depository
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
Cedel. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00025 for the first $100,000,000 of the net assets of the United Funds,
plus
.00015 for the next $900,000,000 of the net assets of the United Funds,
plus
.00010 for the next $1,000,000,000 of the net assets of the United Funds,
plus
.00005 for the next $3,000,000,000 of the net assets of the United Funds,
plus
.000025 for the next $5,000,000,000 of the net assets of the United Funds,
plus
.00001 for any net assets exceeding $10,000,000,000 of the assets of the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(1)For each portfolio transaction* processed through a
Depository (DTC, PTC, Fed) $10.00
(2) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(3)For each futures/options contract written 25.00
(4)For each principal/interest paydown 6.00
(5)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all fees charged by any Special Subcustodian to the Custodian as
Custodian for any assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Annual Fee (combining all foreign assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of global assets), at the annual rate of:
.0035 on all assets held in countries assigned to category 5 below, plus
.0014 on all assets held in countries assigned to category 4 below, plus
.0012 on the first $500,000,000 remaining global assets, plus
.0010 on the remaining global assets in excess of $500,000,000.
B. Portfolio Transaction Fees (billed to each Fund)*:
Category 1: $30.00
Belgium, Canada, Japan, Netherlands
Category 2: 60.00
Austria, Denmark, Germany, Ireland, Italy, Sweden, United Kingdom
Category 3: 90.00
Australia, Finland, France, Greece, Hong Kong, Indonesia, Malaysia, New
Zealand,
Norway, Philippines, Portugal, Singapore, Spain, Switzerland, Thailand
Category 4: 30.00
Argentina, Brazil, Chile, India, Mexico, Peru, Turkey
Category 5: 60.00
Korea
Miscellaneous Cash Transactions 10.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Including, but not limited to, telex, legal, telephone, postage, and direct
expenses, including but not limited to, emerging markets subcustodian
custody fees and transaction charges (Category 4 above), tax reclaim,
customized systems programming, certificate fees, duties, and registration
fees.
D. Short-term Dollar Denominated Global Assets--Eurodollar CDs, Time Deposits
(billed to each Fund):
(1)An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at the
annual rate of:
.0004 on all short-term dollar denominated assets of the United Funds.
(2)Portfolio Transaction Fees (billed to each Fund)*:
Eurodollar Time Deposits/CDs will be assessed the following charges:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
E. Euroclear Eligible Issues (billed to each Fund):
(1)An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill
issued to the Fund based upon its portion of Euroclear issues), at the annual
rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at United Missouri Bank, n.a.
(2) Portfolio Transaction Fees (billed to each Fund)*:
Euroclear $60.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
EX-99.B9(d)-MHSAA
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 1st day of September, 1994, by
and between United Municipal High Income Fund, Inc. (the "Fund") and Waddell &
Reed, Inc. ("W&R").
WHEREAS, the Fund and W&R have entered into a certain Service Agreement dated
October 1, 1993, which the parties now desire to amend to provide for the
provision of personal services and maintenance of shareholder accounts through
broker-dealers who sell shares of the Fund to qualified benefit plans under a
selling group agreement with W&R, or through other third parties;
AND WHEREAS, the Fund has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan pursuant to which this Service Agreement has
been adopted and which Service Plan authorizes the payment to W&R of a service
fee to finance shareholder servicing by, among others, broker-dealers who may
sell Fund shares.
NOW THEREFORE, it is mutually agreed as follows:
A. Section A of the Service Agreement is hereby amended by the addition of the
following subsection:
4. Third-Party Services - Through broker-dealers selling shares of the
Fund to employee benefit plans, including benefit plans existing under the
provisions of Section 457 of the United States Internal Revenue Code (hereafter
"Benefit Plans"), or through other third parties, and who provide personal
services to the Benefit Plans and assist in the maintenance of participants'
accounts for whom the Benefit Plans hold shares of the Fund.
B. Section B of the Service Agreement is hereby amended by the addition of the
following subsection:
5. Subject to the limitation set forth in Section B.3., the Fund shall
fully reimburse W&R for payments it makes to a broker-dealer who sells Fund
shares to Benefit Plans to cover a part of the broker-dealer's cost incurred
directly or through affiliates, and to any other third party to cover a part of
that party's cost, in providing personal services to the Benefit Plans and for
the maintenance of participants' accounts of the Benefit Plans, provided that
such payment shall not exceed a sum equal to .25 of 1% of the Fund's average
annual net assets represented by Fund shares purchased through the broker-dealer
or in accounts coded in the name of the third party, as applicable, and held by
the Benefit Plans.
C. Approval and Other Provisions.
1. The Fund represents that this Amendment has been approved by vote of
the Board of Directors of the Fund and of the directors of the Fund who are not
interested persons of the Fund and who have no direct financial interest in the
operation of the Service Plan or this Agreement ("independent directors"), which
was cast in person by such directors at a meeting called for the purpose of
voting on the plan and approval of this Amendment.
2. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in the
Service Agreement and to the other provisions set forth therein.
IN WITNESS WHEREOF, the parties have executed this Amendment this 1st day of
September, 1994.
United Municipal High Income Fund, Inc
By: ______________________________________
Sharon K. Pappas, Vice President and Secretary
Waddell & Reed, Inc.
By: ______________________________________
Robert L. Hechler, President
-2
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000778807
<NAME> UNITED MUNICIPAL HIGH INCOME FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 342,127,929
<INVESTMENTS-AT-VALUE> 342,644,091
<RECEIVABLES> 11,824,366
<ASSETS-OTHER> 10,125
<OTHER-ITEMS-ASSETS> 13,612
<TOTAL-ASSETS> 354,492,194
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<REALIZED-GAINS-CURRENT> 1,527,051
<APPREC-INCREASE-CURRENT> (22,927,131)
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<DISTRIBUTIONS-OF-INCOME> 21,745,160
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<PER-SHARE-NAV-BEGIN> 5.53
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> (.34)
<PER-SHARE-DIVIDEND> .34
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<AVG-DEBT-PER-SHARE> 0
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