<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. 17
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 17
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)
_____ on (date) pursuant to paragraph (b)
__X__ 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, 1995 was filed November
15, 1995.
<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) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Fund;
About the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund
(c) ..................... An Overview of the Fund; About the Investment
Principles of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b)...................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... About the Management and Expenses of the Fund
(d) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... About the Management and Expenses of the Fund
(g)(i)................... *
(g)(ii).................. About the Management and Expenses of the Fund
5A........................ **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... *
(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) ..................... Portfolio Transactions and Brokerage
(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 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for
future reference. It sets forth concisely the information about the Fund
that you ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information
("SAI") dated January 30, 1996. The SAI is available free upon request to
the Fund or Waddell & Reed, Inc., the Fund's underwriter, at the address or
telephone number below. The SAI is incorporated by reference into this
Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THE FUND INVESTS AT LEAST 75% OF ITS ASSETS IN MUNICIPAL BONDS RATED BELOW
INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS," WHICH ENTAIL GREATER
RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUND" INCLUDED IN
THIS PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-
INVESTMENT GRADE DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND
RATINGS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
United Municipal High Income Fund, Inc.
Class A Shares
This Fund seeks to provide a high level of income that is not subject to
Federal income tax.
This Prospectus describes one class of shares of the Fund -- Class A
Shares.
Prospectus
January 30, 1996
UNITED MUNICIPAL HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................7
EXPENSES........................................8
FINANCIAL HIGHLIGHTS............................9
PERFORMANCE....................................10
Explanation of Terms .........................10
ABOUT WADDELL & REED...........................11
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....12
Investment Goals and Principles ..............12
Risk Considerations ........................12
Securities and Investment Practices ..........12
ABOUT YOUR ACCOUNT.............................20
Ways to Set Up Your Account ..................20
Buying Shares ................................20
Minimum Investments ..........................22
Adding to Your Account .......................22
Selling Shares ...............................22
Shareholder Services .........................23
Personal Service ...........................24
Reports ....................................24
Exchanges ..................................24
Automatic Transactions .....................24
Dividends, Distributions and Taxes ...........24
Distributions ..............................25
Taxes ......................................25
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..27
WRIMCO and Its Affiliates ....................27
Breakdown of Expenses ........................28
Management Fee .............................28
Other Expenses .............................29
APPENDIX A.....................................30
DESCRIPTION OF BOND RATINGS ..................30
DESCRIPTION OF MUNICIPAL NOTE RATINGS ........32
DESCRIPTION OF COMMERCIAL PAPER RATINGS ......32
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United Municipal
High Income Fund, Inc., an open-end, diversified management investment
company.
Goals and Strategies: United Municipal High Income Fund, Inc. (the "Fund")
seeks to provide a high level of income that is not subject to Federal
income taxation. The Fund seeks to achieve this goal through a diversified
portfolio consisting mainly of medium- and lower-rating tax-exempt bonds,
as classified by recognized rating agencies. See "About the Investment
Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO")
provides investment advice to the Fund and manages the Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO,
Waddell & Reed, Inc. and its predecessors have provided investment
management services to registered investment companies since 1940. See
"About the Management and Expenses of the Fund" for further information
about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed,
Inc. and its account representatives. The price to buy a Class A share of
the Fund is the net asset value of a Class A share plus a sales charge.
See "About Your Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption and reinvestment
procedures.
Who May Want to Invest: The Fund is for an investor looking for a higher
level of primarily tax-free income than is normally available with
securities in the higher-rated categories. The Fund is not suitable for
all investors. You should consider whether the Fund fits with your
particular investment objectives.
Risk Considerations: The Fund invests primarily in medium- and lower-
quality municipal bonds which may vary widely as to their interest rates,
degree of security and maturity. Investments in high-yield, high-risk
securities ("junk bonds") may entail risks that are different or more
pronounced than those involved in higher-rated securities. The value of
the Fund's investments and the income generated will vary from day to day,
generally reflecting changes in interest rates, market conditions, and
other company and economic news. Performance will also depend on WRIMCO's
skill in selecting investments. See "About the Investment Principles of
the Fund" for information about the risks associated with the Fund's
investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases 4.25%
(as a percentage of offering price)
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.51%
12b-1 fees 0.10%
Other expenses 0.15%
Total Fund operating expenses 0.76%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return1 and (2) redemption at the end of each time
period:
1 year $ 50
3 years $ 66
5 years $ 83
10 years $133
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class A shares of the Fund
will bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater
or lesser than those shown. For a more complete discussion of certain
expenses and fees, see "Breakdown of Expenses."
1Use of an assumed annual return of 5% is for illustration purposes only
and is not a representation of the Fund's future performance, which may be
greater or lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP, included in the SAI.
For a Class A share outstanding throughout each period.2
<TABLE>
For the fiscal year ended September 30, 1/21/86
------------------------------------------------------------------------------------- through
1995 1994 1993 1992 1991 1990 1989 1988 1987 9/30/86*
---- ---- ---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ... $5.12 $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 . 0.35 0.34 0.35 0.36 0.38 0.39 0.41 0.43 0.43 0.30
Net realized and
unrealized gain (loss)
on investments ...... 0.17 (0.34) 0.34 0.18 0.20 (0.11) 0.12 (0.09) (0.24) 0.22
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ............ 0.52 0.00 0.69 0.54 0.58 0.28 0.53 0.34 0.19 0.52
Less distributions:
Dividends declared from net
investment income ... (0.35) (0.34) (0.35) (0.36) (0.38) (0.39) (0.41) (0.43) (0.43) (0.30)
Distribution from
capital gains ....... 0.00 (0.07) (0.04) 0.00 0.00 0.00 0.00 (0.03) (0.02) 0.00
Distribution in excess of
capital gains ....... (0.02) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ..... (0.37) (0.41) (0.39) (0.36) (0.38) (0.39) (0.41) (0.46) (0.45) (0.30)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
End of period ......... $5.27 $5.12 $5.53 $5.23 $5.05 $4.85 $4.96 $4.84 $4.96 $5.22
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** .......... 10.63% 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) ......... $382,805 $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% 0.76% 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 ................ 6.75% 6.39% 6.49% 7.08% 7.63% 7.97% 8.36% 8.76% 8.42% 5.97%****
Portfolio turnover rate 19.07% 26.26% 26.13% 54.18% 60.83% 27.31% 38.94% 44.49% 56.93% 115.91%
2On January 30, 1996, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A shares.
*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 information is 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., 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>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each
class of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may not reflect deduction of the applicable sales charge or
may be for periods other than those required to be presented or may
otherwise differ from standardized total return. Total return quotations
that do not reflect the applicable sales charge will reflect a higher rate
of return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. The Fund's
yield is based on a 30-day period ending on a specific date and is computed
by dividing the Fund's net investment income per share earned during the
period by the Fund's maximum offering price per share on the last day of
the period. Tax equivalent yield is calculated by applying the stated
income tax rate to only the net investment income exempt from taxation
according to a standard formula.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a
ranking, the Fund may provide additional information, such as the
particular category to which it relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of
sales charges, fee waivers and/or expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives
located throughout the United States. Your primary contact in your
dealings with Waddell & Reed will be your local account representative.
However, the Waddell & Reed shareholder services department, which is part
of the Waddell & Reed headquarters operations in Overland Park, Kansas, is
available to assist you and your Waddell & Reed account representative.
You may speak with a customer service representative by calling 913-236-
2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is to provide a high level of income that is not
subject to Federal income tax. The Fund seeks to achieve this goal by
investing in medium- and lower-quality municipal bonds that provide higher
yields than bonds of higher quality. There is no assurance that the Fund
will achieve its goal.
As used in this Prospectus, "municipal bonds" mean obligations 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. The Fund and WRIMCO rely on the opinion of bond counsel for the
issuer in determining whether obligations are municipal bonds.
WRIMCO may choose to invest in debt securities other than municipal bonds
("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
contracts. Sometimes, WRIMCO may believe that a full or partial defensive
position is desirable temporarily due to present or anticipated market or
economic conditions that are affecting or could affect the values of
municipal bonds. During such periods, the Fund may invest up to all of its
assets in taxable obligations that would result in a higher proportion of
the Fund's income being subject to Federal income taxes.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk, and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risk, you should
anticipate that the share price of the Fund will fluctuate. Financial risk
is based on the financial situation of the issuer. The financial risk of
the Fund depends on the credit quality of the underlying securities.
Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
prior to its expected maturity date.
Certain types of instruments in which the Fund may invest, and certain
strategies WRIMCO may employ in pursuit of the Fund's goals, involve
special risks. Lower-quality debt securities (commonly called "junk
bonds") are considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness.
The market prices of these securities may fluctuate more than higher-
quality securities and may decline significantly in periods of general
economic difficulty.
The Fund can use various techniques to increase or decrease its exposure to
changing security prices, interest rates, or other factors that affect
security values. These techniques may involve derivative instruments,
including options, futures contracts, options on futures contracts, indexed
securities, stripped securities and mortgage-backed securities. If WRIMCO
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's investments, these techniques could result
in a loss, regardless of whether the intent was to reduce risk or increase
return. These techniques may increase the volatility of the Fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is
not a liquid secondary market to close out a position that the Fund has
entered into. See "Risks of Derivative Instruments" for further
information on the risks of investing in these instruments.
Income from taxable obligations, repurchase agreements, options, and
futures contracts will be subject to Federal income tax.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest and strategies WRIMCO may employ
in pursuit of the Fund's goal. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies
and restrictions unless it believes that doing so will help the Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without
the approval of the shareholders of the Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal of the Fund and the types of securities and other
assets in which it may invest are fundamental policies. Unless otherwise
indicated, other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a
subsequent change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various 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.
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. To the extent that the Fund invests 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, the Fund may be more susceptible to the risks
associated with economic, political or regulatory occurrences that might
adversely affect particular projects or areas. Similarly, to the extent
the Fund invests up to 25% of its assets in industrial revenue bonds issued
for any one industry, the Fund may be susceptible to the risks associated
with a particular industry. 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.
Other municipal obligations include municipal lease obligations of
municipal authorities or entities and participations in these obligations
(collectively, "lease obligations"). WRIMCO determines liquidity of lease
obligations in accordance with guidelines established by the Fund's Board
of Directors. Unrated municipal lease obligations are 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.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size
of a particular offering, the maturity of the obligation and the nature of
the issue. Lower-rated bonds usually, but not always, have higher yields
than similar but higher-rated bonds.
Medium- or lower-rated municipal securities are frequently traded only in
markets where the number of potential purchasers and sellers, if any, is
very limited. This factor may have the effect of limiting the availability
of the securities for purchase by the Fund and may also limit the ability
of the Fund to sell such securities at their fair value either to meet
redemption requests or in response to changes in the economy or the
financial markets.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. While the market
for high-yield, high-risk corporate debt securities has been in existence
for many years and has weathered previous economic downturns, the 1980s
brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of the high-
yield, high-risk bond market, especially during periods of economic
recession. The market for lower-rated debt securities may be thinner and
less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of
lower-rated debt securities, especially in a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, WRIMCO's research and credit analysis are an especially
important part of managing securities of this type held by the Fund.
WRIMCO continuously monitors the issuers of lower-rated debt securities in
the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may choose, at its expense or in conjunction with
others, to pursue litigation or otherwise to exercise its rights as a
security holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the Fund's shareholders.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit
ratings. Credit ratings evaluate the safety of principal and interest
payments, not market value risk. Credit ratings for individual securities
may change from time to time, and the Fund may retain a portfolio security
whose rating has been changed.
Under normal market conditions, the Fund will be substantially invested in
bonds with maturities of 10 to 30 years.
Policies and Restrictions: As a fundamental policy, at least 80% of the
Fund's assets will be invested during normal market conditions in municipal
bonds.
The Fund may invest 25% or more of its assets in industrial development
bonds, and may have 25% or more of its assets in securities 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. 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.
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 BBB through D by Standard & Poor's Ratings Services ("S&P"), or Baa
through C by Moody's Investors Service, Inc. ("MIS"), or, if unrated, are,
in the opinion of WRIMCO, of similar quality to rated municipal bonds in
these categories. See Appendix A to this Prospectus for a description of
bond ratings.
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, in the opinion of WRIMCO, there is a lack of
medium- and lower-quality issues in which to invest.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt
securities rise. The values of floating and adjustable-rate debt
securities are not as sensitive to changes in interest rates as the values
of fixed-rate debt securities. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency
or instrumentality of the U.S. Government. Not all U.S. Government
Securities are backed by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
dividends, the Fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and
certificates of deposit, bankers' acceptances, bank deposits, and other
financial institution obligations. These instruments may carry fixed or
variable interest rates.
Policies and Restrictions: As a fundamental policy, during normal market
conditions, up to 20% of the Fund's assets may be invested in a combination
of taxable obligations, and Debt Futures and Municipal Bond Index Futures
(defined below).
As a fundamental policy, the only taxable obligations that the Fund may
purchase are (i) U.S. Government Securities, (ii) bank obligations of
domestic banks or savings and loan associations that are subject to
regulation by the U.S. Government (these obligations may include
certificates of deposit and acceptances), (iii) commercial paper rated at
least A by S&P or MIS, and (iv) repurchase agreements.
Debt Holdings, by Rating. During the fiscal year ended September 30, 1995,
the percentage of the assets of the Fund 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:
Percentage of
Rated Assets of
by S&P the Fund
AAA %
AA
A
BBB
BB
B
CCC
CC
C
D
Unrated (Equivalent to)
AAA
AA
A
BBB
BB
B
CCC
CC
C
D
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in the Fund's portfolio
at the end of each month in the thirteen-month period ended with its last
fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as
ratings may change over time, does not necessarily indicate past or future
ratings of any particular security or the ratings of securities in the
portfolio in general. Asset composition of the Fund by rating categories
at any particular time does not necessarily indicate future asset
composition by rating categories.
Options, Futures and Other Strategies. The Fund may use certain options
and indexed securities to attempt to enhance income or yield or may attempt
to reduce the overall risk of its investments by using certain options,
futures contracts, and certain other strategies described herein. The
strategies described below may be used in an attempt to manage certain
risks of the Fund's investments that can affect fluctuation in its net
asset value.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not
use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these instruments and strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the
right to buy, and obligates the writer to sell, the underlying investment
at the agreed upon exercise price during the option period. A put option
gives the purchaser the right to sell, and obligates the writer to buy, the
underlying investment at the agreed upon exercise price during the option
period. Purchasers of options pay an amount, known as a premium, to the
option writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will
exist for exchange-listed options. The Fund will be able to close a
position in an option it has written only if there is a market for the put
or call. If the Fund is not able to enter into a closing transaction on an
option it has written, it will be required to maintain the securities, or
cash in the case of an option on an index, subject to the call or the
collateral underlying the put until a closing purchase transaction can be
entered into or the option expires. Because index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Fund bears the risk that the value of the securities it
holds will vary from the value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
and write (sell) put and call options only on domestic debt securities and
municipal bond indices, and the options on futures contracts described
below, subject to certain restrictions that are set forth in the SAI.
The Fund may purchase and write (sell) options on domestic debt securities
and municipal bond indices only if they are listed on a national securities
exchange.
The Fund will only write puts on domestic debt securities if it would be
willing to purchase the underlying security at the exercise price.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the term of the option.
If the Fund has written a call, it assumes a short futures position. If it
has written a put, it assumes a long futures position. When the Fund
purchases an option on a futures contract, it acquires a right in return
for the premium it pays to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy
and sell futures contracts relating to domestic debt securities ("Debt
Futures"), futures contracts relating to municipal bond indices ("Municipal
Bond Index Futures"), and options on Debt Futures.
The Fund intends to use futures contracts and options thereon only to
attempt to hedge against market risks that could adversely affect the value
of its portfolio.
During normal market conditions, up to 20% of the Fund's assets may be
invested in a combination of taxable obligations, Debt Futures, and
Municipal Bond Index Futures.
Indexed Securities. The Fund may purchase and sell indexed securities,
which are securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, as long as WRIMCO determines
that it is consistent with the Fund's goal and investment policies.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the U.S. and abroad. At the same
time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations, and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity while a
prepayment rate that is slower than expected will have the opposite effect
of increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium
also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of the Fund. It is possible that the availability and marketability
(i.e., liquidity) of these securities could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
Policies and Restrictions: The Fund may invest in mortgage-backed
securities as long as WRIMCO determines that it is consistent with the
Fund's goal and investment policies.
Stripped Securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile. The prices of
stripped mortgage-backed securities may be particularly affected by changes
in interest rates.
Policies and Restrictions: The Fund may invest in stripped securities as
long as WRIMCO determines that it is consistent with the Fund's goal and
investment policies.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities,
stripped securities and mortgage-backed securities involve special risks,
including (i) possible imperfect or no correlation between price movements
of the portfolio investments (held or intended to be purchased) involved in
the transaction and price movements of the instruments involved in the
transaction, (ii) possible lack of a liquid secondary market for any
particular instrument at a particular time, (iii) the need for additional
portfolio management skills and techniques, (iv) losses due to
unanticipated market price movements, (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in investments involved in the transaction, (vi) incorrect
forecasts by WRIMCO concerning interest rates or direction of price
fluctuations of the investment involved in the transaction, which may
result in the strategy being ineffective, (vii) loss of premiums paid by
the Fund on options it purchases, and (viii) the possible inability of the
Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for
the Fund to maintain "cover" or to segregate securities in connection with
such transactions and the possible inability of the Fund to close out or
liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being
hedged. The risk of imperfect correlation of these price changes increases
as the composition of the Fund's portfolio diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not
be the same investment that is being hedged. WRIMCO will attempt to create
a closely correlated hedge but hedging activity may not be completely
successful in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to
adjust the return characteristics of the Fund's portfolio of investments.
An embedded derivative is a derivative that is part of another financial
instrument. Embedded derivatives typically, but not always, are debt
securities whose return of principal or interest, in part, is determined by
reference to something that is not intrinsic to the security itself. The
use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate trends by WRIMCO may still not result in a successful
transaction. WRIMCO may be incorrect in its expectations as to the extent
of various interest rate movements or the time span within which the
movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and
transaction costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the Fund's yield.
The Fund may purchase municipal bonds on a when-issued or delayed-delivery
basis and sell municipal bonds on a delayed-delivery basis. When
purchasing municipal bonds on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a municipal bond on a delayed-
delivery basis, the Fund does not participate in further gains or losses
with respect to the bond. If the other party to a delayed-delivery
transaction fails to deliver or pay for the bonds, the Fund could miss a
favorable price or yield opportunity, or could suffer a loss.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
Policies and Restrictions: The Fund may purchase securities subject to
repurchase agreements, but may not cause more than 10% of its net assets to
be subject to repurchase agreements not terminable within seven days.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance
with guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be
costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid
investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase the securities of any "issuer" if more than 5% of the Fund's total
assets would then be invested in that "issuer." This restriction does not
apply to cash or cash items, or U.S. Government Securities.
There is a question as to who is the "issuer" of municipal bonds. For
example, municipal bonds may be created by a particular government but be
backed only by the assets and revenues of a subdivision of that government
such as an agency, instrumentality, authority or other subdivision. In
such case, the Fund would consider that such subdivision is the "issuer"
for the purposes of this 5% restriction. In the case of industrial
development bonds, the nongovernmental user of facilities financed by them
is also considered as a separate "issuer." The method of determining who
is an "issuer" may be changed without shareholder vote. The Fund considers
a guarantee of a municipal bond by a government or other entity to be a
separate security that 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 the
Fund's total assets.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may not
borrow money or pledge 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 its total assets. The Fund does not
intend to borrow for temporary measures; however, it may borrow to cover
redemptions or settlements of securities transactions. See the SAI for
further information about the Fund's ability to borrow.
Other Instruments may include securities of closed-end investment
companies. As a shareholder in an investment company, the Fund would bear
its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and
administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may buy
shares of other investment companies that do not redeem their shares only
if it does so in a regular transaction in the open market and then does not
have more than 10% of its total assets invested in these shares.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or
more owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships,
institutions, or other groups
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child
without paying Federal gift tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act ("UGMA") or the
Uniform Transfers to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may
use a trust form made available by Waddell & Reed. Contact your Waddell &
Reed account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with
any questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class A share (price to buy one Class A share) is
the Fund's Class A net asset value ("NAV") plus the sales charge shown in
the table below.
Sales
Sales Charge
Charge as
as Approx.
PercentPercent
of of
Size of Offering Amount
Purchase Price Invested
- -----------------------
Under
$100,000 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
$1,000,0001.75 1.78
$1,000,000
to less
than
$2,000,0001.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding, with respect to that Class, the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market
quotations are not available, at their fair value in a manner determined in
good faith by or at the direction of the Board of Directors. Bonds are
generally valued according to prices quoted by a dealer in bonds that
offers a pricing service. Short-term debt securities are valued at
amortized cost, which approximates market value. Other assets are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the later of the close of business of the NYSE, normally 4
p.m. Eastern time, or the close of the regular session of any other
securities or commodities exchange on which an option held by the Fund is
traded.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous
investment has cleared.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income
to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of
Class A shares of the Fund or shares of a corresponding class of United
Municipal Bond Fund, Inc. and United Government Securities Fund, Inc. with
the net asset value of Class A shares already held ("rights of
accumulation") and by grouping all purchases of Class A shares made during
a thirteen-month period ("Statement of Intention"). Shares of a
corresponding class of another fund purchased through a contractual plan
may not be included unless the plan has been completed. Purchases by
certain related persons may be grouped. Additional information and
applicable forms are available from Waddell & Reed account representatives.
Class A shares may be purchased at net asset value by the Directors and
officers of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, account representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and account representative. 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.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain accounts opened with Automatic Investment Service $50
For certain accounts opened through payroll deductions for or by employees
of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
the detachable form that accompanies the confirmation of a prior
purchase by you or your year-to-date statement; or
a letter showing your account number, the account registration and
stating the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class
A NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
the name on the account registration;
the Fund's name,
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by
Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the
written request.
If you hold a certificate, it must be properly endorsed and sent to the
Fund.
If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted, or as permitted by the Securities and Exchange
Commission.
Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Fund may require a signature guarantee in
certain situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of
record; or
the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will
give you notice of its intention to redeem your shares and a 60-day
opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested
amounts must be received by the Fund within thirty days after the date of
your redemption. You may do this only once as to Class A shares of the
Fund.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff
is available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the
Fund. Call 913-236-2000 if you need copies of annual or semiannual reports
or historical account information.
Exchanges
You may sell your Class A shares and buy corresponding shares of other
funds in the United Group.
You may exchange any Class A shares of the Fund that you have held for at
least six months and any Class A shares of the Fund acquired by
reinvestment of a dividend or distribution for corresponding shares of any
other fund in the United Group. You may exchange any Class A shares of the
Fund that you have held for less than six months only for corresponding
shares of United Municipal Bond Fund, Inc. or United Government Securities
Fund, Inc.
You may exchange only into funds that are legally registered for sale in
your state of residence. Note that exchanges out of the Fund may have tax
consequences for you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses, and
other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account
representative for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service To move money from United Cash Management, Inc. to the
Fund whether in the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount and other income earned on portfolio assets less
expenses, on the 27th day of the month or on the last business day prior to
the 27th if the 27th falls on a weekend or holiday. Net capital gains
ordinarily are distributed in December. The Fund may make additional
distributions if necessary to avoid Federal income or excise taxes on
certain undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers
three options:
1. Share Payment Option. Your dividend and capital gains distributions
will be automatically paid in additional Class A shares of the Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital
gains distributions.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"), 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 gain) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that are 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 calendar
quarter at least 50% of the value of its total assets must consist of
obligations the interest on which is excludable from gross income under
section 103(a) of the Code.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the
Fund may have to limit its investment activity in some types of
instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. You should be aware of the following tax implications:
Taxes on distributions. The distributions by the Fund that are designated
by it as exempt-interest dividends 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, whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital
gains, when designated as such, are taxable to you as long-term capital
gains, whether received in cash or paid in additional Fund shares and
regardless of the length of time you have owned your shares. 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 of dividends and other
distributions paid (or deemed paid) to you for that year.
Exempt-interest dividends paid by the Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that
must be treated by you as a "tax preference item" for purposes of
calculating your liability, if any, for the AMT; the Fund anticipates such
portion will be not more than one-third of the dividends it will pay to its
shareholders. The Fund will provide you with information concerning the
amount of distributions subject to the AMT after the end of each calendar
year. Shareholders who may be subject to the AMT should consult with their
tax advisers concerning investment in the Fund.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by private activity bonds
("PABs") should consult their tax advisers before purchasing Fund shares
because, for users of certain of these facilities, the interest on PABs is
not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person"
who regularly uses in trade or business a part of a facility financed from
the proceeds of PABs.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals
and certain other noncorporate shareholders who do not furnish the Fund
with a correct taxpayer identification number. Withholding at that rate
from dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds
are more or less than your adjusted basis for the redeemed shares (which
normally includes any sales charge paid). An exchange of Fund shares for
shares of any other fund in the United Group generally will have similar
tax consequences. However, special rules apply when you dispose of Fund
shares through a redemption or exchange within ninety days after your
purchase thereof and subsequently reacquire Fund shares or acquire shares
of another fund in the United Group without paying a sales charge due to
the thirty-day reinvestment privilege or exchange privilege. See "About
Your Account." In these cases, any gain on the disposition of the Fund
shares would be increased, or loss decreased, by the amount of the sales
charge you paid when those shares were acquired, and that amount will
increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Class A shares of the Fund within thirty days
before or after redeeming other Class A shares of the Fund at a loss, part
or all of that loss will not be deductible and will increase the basis of
the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of the Fund will not be deductible for Federal income tax purposes to the
extent the Fund's distributions consist of exempt-interest dividends.
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 that event, the Fund may decide to reevaluate its investment
goal and policies.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There
may be other Federal, state or local tax considerations applicable to a
particular investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Municipal High Income Fund, Inc. is a mutual fund: an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the Fund is an open-end management investment company
organized as a corporation under Maryland law on September 9, 1985.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of
directors are not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to January 30, 1996, the Fund
offered only one class of shares to the public. Shares outstanding on that
date were designated as Class A shares, which are offered by this
Prospectus. In addition, the Fund offers Class Y shares through a separate
prospectus. Class Y shares are designed for institutional investors.
Class Y shares are not subject to a sales charge on purchases and are not
subject to redemption fees. Class Y shares are not subject to a Rule 12b-1
fee. Additional information about Class Y shares may be obtained by
calling 913-236-2000 or by writing to Waddell & Reed, Inc. at the address
on the inside back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less
than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally
be no meeting of the shareholders for the purpose of electing directors
until such time as less than a majority of directors holding office have
been elected by shareholders, at which time the directors then in office
will call a shareholders' meeting for the election of directors. To the
extent that Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), applies to the Fund, the directors are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate
vote of any Class is required by the 1940 Act, and except as to any matter
which affects the interests of one or more particular Classes, in which
case only the shareholders of the affected Classes are entitled to vote,
each as a separate Class. Shares are fully paid and nonassessable when
purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises
the Fund's investments. Waddell & Reed, Inc. and its predecessors served
as investment manager to each of the registered investment companies in the
United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992,
when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since
its inception in September 1992 and United Asset Strategy Fund, Inc. since
it commenced operations in March 1995.
John M. Holliday is primarily responsible for the day-to-day management of
the Fund. Mr. Holliday has held his Fund responsibilities since January
20, 1986. He is Senior Vice President of WRIMCO, Senior Vice President of
Waddell & Reed Asset Management Company, an affiliate of WRIMCO, Vice
President of the Fund, and Vice President of other investment companies for
which WRIMCO serves as investment manager. Mr. Holliday has served as the
portfolio manager for investment companies managed by Waddell & Reed, Inc.
and its successor, WRIMCO, since August 1979, and has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978. Other
members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell
& Reed Funds, Inc., and serves as the distributor for TMK/United Funds,
Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which
are explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .10 of 1% of its net assets.
The group fee is a pro rata participation based on the relative net asset
size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown
in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $13.3 billion as of September 30, 1995. Management fees for
the fiscal year ended September 30, 1995 were 0.51% of the Fund's average
net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to
its Class A shares, the Fund pays the Shareholder Servicing Agent a monthly
fee for each Class A shareholder account that was in existence at any time
during the month, and a fee for each account on which a dividend or
distribution had a record date during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act
with respect to its Class A shares. Under the Plan, the Fund may pay
monthly a fee to Waddell & Reed, Inc. in an amount not to exceed .25% of
the Fund's average annual net assets of its Class A shares. The fee is to
be paid to reimburse Waddell & Reed, Inc. for amounts it expends in
connection with the provision of personal services to Class A shareholders
and/or maintenance of Class A shareholder accounts. In particular, the
Service Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that these expenditures may include costs and
expenses incurred by Waddell & Reed, Inc. and its affiliates in
compensating, training and supporting registered account representatives,
sales managers and/or other appropriate personnel in providing personal
services to Class A shareholders and/or maintaining Class A shareholder
accounts; increasing services provided to Class A shareholders by office
personnel located at field sales offices; engaging in other activities
useful in providing personal services to Class A shareholders and/or the
maintenance of Class A shareholder accounts; and in compensating broker-
dealers who may regularly sell Class A shares, and other third parties, for
providing Class A shareholder services and/or maintaining Class A
shareholder accounts.
The total expenses for the fiscal year ended September 30, 1995 for the
Fund's Class A shares were 0.76% of the average net assets of the Fund's
Class A shares.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. A higher turnover will
increase transaction and commission costs and could generate taxable income
or loss.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities that
the Fund may use. The Fund may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. A S&P 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 S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
A brief description of the applicable S&P rating symbols and their meanings
follow:
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from
AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable
grace period has not expired, unless S&P believes that such payments will
be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues.
The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories (AAA, AA, A, BBB, commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments may impose
certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.
Moody's Investors Service, Inc. A brief description of the applicable MIS
rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the
rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A S&P 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 notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings -- MIS ratings for state and municipal
short-term obligations will be designated Moody's Investment Grade (MIG).
This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the
borrower are uppermost in importance in short-term borrowing, while various
factors of major importance in bond risk are of lesser importance over the
short run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to D for the lowest. Issuers rated A are
further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are
regarded as having the greatest capacity for timely payment. An A-1
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. An A-2
rating indicates that capacity for timely payment is satisfactory; however,
the relative degree of safety is not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment; however, they
are more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. Issues rated B are regarded
as having only speculative capacity for timely payment. A C rating is
assigned to short-term debt obligations with a doubtful capacity for
payment. Debt rated D is in payment default, which occurs when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MIS commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. MIS employs the designations of Prime 1, Prime 2
and Prime 3, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers. Issuers rated Prime 1 have a superior
capacity for repayment of short-term promissory obligations and repayment
capacity will normally be evidenced by (1) lending market positions in well
established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structures with moderate reliance on debt and
ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime 2 also have a strong capacity for
repayment of short-term promissory obligations as will normally be
evidenced by many of the characteristics described above for Prime 1
issuers, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation; capitalization
characteristics, while still appropriate, may be more affected by external
conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics
above for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability
in earnings and profitability may result in changes in the level of debt
protection measurements and requirement for relatively high financial
leverage; and adequate alternate liquidity is maintained.
<PAGE>
United Municipal High Income Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United Municipal High Income Fund, Inc.
Class A Shares
PROSPECTUS
January 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP2014(1-96)
printed on recycled paper
<PAGE>
SUBJECT TO COMPLETION -- Information contained herein is subject to
completion or amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission but
has not yet become effective. These securities may not be sold nor may
offers to buy be accepted before the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful before registration or qualification under the securities laws of
any such state.
Please read this Prospectus before investing, and keep it on file for
future reference. It sets forth concisely the information about the Fund
that you ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information
("SAI") dated January 30, 1996. The SAI is available free upon request to
the Fund or Waddell & Reed, Inc., the Fund's underwriter, at the address or
telephone number below. The SAI is incorporated by reference into this
Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THE FUND INVESTS AT LEAST 75% OF ITS ASSETS IN MUNICIPAL BONDS RATED BELOW
INVESTMENT GRADE, COMMONLY KNOWN AS "JUNK BONDS," WHICH ENTAIL GREATER
RISKS, INCLUDING DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED
SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE
INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUND" INCLUDED IN
THIS PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-
INVESTMENT GRADE DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND
RATINGS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
United Municipal High Income Fund, Inc. Class Y Shares
This Fund seeks to provide a high level of income that is not subject to
Federal income taxation.
This Prospectus describes one class of shares of the Fund -- Class Y
Shares.
Prospectus
January 30, 1996
UNITED MUNICIPAL HIGH INCOME FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND........................39
EXPENSES.......................................40
FINANCIAL HIGHLIGHTS...........................41
PERFORMANCE....................................42
Explanation of Terms .........................42
ABOUT WADDELL & REED...........................43
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....44
Investment Goals and Principles ..............44
Risk Considerations ........................44
Securities and Investment Practices ..........44
ABOUT YOUR ACCOUNT.............................52
Buying Shares ................................52
Minimum Investments ..........................53
Adding to Your Account .......................53
Selling Shares ...............................53
Telephone Transactions .......................55
Shareholder Services .........................55
Personal Service ...........................56
Reports ....................................56
Exchanges ..................................56
Dividends, Distributions and Taxes ...........56
Distributions ..............................56
Taxes ......................................56
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..58
WRIMCO and Its Affiliates ....................58
Breakdown of Expenses ........................59
Management Fee .............................59
Other Expenses .............................60
APPENDIX A.....................................61
DESCRIPTION OF BOND RATINGS ..................61
DESCRIPTION OF MUNICIPAL NOTE RATINGS ........63
DESCRIPTION OF COMMERCIAL PAPER RATINGS ......63
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United Municipal
High Income Fund, Inc., an open-end, diversified management investment
company.
Goals and Strategies: United Municipal High Income Fund, Inc. (the "Fund")
seeks to provide a high level of income which is not subject to Federal
income taxation. The Fund seeks to achieve this goal through a diversified
portfolio consisting mainly of medium- and lower-rating tax-exempt bonds,
as classified by recognized rating agencies. See "About the Investment
Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO")
provides investment advice to the Fund and manages the Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO,
Waddell & Reed, Inc. and its predecessors have provided investment
management services to registered investment companies since 1940. See
"About the Management and Expenses of the Fund" for further information
about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed,
Inc. and its account representatives. The price to buy a Class Y share of
the Fund is the net asset value of a Class Y share. There is no sales
charge incurred upon purchase of Class Y shares of the Fund. See "About
Your Account" for information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption procedures.
Who May Want to Invest: The Fund is for an investor looking for a higher
level of primarily tax-free income than is normally available with
securities in the higher-rated categories. The Fund is not suitable for
all investors. You should consider whether the Fund fits with your
particular investment objectives.
Risk Considerations: The Fund invests primarily in medium- and lower-
quality municipal bonds which may vary widely as to their interest rates,
degree of security and maturity. Investments in high-yield, high-risk
securities ("junk bonds") may entail risks that are different or more
pronounced than those involved in higher-rated securities. The value of
the Fund's investments and the income generated will vary from day to day,
generally reflecting changes in interest rates, market conditions, and
other company and economic news. Performance will also depend on WRIMCO's
skill in selecting investments. See "About the Investment Principles of
the Fund" for information about the risks associated with the Fund's
investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).3
Management fees 0.51%
12b-1 fees None
Other expenses 0.22%
Total Fund operating expenses 0.73%
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return4 and (2) redemption at the end of each time
period:
1 year $ 7
3 years $23
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class Y shares of the Fund
will bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater
or lesser than those shown. For a more complete discussion of certain
expenses and fees, see "Breakdown of Expenses."
3Expense ratios are based on the management fees and other Fund-level
expenses of the Fund for the fiscal year ended September 30, 1995, and the
expenses attributable to the Class Y shares that are anticipated for the
current year. Actual expenses may be greater or lesser than those shown.
4Use of an assumed annual return of 5% is for illustration purposes only
and is not a representation of the Fund's future performance, which may be
greater or lesser.
<PAGE>
Financial Highlights
Financial Highlights for Class Y shares are not included because the Fund
did not offer Class Y shares during the fiscal year ended September 30,
1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each
class of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may be for periods other than those required to be presented
or may otherwise differ from standardized total return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. The Fund's
yield is based on a 30-day period ending on a specific date and is computed
by dividing the Fund's net investment income per share earned during the
period by the Fund's maximum offering price per share on the last day of
the period. Tax equivalent yield is calculated by applying the stated
income tax rate to only the net investment income exempt from taxation
according to a standard formula.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a
ranking, the Fund may provide additional information, such as the
particular category to which it relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of
sales charges, fee waivers and/or expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives
located throughout the United States. Your primary contact in your
dealings with Waddell & Reed will be your local account representative.
However, the Waddell & Reed shareholder services department, which is part
of the Waddell & Reed headquarters operations in Overland Park, Kansas, is
available to assist you and your Waddell & Reed account representative.
You may speak with a customer service representative by calling 913-236-
2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is to provide a high level of income that is not
subject to Federal income tax. The Fund seeks to achieve this goal by
investing in medium- and lower-quality municipal bonds that provide higher
yields than bonds of higher quality. There is no assurance that the Fund
will achieve its goal.
As used in this Prospectus, "municipal bonds" mean obligations 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. The Fund and WRIMCO rely on the opinion of bond counsel for the
issuer in determining whether obligations are municipal bonds.
WRIMCO may choose to invest in debt securities other than municipal bonds
("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
contracts. Sometimes, WRIMCO may believe that a full or partial defensive
position is desirable temporarily due to present or anticipated market or
economic conditions that are affecting or could affect the values of
municipal bonds. During such periods, the Fund may invest up to all of its
assets in taxable obligations that would result in a higher proportion of
the Fund's income being subject to Federal income taxes.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk, and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risk, you should
anticipate that the share price of the Fund will fluctuate. Financial risk
is based on the financial situation of the issuer. The financial risk of
the Fund depends on the credit quality of the underlying securities.
Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
prior to its expected maturity date.
Certain types of instruments in which the Fund may invest, and certain
strategies WRIMCO may employ in pursuit of the Fund's goals, involve
special risks. Lower-quality debt securities (commonly called "junk
bonds") are considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's creditworthiness.
The market prices of these securities may fluctuate more than higher-
quality securities and may decline significantly in periods of general
economic difficulty.
The Fund can use various techniques to increase or decrease its exposure to
changing security prices, interest rates, or other factors that affect
security values. These techniques may involve derivative instruments,
including options, futures contracts, options on futures contracts, indexed
securities, stripped securities and mortgage-backed securities. If WRIMCO
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's investments, these techniques could result
in a loss, regardless of whether the intent was to reduce risk or increase
return. These techniques may increase the volatility of the Fund and may
involve a small investment of cash relative to the magnitude of the risk
assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is
not a liquid secondary market to close out a position that the Fund has
entered into. See "Risks of Derivative Instruments" for further
information on the risks of investing in these instruments.
Income from taxable obligations, repurchase agreements, options, and
futures contracts will be subject to Federal income tax.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest and strategies WRIMCO may employ
in pursuit of the Fund's goal. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies
and restrictions unless it believes that doing so will help the Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing the Fund's holdings.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy of the Fund may not be changed without
the approval of the shareholders of the Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal of the Fund and the types of securities and other
assets in which it may invest are fundamental policies. Unless otherwise
indicated, other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a
subsequent change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various 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.
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. To the extent that the Fund invests 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, the Fund may be more susceptible to the risks
associated with economic, political or regulatory occurrences that might
adversely affect particular projects or areas. Similarly, to the extent
the Fund invests up to 25% of its assets in industrial revenue bonds issued
for any one industry, the Fund may be susceptible to the risks associated
with a particular industry. 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.
Other municipal obligations include municipal lease obligations of
municipal authorities or entities and participations in these obligations
(collectively, "lease obligations"). WRIMCO determines liquidity of lease
obligations in accordance with guidelines established by the Fund's Board
of Directors. Unrated municipal lease obligations are 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.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size
of a particular offering, the maturity of the obligation and the nature of
the issue. Lower-rated bonds usually, but not always, have higher yields
than similar but higher-rated bonds.
Medium- or lower-rated municipal securities are frequently traded only in
markets where the number of potential purchasers and sellers, if any, is
very limited. This factor may have the effect of limiting the availability
of the securities for purchase by the Fund and may also limit the ability
of the Fund to sell such securities at their fair value either to meet
redemption requests or in response to changes in the economy or the
financial markets.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than high-quality securities and may decline
significantly in periods of general economic difficulty. While the market
for high-yield, high-risk corporate debt securities has been in existence
for many years and has weathered previous economic downturns, the 1980s
brought a dramatic increase in the use of such securities to fund highly
leveraged corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of the high-
yield, high-risk bond market, especially during periods of economic
recession. The market for lower-rated debt securities may be thinner and
less active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of
lower-rated debt securities, especially in a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, WRIMCO's research and credit analysis are an especially
important part of managing securities of this type held by the Fund.
WRIMCO continuously monitors the issuers of lower-rated debt securities in
the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may choose, at its expense or in conjunction with
others, to pursue litigation or otherwise to exercise its rights as a
security holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the Fund's shareholders.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with credit
ratings. Credit ratings evaluate the safety of principal and interest
payments, not market value risk. Credit ratings for individual securities
may change from time to time, and the Fund may retain a portfolio security
whose rating has been changed.
Under normal market conditions, the Fund will be substantially invested in
bonds with maturities of 10 to 30 years.
Policies and Restrictions: As a fundamental policy, at least 80% of the
Fund's assets will be invested during normal market conditions in municipal
bonds.
The Fund may invest 25% or more of its assets in industrial development
bonds, and may have 25% or more of its assets in securities 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. 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.
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 BBB through D by Standard & Poor's Ratings Services ("S&P"), or Baa
through C by Moody's Investors Service, Inc. ("MIS"), or, if unrated, are,
in the opinion of WRIMCO, of similar quality to rated municipal bonds in
these categories. See Appendix A to this Prospectus for a description of
bond ratings.
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, in the opinion of WRIMCO, there is a lack of
medium- and lower-quality issues in which to invest.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt
securities rise. The values of floating and adjustable-rate debt
securities are not as sensitive to changes in interest rates as the values
of fixed-rate debt securities. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency
or instrumentality of the U.S. Government. Not all U.S. Government
Securities are backed by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
dividends, the Fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and
certificates of deposit, bankers' acceptances, bank deposits, and other
financial institution obligations. These instruments may carry fixed or
variable interest rates.
Policies and Restrictions: As a fundamental policy, during normal market
conditions, up to 20% of the Fund's assets may be invested in a combination
of taxable obligations, and Debt Futures and Municipal Bond Index Futures
(defined below).
As a fundamental policy, the only taxable obligations that the Fund may
purchase are (i) U.S. Government Securities, (ii) bank obligations of
domestic banks or savings and loan associations that are subject to
regulation by the U.S. Government (these obligations may include
certificates of deposit and acceptances), (iii) commercial paper rated at
least A by S&P or MIS, and (iv) repurchase agreements.
Debt Holdings, by Rating. During the fiscal year ended September 30, 1995,
the percentage of the assets of the Fund 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:
Percentage of
Rated Assets of
by S&P the Fund
AAA %
AA
A
BBB
BB
B
CCC
CC
C
D
Unrated (Equivalent to)
AAA
AA
A
BBB
BB
B
CCC
CC
C
D
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in the Fund's portfolio
at the end of each month in the thirteen-month period ended with its last
fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as
ratings may change over time, does not necessarily indicate past or future
ratings of any particular security or the ratings of securities in the
portfolio in general. Asset composition of the Fund by rating categories
at any particular time does not necessarily indicate future asset
composition by rating categories.
Options, Futures and Other Strategies. The Fund may use certain options
and indexed securities to attempt to enhance income or yield or may attempt
to reduce the overall risk of its investments by using certain options,
futures contracts, and certain other strategies described herein. The
strategies described below may be used in an attempt to manage certain
risks of the Fund's investments that can affect fluctuation in its net
asset value.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not
use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these instruments and strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the
right to buy, and obligates the writer to sell, the underlying investment
at the agreed upon exercise price during the option period. A put option
gives the purchaser the right to sell, and obligates the writer to buy, the
underlying investment at the agreed upon exercise price during the option
period. Purchasers of options pay an amount, known as a premium, to the
option writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will
exist for exchange-listed options. The Fund will be able to close a
position in an option it has written only if there is a market for the put
or call. If the Fund is not able to enter into a closing transaction on an
option it has written, it will be required to maintain the securities, or
cash in the case of an option on an index, subject to the call or the
collateral underlying the put until a closing purchase transaction can be
entered into or the option expires. Because index options are settled in
cash, the Fund cannot provide in advance for its potential settlement
obligations on a call it has written on an index by holding the underlying
securities. The Fund bears the risk that the value of the securities it
holds will vary from the value of the index.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
and write (sell) put and call options only on domestic debt securities and
municipal bond indices, and the options on futures contracts described
below, subject to certain restrictions that are set forth in the SAI.
The Fund may purchase and write (sell) options on domestic debt securities
and municipal bond indices only if they are listed on a national securities
exchange.
The Fund will only write puts on domestic debt securities if it would be
willing to purchase the underlying security at the exercise price.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the term of the option.
If the Fund has written a call, it assumes a short futures position. If it
has written a put, it assumes a long futures position. When the Fund
purchases an option on a futures contract, it acquires a right in return
for the premium it pays to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy
and sell futures contracts relating to domestic debt securities ("Debt
Futures"), futures contracts relating to municipal bond indices ("Municipal
Bond Index Futures"), and options on Debt Futures.
The Fund intends to use futures contracts and options thereon only to
attempt to hedge against market risks that could adversely affect the value
of its portfolio.
During normal market conditions, up to 20% of the Fund's assets may be
invested in a combination of taxable obligations, Debt Futures, and
Municipal Bond Index Futures.
Indexed Securities. The Fund may purchase and sell indexed securities,
which are securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, as long as WRIMCO determines
that it is consistent with the Fund's goal and investment policies.
Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference
to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the U.S. and abroad. At the same
time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations, and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity while a
prepayment rate that is slower than expected will have the opposite effect
of increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium
also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of the Fund. It is possible that the availability and marketability
(i.e., liquidity) of these securities could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
Policies and Restrictions: The Fund may invest in mortgage-backed
securities as long as WRIMCO determines that it is consistent with the
Fund's goal and investment policies.
Stripped Securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other
debt securities, although they may be more volatile. The prices of
stripped mortgage-backed securities may be particularly affected by changes
in interest rates.
Policies and Restrictions: The Fund may invest in stripped securities as
long as WRIMCO determines that it is consistent with the Fund's goal and
investment policies.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities,
stripped securities and mortgage-backed securities involve special risks,
including (i) possible imperfect or no correlation between price movements
of the portfolio investments (held or intended to be purchased) involved in
the transaction and price movements of the instruments involved in the
transaction, (ii) possible lack of a liquid secondary market for any
particular instrument at a particular time, (iii) the need for additional
portfolio management skills and techniques, (iv) losses due to
unanticipated market price movements, (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in investments involved in the transaction, (vi) incorrect
forecasts by WRIMCO concerning interest rates or direction of price
fluctuations of the investment involved in the transaction, which may
result in the strategy being ineffective, (vii) loss of premiums paid by
the Fund on options it purchases, and (viii) the possible inability of the
Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for
the Fund to maintain "cover" or to segregate securities in connection with
such transactions and the possible inability of the Fund to close out or
liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being
hedged. The risk of imperfect correlation of these price changes increases
as the composition of the Fund's portfolio diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not
be the same investment that is being hedged. WRIMCO will attempt to create
a closely correlated hedge but hedging activity may not be completely
successful in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to
adjust the return characteristics of the Fund's portfolio of investments.
An embedded derivative is a derivative that is part of another financial
instrument. Embedded derivatives typically, but not always, are debt
securities whose return of principal or interest, in part, is determined by
reference to something that is not intrinsic to the security itself. The
use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate trends by WRIMCO may still not result in a successful
transaction. WRIMCO may be incorrect in its expectations as to the extent
of various interest rate movements or the time span within which the
movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and
transaction costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the Fund's yield.
The Fund may purchase municipal bonds on a when-issued or delayed-delivery
basis and sell municipal bonds on a delayed-delivery basis. When
purchasing municipal bonds on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a municipal bond on a delayed-
delivery basis, the Fund does not participate in further gains or losses
with respect to the bond. If the other party to a delayed-delivery
transaction fails to deliver or pay for the bonds, the Fund could miss a
favorable price or yield opportunity, or could suffer a loss.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults
or becomes insolvent.
Policies and Restrictions: The Fund may purchase securities subject to
repurchase agreements, but may not cause more than 10% of its net assets to
be subject to repurchase agreements not terminable within seven days.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance
with guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be
costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid
investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase the securities of any "issuer" if more than 5% of the Fund's total
assets would then be invested in that "issuer." This restriction does not
apply to cash or cash items, or U.S. Government Securities.
There is a question as to who is the "issuer" of municipal bonds. For
example, municipal bonds may be created by a particular government but be
backed only by the assets and revenues of a subdivision of that government
such as an agency, instrumentality, authority or other subdivision. In
such case, the Fund would consider that such subdivision is the "issuer"
for the purposes of this 5% restriction. In the case of industrial
development bonds, the nongovernmental user of facilities financed by them
is also considered as a separate "issuer." The method of determining who
is an "issuer" may be changed without shareholder vote. The Fund considers
a guarantee of a municipal bond by a government or other entity to be a
separate security that 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 the
Fund's total assets.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may not
borrow money or pledge 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 its total assets. The Fund does not
intend to borrow for temporary measures; however, it may borrow to cover
redemptions or settlements of securities transactions. See the SAI for
further information about the Fund's ability to borrow.
Other Instruments may include securities of closed-end investment
companies. As a shareholder in an investment company, the Fund would bear
its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and
administrative fees.
Policies and Restrictions: As a fundamental policy, the Fund may buy
shares of other investment companies that do not redeem their shares only
if it does so in a regular transaction in the open market and then does not
have more than 10% of its total assets invested in these shares.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares
are available for purchase by:
participants of employee benefit plans established under section 403(b)
or section 457, or qualified under section 401, including 401(k) plans,
of the Internal Revenue Code of 1986, as amended (the "Code"), when the
plan has 100 or more eligible employees and holds the shares in an
omnibus account on the Fund's records;
banks, trust institutions and investment fund administrators investing
for their own accounts or for the accounts of their customers where such
investments for customer accounts are held in an omnibus account on the
Fund's records;
government entities or authorities and corporations whose investment
within the first twelve months after initial investment is $10 million
or more; and
certain retirement plans and trusts for employees and account
representatives of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with
any questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share) is
the Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are
sold without a sales charge.
To purchase by wire, you must first obtain an account number by calling 1-
800-366-2520, then mail a completed application to Waddell & Reed, Inc.,
P. O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-
5044. Instruct your bank to wire the amount you wish to invest to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978,
FBO Customer Name and Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc.,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding, with respect to that Class, the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market
quotations are not available, at their fair value in a manner determined in
good faith by or at the direction of the Board of Directors. Bonds are
generally valued according to prices quoted by a dealer in bonds that
offers a pricing service. Short-term debt securities are valued at
amortized cost, which approximates market value. Other assets are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the later of the close of business of the NYSE, normally 4
p.m. Eastern time, or the close of the regular session of any other
securities or commodities exchange on which an option held by the Fund is
traded.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous
investment has cleared.
The Fund does not issue certificates representing Class Y shares of the
Fund.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income
to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first
twelve
months)
For other
investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978,
FBO Customer Name and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc. Mail the check along with a letter showing your account number, the
account registration and stating the fund whose shares you wish to purchase
to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax
your request to 913-236-5044 and give your instructions to redeem shares
and make payment by wire to your pre-designated bank account or by check to
you at the address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
the name on the account registration,
the Fund's name,
the Fund account number,
the dollar amount or number of shares to be redeemed, and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by
Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the
written request.
If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted, or as permitted by the Securities and Exchange
Commission.
Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Fund may require a signature guarantee in
certain situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary,
the request for redemption is made by someone other than the owner of
record, or
the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will
give you notice of its intention to redeem your shares and a 60-day
opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Fund fails to do so, the
Fund may be liable for losses due to unauthorized or fraudulent
instructions. Current procedures relating to instructions communicated by
telephone include tape recording instructions, requiring personal
identification and providing written confirmations of transactions effected
pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff
is available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account
with the Fund. Call 913-236-2000 if you need copies of annual or
semiannual reports or historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group. You may exchange only into funds that are legally
registered for sale in your state of residence. Note that exchanges out of
the Fund may have tax consequences for you. Before exchanging into a fund,
read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, and other income earned on portfolio assets less
expenses, on the 27th day of the month or on the last business day prior to
the 27th if the 27th falls on a weekend or holiday.
Net capital gains ordinarily are distributed in December. The Fund may
make additional distributions if necessary to avoid Federal income or
excise taxes on undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers
three options:
1. Share Payment Option. Your dividend and capital gains distributions
will be automatically paid in additional Class Y shares of the Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital
gains distributions.
For retirement accounts, all distributions are automatically paid in Class
Y shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Code so that it will be relieved
of Federal income tax on that part of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gain) and net capital gain (the excess of net long-term capital
gain over net short-term capital loss) that are 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 calendar quarter at least 50% of the value of its total
assets must consist of obligations the interest on which is excludable from
gross income under section 103(a) of the Code.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the
Fund may have to limit its investment activity in some types of
instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. You should be aware of the following tax implications:
Taxes on distributions. The distributions by the Fund that are designated
by it as exempt-interest dividends 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, whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital
gain, when designated as such, are taxable to you as long-term capital
gains, whether received in cash or paid in additional Fund shares and
regardless of the length of time you have owned your shares. 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 of dividends and other
distributions paid (or deemed paid) to you for that year.
Exempt-interest dividends paid by the Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that
must be treated by you as a "tax preference item" for purposes of
calculating your liability, if any, for the AMT; the Fund anticipates such
portion will be not more than one-third of the dividends it will pay to its
shareholders. The Fund will provide you with information concerning the
amount of distributions subject to the AMT after the end of each calendar
year. Shareholders who may be subject to the AMT should consult with their
tax advisers concerning investment in the Fund.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by private activity bonds
("PABs") should consult their tax advisers before purchasing Fund shares
because, for users of certain of these facilities, the interest on PABs is
not exempt from Federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person"
who regularly uses in trade or business a part of a facility financed from
the proceeds of PABs.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals
and certain other noncorporate shareholders who do not furnish the Fund
with a correct taxpayer identification number. Withholding at that rate
from dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds
are more or less than your adjusted basis for the redeemed shares (which
normally includes any sales charge paid). An exchange of Fund shares for
shares of any other fund in the United Group generally will have similar
tax consequences. However, special rules apply when you dispose of Fund
shares through a redemption or exchange within ninety days after your
purchase thereof and subsequently reacquire Fund shares or acquire shares
of another fund in the United Group without paying a sales charge due to
the thirty-day reinvestment privilege or exchange privilege. See "About
Your Account." In these cases, any gain on the disposition of the Fund
shares would be increased, or loss decreased, by the amount of the sales
charge you paid when those shares were acquired, and that amount will
increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Class Y shares of the Fund within thirty days
before or after redeeming other Class Y shares of the Fund at a loss, part
or all of that loss will not be deductible and will increase the basis of
the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of the Fund will not be deductible for Federal income tax purposes to the
extent the Fund's distributions consist of exempt-interest dividends.
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 that event, the Fund may decide to reevaluate its investment
goal and policies.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There
may be other Federal, state or local tax considerations applicable to a
particular investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Municipal High Income Fund, Inc. is a mutual fund: an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the Fund is an open-end management investment company
organized as a corporation under Maryland law on September 9, 1985.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of
directors are not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Fund has issued and outstanding Class A
shares which are offered by Waddell & Reed, Inc. through a separate
Prospectus. Prior to January 30, 1996, the Fund offered only one class of
shares to the public. Shares outstanding on that date were designated as
Class A shares. Class A shares are subject to a sales charge on purchases
but are not subject to redemption fees. Class A shares are subject to a
Rule 12b-1 fee at an annual rate of up to 0.25% of the Fund's average net
assets attributable to Class A shares. Additional information about Class
A shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of the Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less
than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally
be no meeting of the shareholders for the purpose of electing directors
until such time as less than a majority of directors holding office have
been elected by shareholders, at which time the directors then in office
will call a shareholders' meeting for the election of directors. To the
extent that Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), applies to the Fund, the directors are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate
vote of any Class is required by the 1940 Act, and except as to any matter
which affects the interests of one or more particular Classes, in which
case only the shareholders of the affected Classes are entitled to vote,
each as a separate Class. Shares are fully paid and nonassessable when
purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises
the Fund's investments. Waddell & Reed, Inc. and its predecessors served
as investment manager to each of the registered investment companies in the
United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992,
when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since
its inception in September 1992 and United Asset Strategy Fund, Inc. since
it commenced operations in March 1995.
John M. Holliday is primarily responsible for the day-to-day management of
the Fund. Mr. Holliday has held his Fund responsibilities since January
20, 1986. He is Senior Vice President of WRIMCO, Senior Vice President of
Waddell & Reed Asset Management Company, an affiliate of WRIMCO, Vice
President of the Fund, and Vice President of other investment companies for
which WRIMCO serves as investment manager. Mr. Holliday has served as the
portfolio manager for investment companies managed by Waddell & Reed, Inc.
and its successor, WRIMCO, since August 1979 and has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978. Other
members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell
& Reed Funds, Inc. and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which
are explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .10 of 1% of its net assets.
The group fee is a pro rata participation based on the relative net asset
size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown
in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $13.3 billion as of September 30, 1995. Management fees for
the fiscal year ended September 30, 1995 were 0.51% of the Fund's average
net assets, which during that period consisted only of the Fund's Class A
shares.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to
its Class Y shares, the Fund pays the Shareholder Servicing Agent a monthly
fee based on the average daily net assets of the Class for the preceding
month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities
laws and to the Investment Company Institute, and extraordinary expenses
including litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. A higher turnover will
increase transaction and commission costs and could generate taxable income
or loss.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. A S&P 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 S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
A brief description of the applicable S&P rating symbols and their meanings
follow:
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from
AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions
to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal. The CCC
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed,
but debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable
grace period has not expired, unless S&P believes that such payments will
be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues.
The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories (AAA, AA, A, BBB, commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments may impose
certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.
Moody's Investors Service, Inc. A brief description of the applicable MIS
rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the
rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF MUNICIPAL NOTE RATINGS
A S&P 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 notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings -- MIS ratings for state and municipal
short-term obligations will be designated Moody's Investment Grade (MIG).
This distinction is in recognition of the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the
borrower are uppermost in importance in short-term borrowing, while various
factors of major importance in bond risk are of lesser importance over the
short run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the
highest quality obligations to D for the lowest. Issuers rated A are
further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are
regarded as having the greatest capacity for timely payment. An A-1
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. An A-2
rating indicates that capacity for timely payment is satisfactory; however,
the relative degree of safety is not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment; however, they
are more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. Issues rated B are regarded
as having only speculative capacity for timely payment. A C rating is
assigned to short-term debt obligations with a doubtful capacity for
payment. Debt rated D is in payment default, which occurs when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MIS commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. MIS employs the designations of Prime 1, Prime 2
and Prime 3, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers. Issuers rated Prime 1 have a superior
capacity for repayment of short-term promissory obligations and repayment
capacity will normally be evidenced by (1) lending market positions in well
established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structures with moderate reliance on debt and
ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime 2 also have a strong capacity for
repayment of short-term promissory obligations as will normally be
evidenced by many of the characteristics described above for Prime 1
issuers, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation; capitalization
characteristics, while still appropriate, may be more affected by external
conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics
above for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability
in earnings and profitability may result in changes in the level of debt
protection measurements and requirement for relatively high financial
leverage; and adequate alternate liquidity is maintained.
<PAGE>
United Municipal High Income Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United Municipal High Income Fund, Inc.
Class Y Shares
PROSPECTUS
January 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP2014-Y(1-96)
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
January 30, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a
prospectus ("Prospectus") for the Class A shares or the Class Y shares, as
applicable, of United Municipal High Income Fund, Inc. (the "Fund") dated
January 30, 1996, which may be obtained from the Fund or its underwriter,
Waddell & Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ............................ 2
Goals and Investment Policies ............... 4
Investment Management and Other Services ........... 23
Purchase, Redemption and Pricing of Shares ......... 27
Directors and Officers ............................. 37
Payments to Shareholders ........................... 41
Taxes .............................................. 42
Portfolio Transactions and Brokerage ............... 46
Other Information .................................. 47
<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 and, for Class A shares from which
the maximum sales load of 4.25% is deducted. All dividends and
distributions are assumed to be reinvested in shares of the applicable
Class at net asset value for the Class as of the day the dividend or
distribution is paid. No sales load is charged on reinvested dividends or
distributions on Class A shares. The formula used to calculate the total
return for a particular Class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for
the periods shown.
Non-standardized performance information may also be presented.
For example, the Fund may also compute total return for its Class A shares
without deduction of the sales load in which case the same formula noted
above will be used but the entire amount of the $1,000 initial payment will
be assumed to have been invested. If the sales charge applicable to Class
A shares were reflected, it would reduce the performance quoted for that
Class.
The average annual total return quotations for Class A shares as of
September 30, 1995, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from October 1, 1994 to
September 30, 1995: 5.93% 10.63%
Five-year period from October 1, 1990 to
September 30, 1995: 8.51% 9.46%
Period from January 21, 1986* to
September 30, 1995: 8.32% 8.81%
*initial public offering date
Prior to January 30, 1996, the Fund offered only one class of
shares to the public. Shares outstanding on that date were designated as
Class A shares. Since that date, Class Y shares of the Fund have been
available to certain institutional investors.
The Fund may also quote unaveraged or cumulative total return for a
Class which reflects the change in value of an investment in that Class
over a stated period of time. Cumulative total returns will be calculated
according to the formula indicated above but without averaging the rate for
the number of years in the period.
Yield
A yield quoted for a Class of the Fund is computed by dividing the
net investment income per share of that Class earned during the period for
which the yield is shown by the maximum offering price per share of that
Class on the last day of that period according to the following
formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where with respect to a particular Class of the Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the Class outstanding
during the period that were entitled to receive dividends.
d = the maximum offering price per share of the Class on the last
day of the period.
The yield for Class A shares of the Fund computed according to the
formula for the 30-day period ended on September 30, 1995, the date of the
most recent balance sheet included in this SAI, is ____%.
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, 1995, the date of the most recent
balance sheet included in this SAI, is ____%, ____%, ____%, ____% and ____%
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 of the applicable Class.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish
in advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each Class of the Fund may also compare
its performance to that of other selected mutual funds or selected
recognized market indicators such as the Standard & Poor's 500 Stock Index
and the Dow Jones Industrial Average. Performance information may be
quoted numerically or presented in a table, graph or other illustration.
All performance information that the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of the Fund's shares when redeemed may
be more or less than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Specific Securities and Investment Practices
Municipal Bonds
Municipal bonds are issued by a wide range of state and local
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 issued by state and local
government authorities and agencies are "industrial development bonds."
The Fund may purchase industrial development bonds only if the interest on
them is free from Federal income taxation, although 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 that are industrial development
bonds. As of September 30, 1995, ____% of the Fund's net assets were
invested in industrial development bonds.
Municipal leases and participation interests therein are another type
of municipal bond. 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 are considered 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
("WRIMCO"), 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.
WRIMCO and the Fund rely on the opinion of bond counsel for the issuer
in determining whether obligations are municipal bonds. If a court holds
that an obligation held by the Fund is not a municipal bond (i.e., that the
interest thereon is taxable), the Fund will sell the obligation as soon as
possible, but it might incur a loss upon such sale.
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 that 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.
Certain problems facing the generating industry in general may or may
not affect its ability to meet obligations on bonds. These problems
include the effects of (i) inflation on financing large construction
programs, (ii) cost increases and delays arising out of environmental
considerations, (iii) limitations of available capital on the ability to
issue additional debt, (iv) the effect of shortages and high prices of fuel
on operations and profits, and (v) 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.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase municipal bonds on a when-issued or delayed-
delivery basis or sell them on a delayed-delivery basis. The bonds so
purchased or sold by the Fund are subject to market fluctuation; their
value may be less or more when delivered than the purchase price paid or
received. For example, delivery to the Fund and payment by the Fund in the
case of a purchase by it, or delivery by the Fund and payment to it in the
case of a sale by the Fund, may take place a month or more after the date
of the transaction. The purchase or sale price are fixed on the
transaction date. The Fund will enter into when-issued or delayed-delivery
transactions in order to secure what is considered to be an advantageous
price and yield at the time of entering into the transaction. No interest
accrues to the Fund until delivery and payment is completed. When the Fund
makes a commitment to purchase municipal bonds on a when-issued or delayed-
delivery basis, it will record the transaction and thereafter reflect the
value of the bonds in determining its net asset value per share. The
municipal bonds so sold by the Fund on a delayed-delivery basis are also
subject to market fluctuation; their value when the Fund delivers them may
be more than the purchase price the Fund receives. When the Fund makes a
commitment to sell municipal bonds on a delayed basis, it will record the
transaction and thereafter value the bonds at the sales price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases municipal bonds on a when-issued or
delayed-delivery basis with the intention of actually taking delivery of
the bonds. However, before the bonds are delivered to the Fund and before
it has paid for them (the "settlement date"), the Fund could sell the bonds
if WRIMCO decided it was advisable to do so for investment reasons. The
Fund will hold aside or segregate cash or other securities, other than
those purchased on a when-issued or delayed-delivery basis, at least equal
to the amount it will have to pay on the settlement date; these other
securities may, however, be sold at or before the settlement date to pay
the purchase price of the when-issued or delayed-delivery bonds.
U.S. Government Securities
U.S. Government Securities include Treasury Bills (which mature within
one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed
by the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing
Administration, Federal National Mortgage Association, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Farm Credit Banks, Maritime
Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation, and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of
the United States. Some, such as securities issued by the Federal Home
Loan Banks, are backed by the right of the agency or instrumentality to
borrow from the Treasury. Others, such as securities issued by the Federal
National Mortgage Association, are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed
by the full faith and credit of the United States, the owner of the
securities must look principally to the agency issuing the obligation for
repayment and may not be able to assert a claim against the United States
in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government Securities may include mortgage-backed securities of
the Government National Mortgage Association ("Ginnie Mae"), the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National
Mortgage Association ("Fannie Mae"). These mortgage-backed securities
include "pass-through" securities and "participation certificates."
Another type of mortgage-backed security is a collateralized mortgage
obligation ("CMO"). See "Mortgage-Backed Securities." Timely payment of
principal and interest on Ginnie Mae pass-throughs is guaranteed by the
full faith and credit of the United States. Freddie Mac and Fannie Mae are
both instrumentalities of the U.S. Government, but their obligations are
not backed by the full faith and credit of the United States. It is
possible that the availability and the marketability (i.e., liquidity) of
the securities discussed in this section could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as
two individual securities. CATS (Certificate of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of
Registered Interest and Principal of Securities) by separating the interest
and principal components of an outstanding U.S. Treasury security and
selling them as individual securities. Bonds issued by the Resolution
Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also
be separated in this fashion. Original issue zeros are zero coupon
securities originally issued by the U.S. Government, a government agency,
or a corporation in zero coupon form.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed
by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Mortgage-backed securities are based on different types
of mortgages including those on commercial real estate or residential
properties. Some mortgage-backed securities, such as collateralized
mortgage obligations, make payments of both principal and interest at a
variety of intervals; others make semiannual interest payments at a
predetermined rate and repay principal at maturity (like a typical bond).
Pass-through securities and participation certificates represent pools of
mortgages that are assembled, with interests sold in the pool; the assembly
is made by an "issuer," such as a mortgage banker, commercial bank or
savings and loan association, which assembles the mortgages in the pool and
passes through payments of principal and interest for a fee payable to it.
Payments of principal and interest by individual mortgagors are passed
through to the holders of the interest in the pool. Monthly or other
regular payments on pass-through securities and participation certificates
include payments of principal (including prepayments on mortgages in the
pool) rather than only interest payments.
The Fund may purchase mortgage-backed securities issued by both
government and non-government entities, such as banks, mortgage lenders, or
other financial institutions, as long as WRIMCO determines that it is
consistent with the Fund's goal and investment policies. Other types of
mortgage-backed securities will likely be developed in the future, and the
Fund may invest in them if WRIMCO determines they are consistent with the
Fund's goal and investment policies.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers. In addition, regulatory or tax changes
may adversely affect the mortgage securities market as a whole. Non-
government mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject to
prepayment risk. Prepayment, which occurs when unscheduled or early
payments are made on the underlying mortgages, may shorten the effective
maturities of these securities and may lower their total returns.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives
the principal payments made by the underlying mortgage-backed security,
while the holder of the "interest-only" security ("IO") receives interest
payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and carry
rights that permit holders to demand payment of the unpaid principal
balance plus accrued interest from the issuers or certain financial
intermediaries. Floating rate securities have interest rates that change
whenever there is a change in a designated base rate while variable rate
instruments provide for a specified periodic adjustment in the interest
rate. These formulas are designed to result in a market value for the
instrument that approximates its par value.
Indexed Securities
The Fund may purchase securities whose prices are indexed to the
prices of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators, as long as WRIMCO
determines that it is consistent with the Fund's goal and investment
policies. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Gold-indexed
securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values
of one or more specified foreign currencies, and may offer higher yields
than U.S. dollar-denominated securities of equivalent issuers. Currency-
indexed securities may be positively or negatively indexed; that is, their
maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar
to a put on the underlying currency. Currency-indexed securities may also
have prices that depend on the values of a number of different foreign
currencies relative to each other.
Recent issuers of indexed securities have included banks,
corporations, and certain U.S. Government agencies. Certain indexed
securities that are not traded on an established market may be deemed
illiquid.
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 are subject to legal or contractual
restrictions on resale because they are not registered under the Securities
Act of 1933, as amended (the "1933 Act"). Restricted securities generally
can be sold in privately negotiated transactions, pursuant to an exemption
from registration under the 1933 Act or in a registered public offering.
Where registration is required, the Fund may be obligated to pay all or
part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time the Fund may
be permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the
Fund might obtain a less favorable price than prevailed when it decided to
seek registration of the security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent the Fund from reselling
the securities at a time when such sale would be desirable. Restricted
securities in which the Fund seeks to invest need not be listed or admitted
to trading on a foreign or domestic exchange and may be less liquid than
listed securities. See "Illiquid Investments" below.
Illiquid Investments
The Fund may not invest more than 10% of its net assets in illiquid
investments. Investments currently considered to be illiquid include: (i)
repurchase agreements not terminable within seven days; (ii) 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 not determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors. However, this 10%
limit does not include any obligations payable at principal amount plus
interest on demand or within seven days after demand.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements
subject to its limitation on investment in illiquid investments. See
"Illiquid Investments." A repurchase agreement is an instrument under
which the Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will
repurchase the security at a specified time and price. The amount by which
the resale price is greater than the purchase price reflects an agreed-upon
market interest rate effective for the period of the agreement. The return
on the securities subject to the repurchase agreement may be more or less
than the return on the repurchase agreement.
The majority of the repurchase agreements in which the Fund would
engage are overnight transactions, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The primary
risk is that the Fund may suffer a loss if the seller fails to pay the
agreed-upon amount on the delivery date and that amount is greater than the
resale price of the underlying securities and other collateral held by the
Fund. In the event of bankruptcy or other default by the seller, there may
be possible delays and expenses in liquidating the underlying securities or
other collateral, decline in their value and loss of interest. The return
on such collateral may be more or less than that from the repurchase
agreement. The Fund's repurchase agreements will be structured so as to
fully collateralize the loans, i.e., the value of the underlying
securities, which will be held by the Fund's custodian bank or by a third
party that qualifies as a custodian under Section 17(f) of the Investment
Company Act of 1940, as amended (the "1940 Act"), is and, during the entire
term of the agreement, will remain at least equal to the value of the loan,
including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Fund's Board of Directors.
Securities of Other Investment Companies
In order to comply with regulations of the State of Ohio, for so long
as such regulations are in effect and applicable to the Fund, the Fund will
not invest in securities of other investment companies, except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission, or
except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain
options to attempt to enhance income or yield or may attempt to reduce
overall risk of its investments by using certain options and futures
contracts (sometimes referred to as "futures"). Options and futures are
sometimes referred to collectively as "Financial Instruments." The Fund's
ability to use a particular Financial Instrument may be limited by its
investment limitations or operating policies. See "Investment
Restrictions."
Hedging strategies can be broadly categorized as "short hedges" and
"long hedges." A short hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential declines in the
value of one or more investments held in the Fund's portfolio. Thus, in a
short hedge the Fund takes a position in a Financial Instrument whose price
is expected to move in the opposite direction of the price of the
investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that the Fund intends to
acquire. Thus, in a long hedge the Fund takes a position in a Financial
Instrument whose price is expected to move in the same direction as the
price of the prospective investment being hedged. A long hedge is
sometimes referred to as an anticipatory hedge. In an anticipatory hedge
transaction, the Fund does not own a corresponding security and, therefore,
the transaction does not relate to a security the Fund owns. Rather, it
relates to a security that the Fund intends to acquire. If the Fund does
not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the
transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to
hedge against price movements in one or more particular securities
positions that the Fund owns or intends to acquire. Financial Instruments
on indices, in contrast, generally are used to attempt to hedge against
price movements in market sectors in which the Fund has invested or expects
to invest. Financial Instruments on debt securities may be used to hedge
either individual securities or broad debt market sectors.
The use of Financial Instruments is subject to applicable regulations
of the Securities and Exchange Commission (the "SEC"), the several
exchanges upon which they are traded, the Commodity Futures Trading
Commission (the "CFTC") and various state regulatory authorities. In
addition, the Fund's ability to use Financial Instruments will be limited
by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below
and in the Prospectus, WRIMCO expects to discover additional opportunities
in connection with options, futures contracts, options on futures contracts
and other similar or related techniques. These new opportunities may
become available as WRIMCO develops new techniques, as regulatory
authorities broaden the range of permitted transactions and as new options,
futures contracts, options on futures contracts or other techniques are
developed. WRIMCO may utilize these opportunities to the extent that they
are consistent with the Fund's goal and permitted by the Fund's investment
limitations and applicable regulatory authorities. The Fund's Prospectus
or SAI will be supplemented to the extent that new products or techniques
involve materially different risks than those described below or in the
Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the
sections that follow.
(1) Successful use of most Financial Instruments depends upon
WRIMCO's ability to predict movements of the overall securities and
interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of
the investments being hedged. For example, if the value of a Financial
Instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which Financial Instruments are traded. The
effectiveness of hedges using Financial Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts
available will not match the Fund's current or anticipated investments
exactly. The Fund may invest in options and futures contracts based on
securities with different issuers, maturities, or other characteristics
from the securities in which it typically invests, which involves a risk
that the options or futures position will not track the performance of the
Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors
as current and anticipated short-term interest rates, changes in volatility
of the underlying instrument, and the time remaining until expiration of
the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options
and futures markets and the securities markets, from structural differences
in how options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may purchase or
sell options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price
changes in the Fund's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce anticipated
gains or result in losses that are not offset by gains in other
investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable
price movements. However, such strategies can also reduce opportunity for
gain by offsetting the positive effect of favorable price movements. For
example, if the Fund entered into a short hedge because WRIMCO projected a
decline in the price of a security in the Fund's portfolio, and the price
of that security increased instead, the gain from that increase might be
wholly or partially offset by a decline in the price of the Financial
Instrument. Moreover, if the price of the Financial Instrument declined by
more than the increase in the price of the security, the Fund could suffer
a loss. In either such case, the Fund would have been in a better position
had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets
as "cover," maintain segregated accounts or make margin payments when it
takes positions in Financial Instruments involving obligations to third
parties (i.e., Financial Instruments other than purchased options). If the
Fund were unable to close out its positions in such Financial Instruments,
it might be required to continue to maintain such assets or accounts or
make such payments until the position expired or matured. These
requirements might impair the Fund's ability to sell a portfolio security
or make an investment at a time when it would otherwise be favorable to do
so, or require that the Fund sell a portfolio security at a disadvantageous
time. The Fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("counterparty") to enter
into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will
not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities or other options or futures
contracts, or (2) cash, receivables and short-term debt securities, with a
value sufficient at all times to cover its potential obligations to the
extent not covered as provided in (1) above. The Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the
guidelines so require, set aside cash, U.S. Government Securities or other
liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount as determined daily on a mark-to-market
basis.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Financial Instrument is open,
unless they are replaced with other appropriate assets. As a result, the
commitment of a large portion of the Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Options on Securities. The Fund may write (sell) and purchase options
on securities, but only if the investments to which the options relate 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 has no fundamental policies
as to percentage limitations on its purchase and sale of options on
securities.
The Fund may write and purchase options on domestic debt securities to
attempt to enhance income or to reduce the overall risk of its investments.
The Fund may only write and purchase options on domestic debt securities if
they are listed on a national securities exchange.
The purchase of call options serves as a long hedge, and the purchase
of put options serves as a short hedge. Writing put or call options can
enable the Fund to enhance income or yield by reason of the premiums paid
by the purchasers of such options. However, if the market price of the
security underlying a put option declines to less than the exercise price
of the option, minus the premium received, the Fund would expect to suffer
a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value. The
Fund will write calls on securities when WRIMCO believes that the amount of
the premium represents adequate compensation for the loss of the
opportunity.
Writing put options can serve as a limited long hedge because
increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the
Fund will be obligated to purchase the security at more than its market
value. The Fund will write a put option on a security only when it has
determined that it would be willing to purchase the underlying security at
the exercise price.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of
the underlying investment, the historical price volatility of the
underlying investment and general market conditions. Options that expire
unexercised have no value.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the Fund may
terminate its obligation under a call or put option that it had written by
purchasing an identical call or put option; this is known as a closing
purchase transaction. Conversely, the Fund may terminate a position in a
put or call option it had purchased by writing an identical put or call
option; this is known as a closing sale transaction. Closing transactions
permit the Fund to realize profits or limit losses on an option position
prior to its exercise or expiration.
Risks of Options on Securities. The Fund is only authorized to write
and purchase options on securities that are listed on a national securities
exchange. Exchange-listed options in the United States are issued by a
clearing organization affiliated with the exchange on which the option is
listed that, in effect, guarantees completion of every exchange-traded
option transaction.
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. However, there
can be no assurance that such a market will exist at any particular time.
If the Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by the Fund could cause material losses because
the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
Options on 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 has no fundamental policies as to
percentage limitations on its purchase and sale of options on municipal
bond indices.
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.
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 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 debt security, 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 buy and sell
interest rate futures contracts, but only futures contracts relating to
domestic debt securities ("Debt Futures") and futures contracts relating to
municipal bond indices ("Municipal Bond Index Futures"). 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. The Fund has no fundamental policies as to percentage
limitations on futures contracts and options on futures contracts; see
below, however, as to limitations relating to the CFTC.
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures
can serve as a short hedge. Writing call options on futures contracts can
serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indices. Similarly, writing put
options on futures contracts can serve as a limited long hedge. The Fund
will purchase futures contracts and options thereon 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 WRIMCO anticipates that it
may wish to include in the portfolio of the Fund.
Futures strategies also can be used to manage the average duration of
the Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average
duration of the Fund's fixed-income portfolio, the Fund may sell a futures
contract or a call option thereon, or purchase a put option on that futures
contract. If WRIMCO wishes to lengthen the average duration of the Fund's
fixed-income portfolio, the Fund may buy a futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at
the inception of a futures contract the Fund is required to deposit
"initial margin" consisting of cash or U.S. Government Securities in an
amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract,
in accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction
if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required
by an exchange to increase the level of its initial margin payment, and
initial margin requirements might be increased generally in the future by
regulatory action.
Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking-to-market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's obligations to or
from a futures broker. When the Fund purchases an option on a future, the
premium paid plus transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or writes a call or put
option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Fund has
insufficient cash to meet daily variation margin requirements, it might
need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions
in options, by selling or purchasing, respectively, an instrument identical
to the instrument purchased or sold. Positions in futures and options on
futures may be closed only on an exchange or board of trade that provides a
secondary market. The Fund intends to enter into futures and options on
futures only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time. In such
event, it may not be possible to close a futures contract or options
position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or 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, except in the case of purchased options, the Fund would continue
to be required to make daily variation margin payments and might be
required to maintain the position being hedged by the futures contract or
option or to maintain cash or securities in a segregated account.
As an operating policy, to the extent that the Fund enters into
futures contracts or options on futures contracts, in each case other than
for bona fide hedging purposes (as defined by the CFTC), the aggregate
initial margin and premiums required to establish those positions
(excluding the amount by which options are "in-the-money" at the time of
purchase) will not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized
losses on any contracts the Fund has entered into. (In general, a call
option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of
the call; a put option on a futures contract is "in-the-money" if the value
of the underlying futures contract is exceeded by the strike price of the
put.) This policy does not limit to 5% the percentage of the Fund's assets
that are at risk in futures contracts and options on futures contracts.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on
futures market), due to the differences in the natures of those markets,
are subject to the following factors, which may create distortions. First,
all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close 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 WRIMCO may still not
result in a successful transaction. WRIMCO 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.
Municipal Bond Index Futures. The risk of imperfect correlation
between movements in the price of Municipal Bond Index Futures 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 applicable index. The
price of the Municipal Bond Index Future 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 prices of the municipal bonds
included in the index. It is also possible that, where the Fund has sold
Municipal Bond Index Futures to hedge against decline in the market, the
market may advance and the value of the securities held in the portfolio
may decline. If this occurred, the Fund would lose money on the futures
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 securities before the Fund is able to
invest in them in an orderly fashion, it is possible that the market may
decline instead. If the Fund then concludes not to invest in them at that
time because of concern as to possible further market decline or for other
reasons, it will realize a loss on the futures contract that is not offset
by a reduction in the price of the securities it had anticipated
purchasing.
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 WRIMCO
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.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures contracts, to
adjust the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose
risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at
one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult
to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or
puts written by the Fund, and the sale or purchase of futures contracts,
may cause it to sell or purchase related investments, thus increasing its
turnover rate. Once the Fund has received an exercise notice on an option
it has written, it cannot effect a closing transaction in order to
terminate its obligation under the option and must deliver or receive the
underlying securities at the exercise price. The exercise of puts
purchased by the Fund may also cause the sale of related investments, also
increasing turnover; although such exercise is within the Fund's control,
holding a protective put might cause it to sell the related investments for
reasons that would not exist in the absence of the put. The Fund will pay
a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Investment Restrictions
Certain of the Fund's investment restrictions 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";
(x) May not buy shares of other investment companies that redeem
their shares. The Fund may buy shares of investment companies
that do not redeem their shares if it does so in a regular
transaction in the open market and then does not have more than
one-tenth (i.e., 10%) of its total assets in these shares.
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 19.07%
for the fiscal year ended September 30, 1995 and 26.26% for the fiscal year
ended September 30, 1994.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell
& Reed, Inc. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Fund and provide investment advice to the
Fund. The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc.
is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer
agency services ("Shareholder Servicing Agreement") and a separate
agreement for accounting services ("Accounting Services Agreement") with
the Fund. The Management Agreement contains detailed provisions as to the
matters to be considered by the Fund's Board of Directors prior to
approving any Shareholder Servicing Agreement or Accounting Services
Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc.
Waddell & Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc., a holding company. Waddell & Reed Financial
Services, Inc. is a wholly-owned subsidiary of United Investors Management
Company. United Investors Management Company is a wholly-owned subsidiary
of Torchmark Corporation. Torchmark Corporation is a publicly held
company. The address of Torchmark Corporation and United Investors
Management Company is 2001 Third Avenue South, Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of
Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or the
company's inception date, whichever was later, and to TMK/United Funds,
Inc. since that fund's inception, until January 8, 1992 when it assigned
its duties as investment manager for these funds (and the related
professional staff) to WRIMCO. WRIMCO has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September
1992, and United Asset Strategy Fund, Inc. since it commenced operations in
March 1995. Waddell & Reed, Inc. serves as principal underwriter for the
investment companies in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc. and serves as distributor for TMK/United Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Fund and Waddell & Reed Services Company (the "Agent"), a subsidiary of
Waddell & Reed, Inc., the Agent performs shareholder servicing functions,
including the maintenance of shareholder accounts, the issuance, transfer
and redemption of shares, distribution of dividends and payment of
redemptions, the furnishing of related information to the Fund and handling
of shareholder inquiries. A new Shareholder Servicing Agreement, or
amendments to the existing one, may be approved by the Fund's Board of
Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Fund and the Agent, the Agent provides the Fund with bookkeeping and
accounting services and assistance, including maintenance of the Fund's
records, pricing of the Fund's shares, and preparation of prospectuses for
existing shareholders, proxy statements and certain reports. A new
Accounting Services Agreement, or amendments to an existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services,
the Fund pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO for the fiscal years ended
September 30, 1995, 1994 and 1993 were $1,860,352, $1,756,750 and
$1,510,519, respectively. For purposes of calculating the daily fee the
Fund does not include money owed to it by Waddell & Reed, Inc. for shares
which it has sold but not yet paid the Fund. The Fund accrues and pays
this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A
shares, the Fund pays the Agent a monthly fee of $1.0208 for each
shareholder account that was in existence at any time during the prior
month, plus $0.30 for each account on which a dividend or distribution, of
cash or shares, had a record date in that month. For Class Y shares, the
Fund pays the Agent a monthly fee equal to one-twelfth of .15 of 1% of the
average daily net assets of that Class for the preceding month. The Fund
also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs, microfilm and storage costs for
certain documents, forms, printing and mailing costs, and costs of legal
and special services not provided by Waddell & Reed, Inc., WRIMCO or the
Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The fees paid to the Agent for the fiscal years ended September 30,
1995, 1994 and 1993 were $56,667, $50,000 and $50,000, respectively.
The State of California imposes limits on the amount of certain
expenses the Fund can pay and requires WRIMCO to reduce its fee if these
expense amounts are exceeded. WRIMCO 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.
WRIMCO 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, WRIMCO
and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Fund under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates pay the
Fund's Directors and officers who are affiliated with WRIMCO and its
affiliates. The Fund pays the fees and expenses of the Fund's other
Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services
Agreement, acts as the Fund's underwriter, i.e., sells its shares on a
continuous basis. Waddell & Reed, Inc. is not required to sell any
particular number of shares, and thus sells shares only for purchase orders
received. Under this agreement, Waddell & Reed, Inc. pays the costs of
sales literature, including the costs of shareholder reports used as sales
literature, and the costs of printing the prospectus furnished to it by the
Fund. The aggregate dollar amount of underwriting commissions for Class A
shares for the fiscal years ended September 30, 1995, 1994 and 1993 were
$1,016,772, $1,486,258 and $1,688,436, respectively. The amounts retained
by Waddell & Reed, Inc. for each period were $430,473, $649,284 and
$744,476, respectively.
A major portion of the sales charge for Class A shares is paid to
account representatives and managers of Waddell & Reed, Inc. Waddell &
Reed, Inc. may compensate its account representatives as to purchases for
which there is no sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes,
brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Fund under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Under a Service Plan for Class A shares (the "Plan") adopted by the
Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay Waddell &
Reed, Inc., the principal underwriter for the Fund, a fee not to exceed
.25% of the Fund's average annual net assets attributable to Class A
shares, paid monthly, to reimburse Waddell & Reed, Inc. for its costs and
expenses in connection with the provision of personal services to Class A
shareholders of the Fund and/or maintenance of Class A shareholder
accounts.
The Plan and a related Service Agreement between the Fund and Waddell
& Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for
amounts it expends in compensating, training and supporting registered
account representatives, sales managers and/or other appropriate personnel
in providing personal services to Class A shareholders of the Fund and/or
maintaining Class A shareholder accounts; increasing services provided to
Class A shareholders of the Fund by office personnel located at field sales
offices; engaging in other activities useful in providing personal service
to Class A shareholders of the Fund and/or maintenance of Class A
shareholder accounts; and in compensating broker-dealers who may regularly
sell Class A shares of the Fund, and other third parties, for providing
shareholder services and/or maintaining shareholder accounts with respect
to Class A shares. Service fees in the amount of $369,260 were paid (or
accrued) by the Fund with respect to Class A shares for the fiscal year
ended September 30, 1995.
The Plan and the Service Agreement were approved by the Fund's Board
of Directors, including the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter,
the "Plan Directors"). The Plan was also approved by the affected
shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding Class A shares of the Fund, and (iv) while the Plan
remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, the Custodian is responsible for holding the Fund's cash and
securities. Price Waterhouse LLP, Kansas City, Missouri, the Fund's
independent accountants, audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each Class of the shares of the Fund is the
value of the assets of that Class, less that Class's liabilities, divided
by the total number of outstanding shares of that Class.
Class A shares of the Fund are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup
as of September 30, 1995 was as follows:
Net asset value per Class A share (Class A net assets
divided by Class A shares outstanding) .............$5.27
Add: selling commission (4.25% of offering price) ..... .23
-----
Maximum offering price per Class A share (Class A
net asset value per Class A share divided
by 95.75%) .........................................$5.50
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge.
The offering price of a Class Y share is its net asset value next
determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are ordinarily
computed once on each day that the New York Stock Exchange (the "NYSE") is
open for trading as of the later of the close of the regular session of the
NYSE (ordinarily, 4:00 p.m. Eastern time) or the close of the regular
session of any domestic securities or commodities exchange on which an
option or future held by the Fund is traded. The NYSE annually announces
the days on which it will not be open for trading. The most recent
announcement indicates that the NYSE will not be open on the following
days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However,
it is possible that the NYSE may close on other days. The net asset value
will change every business day, since the value of the assets and the
number of shares outstanding change every day.
The Board of Directors has decided to use the prices quoted by a
dealer in bonds that offers a pricing service to value municipal bonds.
The Board of Directors believes that such a service does quote their fair
value. The Board of Directors, 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 with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market. Securities
or other assets that 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
For Class A shares, 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 WRIMCO, 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."
For Class Y shares, investments by government entities or authorities
or by corporations must total at least $10 million within the first twelve
months after initial investment. There is no initial investment minimum
for other Class Y investors.
Reduced Sales Charges
Account Grouping (Applicable to Class A Shares Only)
Large purchases of Class A shares are subject to lower sales charges.
The schedule of sales charges appears in the Prospectus for Class A shares.
For the purpose of taking advantage of the lower sales charges available
for large purchases, a purchase in any of categories 1 through 7 listed
below made by an individual or deemed to be made by an individual may be
grouped with purchases in any other of these categories. 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 ("UTMA") account;
6. Purchases by that individual or his or her spouse for his or her
IRA, tax sheltered annuity account 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 of Class A shares in accounts eligible for
grouping may be combined for purposes of determining the availability of a
reduced sales charge. In order for an eligible purchase to be grouped, the
investor must advise Waddell & Reed, Inc. at the time the purchase is made
that it is eligible for grouping and identify the accounts with which it
may be grouped.
Example: H and W open an account in the Fund and invest $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 of Class A shares 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 Class A shares are held in any account and an additional
purchase is made in that account or in any account eligible for grouping
with that account, the additional purchase is combined with the net asset
value of the existing account as of the date the new purchase is accepted
by Waddell & Reed, Inc. for the purpose of determining the availability of
a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $100,000. His
wife, W, now wishes to invest $15,000 in Class A shares of the
Fund. W's purchase will be combined with H's existing account
and will be entitled to the reduced sales charge applicable to a
purchase in excess of $100,000. H's original $100,000 purchase
was subject to a full sales charge and the reduced charge does
not apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced
charge and provide Waddell & Reed, Inc. with the name and number of the
existing account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class
A shares is also available under a Statement of Intention. By signing a
Statement of Intention form, which is available from Waddell & Reed, Inc.,
the purchaser indicates an intention to invest, over a 13-month period, a
dollar amount which is sufficient to qualify for a reduced sales charge.
The 13-month period begins on the date the first purchase made under the
Statement of Intention is accepted by Waddell & Reed, Inc. Each purchase
made from time to time under the Statement of Intention is treated as if
the purchaser were buying at one time the total amount which he or she
intends to invest. The sales charge applicable to all purchases of Class A
shares made under the terms of the Statement of Intention will be the sales
charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account;
that is, Class A shares already held in the same account in which the
purchase is being made or in any account eligible for grouping with that
account, as described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest
in his own name a dollar amount sufficient to entitle him to
purchase Class A shares at the sales charge applicable to a
purchase of $300,000. H has an UGMA for his child and the Class
A shares held in the account have a net asset value as of the
date the Statement of Intention 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 Intention of $75,000; H
needs to invest $175,000 in Class A shares 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 of Class A shares 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 of Intention.
An amount equal to 5% of the purchase required under the Statement of
Intention will be held "in escrow." If a purchaser does not, during the
period covered by the Statement of Intention, invest the amount required to
qualify for the reduced sales charge under the terms of the Statement of
Intention, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge
owed on purchases of Class A shares made under a Statement of Intention
which is not completed will be collected by redeeming part of the shares
purchased under the Statement of Intention and held "in escrow" unless the
purchaser makes payment of this amount to Waddell & Reed, Inc. within 20
days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the Statement of Intention, the lower sales
charge will apply.
A Statement of Intention does not bind the purchaser to buy, or
Waddell & Reed, Inc. to sell, the shares covered by the Statement of
Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement
of Intention, the initial investment must be at least $200,000, and the
value of any shares redeemed during the 13-month period which were acquired
under the Statement of Intention will be deducted in computing the
aggregate purchases under the Statement of Intention.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply
to purchases of any of the funds in the United Group which are subject to a
sales charge. A purchase of, or shares held, in any of the funds in the
United Group which are subject to the same sales charge as the Fund will be
treated as an investment in the Fund for the purpose of determining the
applicable sales charge. The following funds in the United Group have
shares that are subject to a maximum 5.75% ("full") sales charge as
described in the prospectus of each Fund: United Funds, Inc., United
International Growth Fund, Inc., United Continental Income Fund, Inc.,
United Vanguard Fund, Inc., United Retirement Shares, Inc., United High
Income Fund, Inc., United New Concepts Fund, Inc., United Gold & Government
Fund, Inc., United Asset Strategy Fund, Inc. and United High Income Fund
II, Inc. The following funds in the United Group have shares that are
subject to a "reduced" sales charge as described in the prospectus of each
fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of
obtaining the lower sales charge which applies to large purchases,
purchases in a fund in the United Group of shares that are subject to a
full sales charge may not be grouped with purchases of shares in a fund in
the United Group that are subject to a reduced sales charge; conversely,
purchases of shares in a fund with a reduced sales charge may not be
grouped or combined with purchases of shares of a fund that are subject to
a full sales charge.
United Cash Management, Inc. is not subject to a sales charge.
Purchases in that fund are not eligible for grouping with purchases in any
other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be
purchased at net asset value by the Directors and officers of the Fund,
employees of Waddell & Reed, Inc., employees of their affiliates, account
representatives of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each such Director, officer,
employee and account representative. "Child" includes stepchild; "parent"
includes stepparent. Trusts under which the grantor and the trustee or a
co-trustee are each an eligible purchaser are also eligible for net asset
value purchases of Class A shares. "Employees" includes retired employees.
A retired employee is an individual separated from service from Waddell &
Reed, Inc. or affiliated companies with a vested interest in any Employee
Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated companies.
"Account representatives" includes retired account representatives. A
"retired account representative" is any account representative who was, at
the time of separation from service from Waddell & Reed, Inc., a Senior
Account Representative. A custodian under the UGMA or UTMA purchasing for
the child or grandchild of any employee or account representative may
purchase Class A shares at net asset value whether or not the custodian
himself is an eligible purchaser.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of
instances in which the Fund's Class A shares are sold or issued on a basis
other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one
time or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The
reasons for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are therefore
necessary to meet competition as to sales of shares of other funds having
such discounts; (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and 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 of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound
employee organization, encourage incentive, responsibility and interest in
the United Group and an identification with its aims and policies. Limited
reinvestments of redemptions of Class A shares at no sales charge are
permitted to attempt to protect against mistaken or not fully informed
redemption decisions. Class A shares may be issued at no sales charge in
plans of reorganization due to reduced or eliminated sales expenses and
since, in some cases, such issuance is exempted by the 1940 Act from the
otherwise applicable restrictions as to what sales charge must be imposed.
In no case in which there is a reduced or eliminated sales charge are the
interests of existing 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.
Redemption payments are made within seven days unless delayed because of
emergency conditions determined by the SEC, when the NYSE is closed other
than for weekends or holidays, or when trading on the NYSE is restricted.
Payment is made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities. Payment for redemption of
shares of the Fund may be made in portfolio securities when the Fund's
Board of Directors determines that conditions exist making cash payments
undesirable. Securities used for payment of redemptions are valued at the
value used in figuring net asset value. There would be brokerage costs to
the redeeming shareholder in selling such securities. The Fund, however,
has elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to
which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular
basis through the Flexible Withdrawal Service (the "Service"). The Service
is available not only for Class A shares of the Fund, but also for
corresponding shares of any of the funds in the United Group. It would be
a disadvantage to an investor to make additional purchases of Class A
shares while a withdrawal program is in effect as this would result in
duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
Class A or corresponding shares which you still own of any of the funds in
the United Group; or, you must own Class A or corresponding shares having a
value of at least $10,000. The value for this purpose is not the net asset
value but the value at the offering price, i.e., the net asset value plus
the sales charge.
To start the Service, you must fill out a form (available from Waddell
& Reed, Inc.), advising Waddell & Reed, Inc. 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.
If you have a share certificate for the shares you want to make
available for the Service, you must enclose the certificate with the form
initiating the Service.
The dividends and distributions on shares you have made available for
the Service are reinvested in additional Class A shares. All payments are
made by redeeming shares, which may involve a gain or loss for tax
purposes. To the extent that payments exceed dividends and distributions,
the number of Class A shares you own will decrease. When all of the shares
in your account are redeemed, you will not receive any further payments.
Thus, the payments are not an annuity or an income or return on your
investment.
You may, at any time, change the manner in which you have chosen to
have shares redeemed to any of the other choices originally available to
you. For example, if you started out with a $50 monthly payment, you could
change to a $200 quarterly payment. You can at any time redeem part or all
of the shares in your account; if you redeem all of the shares, the Service
is terminated. The Fund can also terminate the Service by notifying you in
writing.
After the end of each calendar year, information on shares redeemed
will be sent to you to assist you in completing your Federal income tax
return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges. 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 corresponding shares of United Cash Management,
Inc. automatically exchanged each month into Class A shares of the Fund or
any other fund in the United Group. The shares of United Cash Management,
Inc. which you designate for automatic exchange must be worth at least $100
or you must own Class A shares of the fund in the United Group into which
you want to exchange. The minimum value of shares which you may designate
for automatic exchange monthly is $100, which may be allocated among the
Class A or corresponding shares of different funds in the United Group so
long as each fund receives a value of at least $25. Minimum initial
investment and minimum balance requirements apply to such automatic
exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for
purchasing Class Y shares.
Class Y Share Exchanges. Class Y shares of a Fund may be exchanged
for Class Y shares of any other fund in the United Group.
General Exchange Information. When you exchange shares, the total
shares you receive will have the same aggregate net asset value as the
total shares you exchange. The relative values are those next figured
after the fund receives your 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 for Class A shares discusses the reinvestment
privilege for Class A shares under which, if you redeem your Class A shares
and then decide it was not a good idea, you may reinvest. If Class A
shares of the Fund are then being offered, you can put all or part of your
redemption payment back into Class A shares of the Fund without any sales
charge at the net asset value next determined after you have returned the
amount. Your written request to do this must be received within 30 days
after your redemption request was received. You can do this only once as
to Class A shares of the Fund. You do not use up this privilege by
redeeming Class A shares to invest the proceeds at net asset value in a
Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under
any account or any plan if the aggregate net asset value of such shares
(taken at cost or value as the Board of Directors may determine) is less
than $500. The Board has no intent to compel redemptions in the
foreseeable future. If it should elect to compel redemptions, shareholders
who are affected will receive prior written notice and will be permitted 60
days to bring their accounts up to the minimum before this redemption is
processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside
organizations selected by the Board of Directors. The Board of Directors
has responsibility for establishing broad corporate policies for the Fund
and for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through
and including Mr. Wright is a member of the Fund's Board of Directors. The
other persons are officers but not members of the Board of Directors. For
purposes of this section, the term "Fund Complex" includes each of the
registered investment companies in the United Group of Mutual Funds,
Waddell & Reed Funds, Inc. and TMK/United Funds, Inc. Each of the Fund's
Directors is also a Director of each of the other funds in the Fund Complex
and each of its officers is also an officer of one or more of the funds in
the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors of Waddell &
Reed Financial Services, Inc., United Investors Management Company and
United Investors Life Insurance Company; Chairman of the Board of Directors
and Chief Executive Officer of Torchmark Corporation; Chairman of the Board
of Directors of Vesta Insurance Group, Inc.; formerly, Chairman of the
Board of Directors of Waddell & Reed, Inc. Father of Linda Graves,
Director of the Fund and each of the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell &
Reed, Inc., Waddell & Reed Services Company, Waddell & Reed Asset
Management Company and Torchmark Distributors, Inc., an affiliate of
Waddell & Reed, Inc.; Vice Chairman of the Board of Directors, Chief
Executive Officer and President of United Investors Management Company;
Vice Chairman of the Board of Directors of Torchmark Corporation; Director
of Southwestern Life Corporation; formerly, partner in Trivest, a private
investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; 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
905 13th Street
Boulder, Colorado 80302
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.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law
firm. Daughter of Ronald K. Richey, Chairman of the Board of the Fund and
each of the other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; formerly, President of Gilliland &
Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial
Corporation and subsidiaries.
JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to
Mr. Judd's property was filed under the Federal bankruptcy laws and is now
final.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in
the Fund Complex then in existence on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.;
formerly, Chairman of the Board of Directors of Waddell & Reed Services
Company; formerly, Director of Waddell & Reed Asset Management Company,
United Investors Management Company and United Investors Life Insurance
Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate
management and investment; formerly, Director of The Vendo Company, a
manufacturer and distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor
for Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
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 and each of
the other funds in the Fund Complex; Vice President, Chief Operations
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer of Waddell & Reed, Inc.; Director
and Treasurer of Waddell & Reed Asset Management Company; President,
Director and Treasurer of Waddell & Reed Services Company; Vice President,
Treasurer and Director of Torchmark Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell &
Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.; President,
Chief Executive Officer, Chief Investment Officer and Director of WRIMCO
and Waddell & Reed Asset Management Company; Senior Vice President and
Chief Investment Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund
and each of the other funds in the Fund Complex; Vice President of Waddell
& Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Vice President, Secretary and General
Counsel of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior
Vice President, Secretary and General Counsel of Waddell & Reed Services
Company; Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell
& Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
John M. Holliday
Vice President of the Fund and eight other funds in the Fund complex;
Senior Vice President of WRIMCO and Waddell & Reed Asset Management
Company; formerly, Senior Vice President of Waddell & Reed, Inc.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed,
Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be
deemed to be "interested persons" as defined in the 1940 Act of its
underwriter, Waddell & Reed, Inc., or of WRIMCO. The Directors who may be
deemed to be "interested persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the
Board provided the director has attained the age of 75 and has served as a
director of the funds in the United Group for a total of at least five
years. A Director Emeritus receives fees in recognition of his past
services whether or not services are rendered in his capacity as Director
Emeritus, but has no authority or responsibility with respect to management
of the Fund. Currently, no person serves as Director Emeritus.
The funds in the United Group (with the exception of United Asset
Strategy Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
pay to each Director a total of $40,000 per year, plus $1,000 for each
meeting of the Board of Directors attended (prior to January 1, 1995, the
fee was $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 (with the exception of United
Asset Strategy Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. based on their relative size. During the Fund's fiscal year
ended September 30, 1995, the Fund's Directors received the following fees
for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon
Dodds I. Buchanan
Jay B. Dillingham
Linda Graves
John F. Hayes
Glendon E. Johnson
James B. Judd
William T. Morgan
Doyle Patterson
Eleanor B. Schwartz
Frederick Vogel III
Paul S. Wise
Leslie S. Wright
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of December 31, 1995, 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 of a Class of shares of the Fund, other than payments when you
redeem your shares. The first source is the Fund's net investment income,
which is derived from the interest and earned discount on the securities it
holds less expenses (which will vary by Class). 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 realized
capital gains, it will ordinarily pay distributions once each year, in the
latter part of the fourth calendar quarter. Even if the Fund has capital
gains for a year, the Fund does not pay out the gains if it has applicable
prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you
want cash for your dividends and distributions, (ii) you want your
dividends and distributions paid in shares of the same Class as that with
respect to which they were paid, or (iii) you want cash for your dividends
and want your distributions paid in shares of the Fund of the same Class as
that with respect to which they were paid. You can change your
instructions at any time. If you give no instructions, your dividends and
distributions will be paid in shares of the Fund of the same Class as that
with respect to which they were paid. All payments in shares are at net
asset value without any sales charge. The net asset value used for this
purpose is that computed as of the record date for the dividend or
distribution, although this could be changed by the Board of Directors.
Even if you get dividends and distributions on Class A shares in cash,
you can thereafter reinvest them (or distributions only) in Class A shares
of the Fund at net asset value (i.e., no sales charge) next determined
after receipt by Waddell & Reed, Inc. of the amount clearly identified as a
reinvestment. The reinvestment must be within 45 days after the
payment.
TAXES
In order to continue to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"), the Fund must distribute to its shareholders for each
taxable year at least 90% of the sum of its investment company taxable
income (consisting generally of net investment income, net short-term
capital gains and net gains from certain foreign currency transactions)
plus its net interest income excludable from gross income under section
103(a) of the Code, and must meet several additional requirements. These
requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures contracts or forward contracts) derived with
respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or forward contracts or (ii) foreign currencies
(or options, futures contracts or forward contracts thereon) that are not
directly related to the Fund's principal business of investing in
securities (or in options and futures contracts with respect to securities)
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government Securities, securities
of other RICs and other securities that are limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the outstanding
voting securities of the issuer; and (4) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets
may be invested in securities (other than U.S. Government Securities or the
securities of other RICs) of any one issuer.
Dividends 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 state and local 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 ("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 Fund
may 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 gain. If the Fund enters into a closing purchase transaction,
it will have a short-term capital gain or loss based on the difference
between the premium it received for the option it wrote and the premium it
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
capital gain. If such an option is exercised and the Fund thus sells the
securities subject to the option, the premium the Fund receives will be
added to the exercise price to determine the gain or loss on the sale. The
Fund will not write so many options that it could fail to continue to
qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at
the end of each taxable year, other than section 1256 contracts that are
part of a "mixed straddle" with respect to which the Fund has made an
election not to have the following rules apply, are "marked-to-market"
(that is, treated as sold for their fair market value) for Federal income
tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gain or loss
recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, are treated as long-term
capital gains or losses, and the balance is treated as short-term capital
gains or losses. Section 1256 contracts also may be marked-to-market for
purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the
taxation of options and futures contracts in which the Fund may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which
apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short
sale" rules applicable to straddles. If the Fund makes certain elections,
the amount, character and timing of the recognition of gains and losses
from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely clear.
The Fund may acquire zero coupon or other securities issued with
original issue discount. As a holder of those securities, the Fund must
account for the original issue discount that accrues on the securities
during the taxable year (and include in its income any such discount that
accrues on taxable securities), even if the Fund receives no corresponding
payment on the securities during the year. Because the Fund annually must
distribute substantially all of its investment company taxable income and
net income excludable from gross income under Section 103(a), including any
original issue discount, in order to satisfy the distribution requirement
described above and avoid imposition of the Excise Tax, the Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those
distributions will be made from the Fund's cash assets or from the proceeds
of sales of portfolio securities, if necessary. The Fund may realize
capital gains or losses from those sales, which would increase or decrease
its investment company taxable income and/or net capital gain. In
addition, any such gains may be realized on the disposition of securities
held for less than three months. Because of the Short-Short Limitation,
any such gains would reduce the Fund's ability to sell other securities,
options or futures held for less than three months that it might wish to
sell in the ordinary course of its portfolio management.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the
portfolio of the Fund. 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, WRIMCO is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on
all relevant factors, will implement the policy of the Fund to achieve
"best execution" (prompt and reliable execution at the best price
obtainable) for reasonable and competitive commissions. WRIMCO need not
seek competitive commission bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies
of the Fund. Subject to review by the Board of Directors, such policies
include the selection of brokers which provide execution and/or research
services and other services, including pricing or quotation services
directly or through others ("brokerage services") considered by WRIMCO to
be useful or desirable for its investment management of the Fund and/or the
other funds and accounts over which WRIMCO or its affiliates have
investment discretion.
Brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers;
(ii) furnishing analyses and reports; or (iii) effecting securities
transactions and performing functions incidental thereto (such as
clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such brokerage
services may be higher than another qualified broker would charge for
effecting comparable transactions if a good faith determination is made by
WRIMCO that the commission is reasonable in relation to the brokerage
services provided. Subject to the foregoing considerations, WRIMCO may
also consider the willingness of particular brokers and dealers to sell
shares of the Fund and other funds managed by WRIMCO and its affiliates as
a factor in its selection. No allocation of brokerage or principal
business is made to provide any other benefits to WRIMCO or its affiliates.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO or its
affiliates and investment research received for the commissions of those
other accounts may be useful both to the Fund and one or more of such other
accounts. To the extent that electronic or other products provided by such
brokers to assist WRIMCO in making investment management decisions are used
for administration or other non-research purposes, a reasonable allocation
of the cost of the product attributable to its non-research use is made by
WRIMCO.
Such investment research (which may be supplied by a third party at
the instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of
WRIMCO; serves to make available additional views for consideration and
comparisons; and enables WRIMCO to obtain market information on the price
of securities held in the Fund's portfolio or being considered for
purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider
sales of shares of the Fund and other funds managed by WRIMCO and its
affiliates as a factor in the selection of brokers to execute portfolio
transactions. WRIMCO intends to allocate brokerage on the basis of this
factor only if the sale is $2 million or more and there is no sales charge.
This results in the consideration only of sales which by their nature would
not ordinarily be made by Waddell & Reed, Inc.'s direct sales force and is
done in order to prevent the direct sales force from being disadvantaged by
the fact that it cannot participate in Fund brokerage.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of
their employees, officers and interested directors.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two Classes of shares: Class A and Class Y. Prior
to January 30, 1996, the Fund offered only one Class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Each Class represents an interest in the same assets of the Fund and differ
as follows: each Class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that Class; Class A shares
are subject to an initial sales charge and to an ongoing service fee; each
Class may bear differing amounts of certain Class-specific expenses; and
each Class has a separate exchange privilege. The Fund does not anticipate
that there will be any conflicts between the interests of holders of the
different Classes of shares of the Fund by virtue of those Classes. On an
ongoing basis, the Board of Directors will consider whether any such
conflict exists and, if so, take appropriate action. Each share of the
Fund is entitled to equal voting, dividend, liquidation and redemption
rights, except that due to the differing expenses borne by the two Classes,
dividends and liquidation proceeds of Class A shares are expected to be
lower than for Class Y shares of the Fund. Each fractional share of a
Class has the same rights, in proportion, as a full share of that Class.
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALABAMA - 1.09%
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 $ 2,117,500
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 1,051,250
The Marshall County Health Care Authority,
Hospital Revenue Refunding Bonds,
Series 1992 (Guntersville-Arab
Medical Center),
7.0%, 10-1-2013 ....................... 1,000 1,003,750
Total ................................. 4,172,500
ALASKA - 0.93%
Alaska Industrial Development and Export
Authority, Refunding Revenue Bonds, Series
1989 (American President Lines Project),
8.0%, 11-1-2009 ....................... 1,820 1,988,350
Anchorage Parking Authority, Lease Revenue
Refunding Bonds, Series 1993 (5th Avenue
Garage Project),
6.75%, 12-1-2008 ...................... 1,500 1,571,250
Total ................................. 3,559,600
ARIZONA - 0.55%
Hayden-Winkelman Unified School District
No. 41 of Gila County, Arizona, Capital
Appreciation Refunding Bonds, Series 1995,
0.0%, 7-1-2010 ........................ 6,145 2,120,025
ARKANSAS - 0.45%
The Fayetteville Public Facilities Board,
Refunding and Improvement Revenue Bonds,
Series 1989A (Butterfield Trail Village
Project),
9.5%, 9-1-2014 ........................ 1,600 1,702,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
CALIFORNIA - 5.89%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (A) .................... $11,925 $ 6,424,594
San Joaquin Hills Transportation Corridor
Agency (Orange County, California):
Junior Lien Toll Road Revenue Bonds,
0.0%, 1-1-2002 ........................ 2,755 1,814,856
Senior Lien Toll Road Revenue Bonds,
0.0%, 1-1-2011 (A) .................... 2,500 1,790,625
Hi-Desert Memorial Hospital District,
Revenue Bonds, Series 1994A,
8.0%, 10-1-2019 ....................... 3,000 3,101,250
Huntington Beach Public Financing Authority
(Orange County, California), 1992 Revenue
Bonds (Huntington Beach Redevelopment
Projects),
7.0%, 8-1-2024 ........................ 3,000 2,917,500
Certificates of Participation (1991 Capital
Improvement Project), Bella Vista Water
District (California),
7.375%, 10-1-2017 ..................... 1,500 1,597,500
Sacramento Cogeneration Authority,
Cogeneration Project Revenue Bonds
(Procter & Gamble Project),
1995 Series,
6.5%, 7-1-2014 ........................ 1,500 1,518,750
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2,
Refunding Tax Allocation Bonds,
Series 1993,
6.0%, 10-1-2016 ....................... 1,500 1,402,500
Kings County Waste Management Authority,
Solid Waste Revenue Bonds, Series 1994
(California),
7.2%, 10-1-2014 ....................... 1,000 1,052,500
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 ........................ 890 917,812
Total ................................. 22,537,887
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
COLORADO - 7.70%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1991A,
8.75%, 11-15-2023 ..................... $ 6,000 $ 6,922,500
Series 1994A,
7.5%, 11-15-2023 ...................... 3,000 3,202,500
Colorado Health Facilities Authority,
Hospital Revenue Bonds (PSL Healthcare
System Project), Series 1991B,
8.5%, 2-15-2021 ....................... 3,000 3,555,000
City and County of Denver, Colorado,
Revenue Bonds (Jewish Community Centers
of Denver Project), Series 1994:
8.25%, 3-1-2024 ....................... 2,390 2,461,700
7.875%, 3-1-2019 ...................... 815 840,469
Upper Eagle Regional Water Authority,
Eagle County, Colorado, Water Refunding
and Improvement Revenue Bonds,
Series 1995,
6.7%, 12-1-2018 ....................... 2,400 2,403,000
City of Colorado Springs, Colorado,
Airport System Revenue Bonds, Series 1992A,
7.0%, 1-1-2022 ........................ 2,200 2,285,250
City of Central, Gilpin County, Colorado:
General Obligation Water Bonds,
Series 1992,
7.5%, 12-1-2012 ....................... 1,500 1,741,875
Water Revenue Bonds, Series 1991,
8.625%, 9-15-2011 ..................... 500 534,375
Pitkin County, Colorado, Lease Purchase
Agreement, Certificates of Participation
(County Administration Building Project),
Series 1991,
7.4%, 10-1-2011 ....................... 1,500 1,614,375
Mountain Village Metropolitan District, San
Miguel County, Colorado, General
Obligation Refunding Bonds, Series 1992,
8.1%, 12-1-2011 ....................... 1,435 1,522,894
School District No. 20, El Paso County,
Colorado, General Obligation Refunding
Bonds, Series 1993A, Capital
Appreciation Bonds,
0.0%, 6-15-2008 ....................... 2,600 1,264,250
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
COLORADO (Continued)
Arapahoe Water and Sanitation District,
Arapahoe County, Colorado, General
Obligation Refunding Bonds, Series 1988A:
Prerefund Bonds,
9.25%, 12-1-2013 ...................... $ 850 $ 978,563
Unrefunded Bonds,
9.25%, 12-1-2013 ...................... 150 159,563
Total ................................. 29,486,314
CONNECTICUT - 1.59%
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 2,693,750
Congregational Avery Nursing Facilities
Project - 1991 Series,
8.5%, 4-1-2021 ........................ 1,490 1,573,813
Eastern Connecticut Resource Recovery
Authority, Solid Waste Revenue Bonds
(Wheelabrator Lisbon Project),
Series 1993A,
5.5%, 1-1-2014 ........................ 2,000 1,835,000
Total ................................. 6,102,563
DISTRICT OF COLUMBIA - 1.34%
Certificates of Participation, Series 1993,
District of Columbia,
7.3%, 1-1-2013 ........................ 3,000 3,022,500
District of Columbia Revenue Bonds
(National Public Radio Issue),
Series 1992,
7.625%, 1-1-2013 ...................... 2,000 2,092,500
Total ................................. 5,115,000
FLORIDA - 3.42%
City of Atlantic Beach, Florida,
Variable Rate Demand,
Improvement and Refunding Revenue Bonds,
Series 1994B (Fleet Landing Project),
4.8%, 10-1-2024 ....................... 3,700 3,700,000
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... 2,500 2,353,125
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
FLORIDA (Continued)
Dade County Industrial Development Authority,
Industrial Development Revenue Bonds,
Series 1995 (Miami Cerebral Palsy
Residential Services, Inc. Project),
8.0%, 6-1-2022 ........................ $ 2,000 $ 1,997,500
Highlands County (Florida), Industrial
Development Authority, Industrial
Development Revenue Refunding Bonds
(Beverly Enterprises - Florida, Inc.
Project), Series 1991,
9.25%, 7-1-2007 ....................... 1,435 1,591,056
City of Fort Walton Beach, First Mortgage
Industrial Development Revenue Bonds,
Series 1986 (Ft. Walton Beach Ventures,
Inc. Project),
10.5%, 12-1-2016 ...................... 1,335 1,388,400
City of Winter Garden, Florida, Industrial
Development Revenue Refunding Bonds
(Beverly Enterprises - Florida, Inc. Project),
Series 1991,
8.75%, 7-1-2012 ....................... 1,000 1,092,500
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 ..................... 900 947,250
Total ................................. 13,069,831
GEORGIA - 1.52%
Hospital Authority of Savannah, Revenue
Refunding and Improvement Bonds
(Candler Hospital), Series 1992,
7.0%, 1-1-2011 ........................ 3,180 3,231,675
Tri-City Hospital Authority, Georgia,
Revenue Certificates, Series 1993,
6.375%, 7-1-2016 ...................... 2,750 2,591,875
Total ................................. 5,823,550
GUAM - 0.79%
Guam Airport Authority, General Revenue
Bonds, 1993 Series B,
6.6%, 10-1-2010 ....................... 3,000 3,037,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
IDAHO - 0.57%
Idaho Health Facilities Authority, Hospital
Revenue Refunding Bonds, Series 1992
(IHC Hospitals, Inc.), Indexed Inverse
Floating Rate Securities,
7.6%, 2-15-2021 (B) ................... $ 2,000 $ 2,182,500
ILLINOIS - 6.23%
Village of Sauget, Illinois, Variable
Rate Demand Pollution Control Revenue
Refunding Bonds (Monsanto Company Project):
Series 1993,
4.05%, 5-1-2028 ....................... 2,000 2,000,000
Series 1992,
4.4%, 9-1-2022 ........................ 1,000 1,000,000
City of Hillsboro, Montgomery County,
Illinois, General Obligation Bonds
(Alternate Revenue Source), Series 1991,
7.5%, 12-1-2021 ....................... 2,640 2,831,400
City of Chicago, Chicago-O'Hare
International Airport, Special Facility
Revenue Refunding Bonds, Series 1994
(American Airlines, Inc. Project),
8.2%, 12-1-2024 ....................... 2,400 2,802,000
Illinois Health Facilities Authority,
Revenue Bonds, Series 1992A
(Fairview Obligated Group Project),
8.75%, 10-1-2002 ...................... 2,500 2,706,250
Illinois Development Finance Authority
Revenue Bonds, Series 1993C (Catholic
Charities Housing Development
Corporation Project),
6.1%, 1-1-2020 ........................ 2,500 2,381,250
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 2,152,500
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
City of Blue Island, Cook County, Illinois,
Golf Course Revenue Bonds (Utility Tax
Pledge), Series 1992,
7.375%, 5-1-2014 ...................... 2,000 2,017,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ILLINOIS (Continued)
Village of Hodgkins, Cook County, Illinois,
Tax Increment Revenue Refunding Bonds,
Series 1995A,
7.625%, 12-1-2013 ..................... $ 1,750 $ 1,756,562
Village of Bourbonnais, Kankakee County,
Illinois, Sewerage Revenue Bonds,
Series 1993,
7.25%, 12-1-2012 ...................... 1,085 1,132,469
City of Eureka, Woodford County, Illinois,
General Obligation Refunding Bonds
(Alternate Revenue Source), Series 1993,
6.25%, 7-1-2013 ....................... 1,000 1,005,000
Total ................................. 23,847,431
INDIANA - 3.89%
Indiana Health Facility Financing Authority,
Hospital Revenue Bonds, Series 1990
(Hancock Memorial Hospital Project),
8.3%, 8-15-2020 ....................... 3,000 3,202,500
Indianapolis Airport Authority, Special
Facilities Revenue Bonds:
Series 1994 (Federal Express
Corporation Project),
7.1%, 1-15-2017 ....................... 1,500 1,586,250
Series 1995 A (United Air Lines, Inc.,
Indianapolis Maintenance Center Project),
6.5%, 11-15-2031 ...................... 1,500 1,462,500
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 1,997,500
Revenue Bonds, Inland Steel
Company Project No. 5,
Series 1977,
5.75%, 2-1-2007 ....................... 1,000 942,500
Indiana Development Finance Authority Pollution
Control Refunding Revenue Bonds (Inland Steel
Company Project No. 12), Series 1995,
6.85%, 12-1-2012 ...................... 2,500 2,531,250
City of Carmel, Indiana, Retirement Rental
Housing Revenue Refunding Bonds (Beverly
Enterprises - Indiana, Inc. Project),
Series 1992,
8.75%, 12-1-2008 ...................... 1,500 1,644,375
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
INDIANA (Continued)
Indiana Health Facility Financing
Authority, Hospital Revenue Bonds,
Series 1992 (Fayette Memorial Hospital
Project),
7.2%, 10-1-2022 ....................... $ 1,000 $ 988,750
Indiana Housing Finance Authority, Residential
Mortgage Bonds, 1988 Series R-A,
0.0%, 1-1-2013 ........................ 2,245 519,156
Total ................................. 14,874,781
IOWA - 0.36%
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 1,381,437
KANSAS - 2.43%
Kansas Development Finance Authority,
Community Provider Loan Program (Community
Living Opportunities, Inc.), Series
1992A Revenue Bonds,
8.875%, 9-1-2011 ...................... 2,790 3,002,737
Baldwin City, Kansas, Educational Facilities
Revenue Bonds (Baker University Project),
Series 1988,
9.5%, 10-1-2008 ....................... 2,000 2,127,500
City of Prairie Village, Kansas, Claridge
Court Project Revenue Bonds, Series 1993A:
8.75%, 8-15-2023 ...................... 1,000 1,042,500
8.5%, 8-15-2004 ....................... 1,000 1,040,000
City of Lenexa, Kansas, Multifamily Housing
Revenue Refunding Bonds (Point West
Apartments Project), Series 1995,
7.05%, 6-1-2020 ....................... 2,125 2,071,875
Total ................................. 9,284,612
KENTUCKY - 1.35%
Kenton County Airport Board (Commonwealth
of Kentucky), Special Facilities Revenue
Bonds, 1992 Series A (Delta Air Lines,
Inc. Project),
7.5%, 2-1-2020 ........................ 3,000 3,172,500
County of Perry, Kentucky, Solid Waste
Disposal Revenue Bonds (TJ International
Project), Series 1994,
7.0%, 6-1-2024 ........................ 1,000 1,021,250
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
KENTUCKY (Continued)
County of Jefferson, Kentucky, Health
Facilities Revenue Refunding Bonds
(Beverly Enterprises Project),
Series 1985B,
9.75%, 8-1-2007 ....................... $ 865 $ 955,825
Total ................................. 5,149,575
LOUISIANA - 2.04%
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 2,853,125
Pollution Control Revenue Bonds
(Union Carbide Project),
Series 1992,
7.35%, 11-1-2022 ...................... 2,000 2,117,500
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 2,050,000
LaFourche Parish Home Mortgage Authority,
Tax-Exempt Capital Appreciation Refunding
Bonds, Series 1990-B, Class B-2,
0.0%, 5-20-2014 ....................... 3,300 767,250
Total ................................. 7,787,875
MARYLAND - 0.27%
Baltimore County, Maryland, Pollution
Control Revenue Refunding Bonds,
Series 1994A (Bethlehem Steel
Corporation Project),
7.55%, 6-1-2017 ....................... 1,000 1,042,500
MASSACHUSETTS - 3.63%
Massachusetts Industrial Finance Agency:
Resource Recovery Revenue Bonds (SEMASS
Project), Series 1991B,
9.25%, 7-1-2015 ....................... 5,000 5,600,000
First Mortgage Revenue Bonds, Reeds
Landing Project, Series 1993,
8.625%, 10-1-2023 ..................... 3,000 3,026,250
Revenue Bonds, Beaver Country Day School
Issue, Series 1992, Subseries A,
8.1%, 3-1-2008 ........................ 1,665 1,704,544
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MASSACHUSETTS (Continued)
Massachusetts Health and Educational
Facilities Authority, Revenue Bonds,
New England Deaconess Hospital Issue,
Series D,
6.875%, 4-1-2022 ...................... $ 3,490 $ 3,568,525
Total ................................. 13,899,319
MICHIGAN - 3.19%
City of Detroit, Michigan, General
Obligation Refunding Bonds (Unlimited
Tax), Series 1995-B,
6.25%, 4-1-2009 ....................... 3,000 2,996,250
Michigan State Hospital Finance Authority,
Hospital Revenue Refunding Bonds
(Crittenton Hospital), Series 1994A,
5.25%, 3-1-2014 ....................... 3,000 2,670,000
Portage Lake Water and Sewage Authority,
Houghton County, Michigan, General
Obligation Limited Tax Bonds:
Series III,
7.75%, 10-1-2020 ...................... 1,000 1,195,000
Series II,
7.625%, 10-1-2020 ..................... 1,000 1,187,500
Michigan Strategic Fund, Limited Obligation
Revenue Bonds:
Knollwood Corporation Project, Series A,
9.65%, 10-1-2016 (C) .................. 1,300 1,105,000
Mercy Services for Aging Project,
Series 1990,
9.4%, 5-15-2020 ....................... 900 983,250
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 2,077,500
Total ................................. 12,214,500
MINNESOTA - 1.57%
City of St. Anthony, Minnesota, Housing
Development Refunding Revenue Bonds
(Autumn Woods Project), Series 1992,
6.875%, 7-1-2022 ...................... 2,500 2,528,125
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MINNESOTA (Continued)
Minneapolis Community Development Agency,
Limited Tax Supported Development Revenue
Bonds, Common Bond Fund Series 1995-1,
7.25%, 12-1-2015 ...................... $ 1,310 $ 1,360,763
City of Mounds View, Minnesota, Gross
Revenue Golf Course Bonds, Series 1994A,
6.125%, 1-1-2014 ...................... 1,250 1,220,312
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 ...................... 870 906,975
Total ................................. 6,016,175
MISSISSIPPI - 0.90%
Lowndes County, Mississippi, Solid Waste
Disposal and Pollution Control Refunding
Revenue Bonds (Weyerhaeuser Company
Project), Series 1992B, Indexed Inverse
Floating/Fixed Term Bonds,
6.7%, 4-1-2022 (D) .................... 2,000 2,157,500
Adams County, Mississippi, Hospital Revenue
Bonds, Series 1991 (Jefferson Davis Memorial
Hospital Project),
8.0%, 10-1-2016 ....................... 1,200 1,276,500
Total ................................. 3,434,000
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 ....................... 4,340 4,833,675
8.25%, 4-1-2002 ....................... 700 757,750
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 3,281,250
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 2,906,250
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MISSOURI (Continued)
The Industrial Development Authority of the
City of Kansas City, Missouri, Revenue Bonds
(The Bishop Spencer Place, Incorporated
Project), Series 1994,
8.0%, 9-1-2016 ........................ $ 2,965 $ 2,901,994
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 1,593,750
7.75%, 8-15-2001 ...................... 945 978,075
Certificates of Participation,
Series 1994, Public Water
Supply District No. 2 of St. Charles
County, Missouri,
8.25%, 12-1-2020 ...................... 2,000 2,105,000
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 2,082,500
Public Water Supply District No. 16 of
Jackson County, Missouri, Water System
Improvement Revenue Bonds, Series 1991,
9.25%, 1-1-2020 ....................... 1,800 1,620,000
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 1,582,500
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 ..................... 1,190 1,231,650
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 ....................... 900 934,875
Total ................................. 26,809,269
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MONTANA - 0.75%
Montana Board of Investments, Resource Recovery
Revenue Bonds, Series 1993 (Yellowstone Energy
Limited Partnership Project),
7.0%, 12-31-2019 ...................... $ 3,000 $ 2,880,000
NEVADA - 1.09%
Clark County, Nevada, Industrial Development
Revenue Bonds (Southwest Gas Corporation),
1992 Series B,
7.5%, 9-1-2032 ........................ 4,000 4,175,000
NEW HAMPSHIRE - 4.50%
New Hampshire Higher Educational and Health
Facilities Authority:
Hospital Revenue Bonds:
Catholic Medical
Center Issue, Series 1989,
8.25%, 7-1-2013 ....................... 3,000 3,247,500
Monadnock Community Hospital
Issue, Series 1990,
9.125%, 10-1-2020 ..................... 1,470 1,591,275
St. Joseph Hospital Issue,
Series 1991,
7.5%, 1-1-2016 ........................ 1,000 1,052,500
First Mortgage Revenue Bonds:
RiverWoods at Exeter Issue,
Series 1993,
9.0%, 3-1-2023 ........................ 2,000 2,140,000
RiverMead at Peterborough Issue,
Series 1994,
8.5%, 7-1-2024 ........................ 2,000 2,042,500
Revenue Bonds, New Hampshire Catholic
Charities Issue, Series 1991,
8.4%, 8-1-2011 ........................ 1,700 1,831,750
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 2,115,000
1991 Tax-Exempt Series C,
7.65%, 5-1-2021 ....................... 2,000 2,115,000
Lisbon Regional School District, New
Hampshire, General Obligation Capital
Appreciation School Bonds,
0.0%, 2-1-2013 ........................ 1,940 1,103,375
Total ................................. 17,238,900
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW JERSEY - 3.30%
New Jersey Economic Development Authority:
First Mortgage Revenue Fixed Rate Bonds:
Franciscan Oaks Project - Series 1992A,
8.5%, 10-1-2023 ....................... $ 3,500 $ 3,714,375
Fellowship Village Project - Series 1995A,
9.25%, 1-1-2025 ....................... 2,500 2,609,375
First Mortgage Revenue Bonds, The
Evergreens - Series 1992,
9.25%, 10-1-2022 ...................... 2,000 2,235,000
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 3,071,250
New Jersey Housing Finance Agency,
Multi-Family Mortgage Revenue Bonds,
1976 Series A,
8.25%, 11-1-2020 ...................... 1,000 1,000,000
Total ................................. 12,630,000
NEW MEXICO - 1.69%
City of Santa Fe, New Mexico, Industrial
Revenue Housing Refunding Bonds (Ponce
de Leon Limited Partnership Project)
Series 1995,
7.25%, 12-1-2005 ...................... 3,500 3,504,375
New Mexico Educational Assistance
Foundation, Student Loan Purchase Bonds,
Second Subordinate 1994 Series II-C (AMT),
6.0%, 12-1-2008 ....................... 3,000 2,947,500
Total ................................. 6,451,875
NEW YORK - 1.11%
The Port Authority of New York and New
Jersey, Special Project Bonds, Series 2,
Continental Airlines, Inc. and Eastern Air
Lines, Inc. Project, LaGuardia Airport
Passenger Terminal,
9.125%, 12-1-2015 ..................... 1,945 2,173,537
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
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 $ 1,072,500
Tompkins County Industrial Development
Agency, Life Care Community Revenue Bonds,
1994 (Kendal at Ithaca, Inc. Project),
7.875%, 6-1-2024 ...................... 1,000 1,011,250
Total ................................. 4,257,287
OHIO - 1.40%
Hamilton County, Ohio, Health System Revenue
Bonds, Providence Hospital Issue,
Series 1992,
6.875%, 7-1-2015 ...................... 2,000 2,020,000
City of Columbus, Ohio, Various Purpose
Adjustable Rate Unlimited Tax Bonds,
Series 1995-1,
4.2%, 6-1-2016 ........................ 1,200 1,200,000
County of Lorain, Ohio, First Mortgage
Revenue Bonds, 1992 Series A (Kendal at
Oberlin Project),
8.625%, 2-1-2022 ...................... 1,000 1,075,000
City of Fairfield, Ohio, Economic
Development Revenue Refunding Bonds
(Beverly Enterprises - Ohio, Inc. Project),
Series 1992,
8.5%, 1-1-2003 ........................ 1,000 1,068,750
Total ................................. 5,363,750
OKLAHOMA - 3.92%
Oklahoma County Industrial Authority,
Industrial Development Revenue Bonds:
1986 Series B (Choctaw Nursing
Center Project):
10.25%, 9-1-2016 ...................... 1,230 1,277,662
10.125%, 9-1-2006 ..................... 525 544,688
1986 Series A (Westlake Nursing Center
Project):
10.25%, 9-1-2016 ...................... 905 940,069
10.125%, 9-1-2006 ..................... 430 446,125
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA (Continued)
Bixby Public Works Authority, Utility
System Revenue Bonds, Refunding
Series 1994,
7.25%, 11-1-2019 ...................... $ 2,685 $ 2,849,456
The Clinton Public Works Authority,
Refunding and Improvement Revenue
Bonds, Series 1994,
6.25%, 1-1-2019 ....................... 2,575 2,478,438
The Broken Arrow Public Golf Authority
(Broken Arrow, Oklahoma), Recreational
Facilities Revenue Bonds, Series 1995,
7.25%, 8-1-2020 ....................... 2,025 2,050,313
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 1,658,000
The Guthrie Public Works Authority
(Guthrie, Oklahoma), Utility System
Revenue Bonds, Series 1994A,
6.75%, 9-1-2019 ....................... 1,415 1,448,606
Cushing Municipal Authority (Cushing,
Oklahoma), Utility System Revenue Bonds,
Series 1993,
6.0%, 7-1-2016 ........................ 1,345 1,326,506
Total ................................. 15,019,863
OREGON - 0.96%
Klamath Falls Intercommunity Hospital
Authority, Gross Revenue Bonds,
Series 1994 (Merle West Medical Center
Project),
7.1%, 9-1-2024 ........................ 3,500 3,688,125
PENNSYLVANIA - 6.23%
Pennsylvania Economic Development Financing
Authority:
Rescue Recovery Revenue Bonds
(Colver Project), Series 1994 D,
7.125%, 12-1-2015 ..................... 2,500 2,618,750
Exempt Facilities Revenue Bonds (MacMillan
Bloedel Clarion Limited Partnership Project),
Series of 1995,
7.6%, 12-1-2020 ....................... 2,000 2,180,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
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 $ 2,077,500
Exempt Facilities Revenue Bonds, 1992
Series B (Pennsylvania Gas and Water
Company Project),
7.125%, 12-1-2022 ..................... 1,000 1,033,750
Allegheny County Industrial Development
Authority (Pennsylvania), Environmental
Improvement Revenue Bonds (USX Corporation
Project), Refunding Series A 1994,
6.7%, 12-1-2020 ....................... 3,000 3,060,000
McKeesport Hospital Authority (Commonwealth
of Pennsylvania), Hospital Revenue Bonds,
Series of 1993 (McKeesport Hospital Project),
6.5%, 7-1-2008 ........................ 2,500 2,475,000
Allentown Area Hospital Authority, Hospital
Revenue Bonds (Sacred Heart Hospital of
Allentown), Series A of 1993,
6.75%, 11-15-2014 ..................... 2,115 2,085,919
South Wayne County Water and Sewer Authority
(Wayne County, Pennsylvania), Sewer Revenue
Bonds, Series of 1992,
8.2%, 4-15-2013 ....................... 1,880 1,922,300
Beaver County Industrial Development Authority
(Pennsylvania), Collateralized Pollution
Control Revenue Refunding Bonds, Series 1995
(The Cleveland Electric Illuminating Company
Beaver Valley Project),
7.625%, 5-1-2025 ...................... 1,500 1,545,000
The Cambria County Industrial Development
Authority (Pennsylvania), Pollution
Control Revenue Refunding Bonds,
Series 1994 (Bethlehem Steel
Corporation Project),
7.5%, 9-1-2015 ........................ 1,440 1,486,800
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
PENNSYLVANIA (Continued)
Delaware County Authority (Pennsylvania),
First Mortgage Revenue Bonds, Series 1992
(Riddle Village Project),
9.25%, 6-1-2022 ....................... $ 1,000 $ 1,112,500
Clarion County Industrial Development Authority
(Pennsylvania), Health Facilities Revenue
Refunding Bonds (Beverly Enterprises
Project), Series 1985,
10.125%, 5-1-2007 ..................... 865 962,313
The Hospitals Authority of Philadelphia,
Hospital Revenue Bonds, Series of 1979
(James C. Giuffre Medical Center),
8.25%, 7-1-2009 (E) ................... 1,415 707,500
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 ....................... 525 591,281
Total ................................. 23,858,613
RHODE ISLAND - 1.30%
Providence Public Buildings Authority
(Veazie Street School and Modular Classrooms
Projects), Revenue Bonds, Series 1991:
7.3%, 12-1-2010 ....................... 1,000 1,076,250
7.3%, 12-1-2011 ....................... 1,000 1,073,750
Pawtucket Public Buildings Authority (Water
System Project), Revenue Bonds, Series 1991:
7.6%, 7-1-2010 ........................ 840 919,800
7.6%, 7-1-2009 ........................ 785 861,537
Rhode Island Health and Educational Building
Corporation, Hospital Financing Revenue Bonds,
South County Hospital Issue - Series 1991,
7.25%, 11-1-2011 ...................... 1,000 1,046,250
Total ................................. 4,977,587
SOUTH CAROLINA - 2.48%
Charleston County, South Carolina, Industrial
Refunding Revenue Bonds, 1982 Series (Massey
Coal Terminal, South Carolina Corporate Project),
Adjustable Convertible Extendible Securities,
4.45%, 1-1-2007 ....................... 3,000 3,000,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
SOUTH CAROLINA (Continued)
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 $ 2,190,000
South Carolina Jobs-Economic Development Authority,
Economic Development Revenue Bonds (Carolinas
Hospital System Project), Series 1992,
7.0%, 9-1-2014 ........................ 1,500 1,723,125
McCormick County, South Carolina, Hospital
Facilities Revenue Bonds, Series 1988
(McCormick Health Care Center Project),
10.5%, 3-1-2018 ....................... 1,470 1,510,425
County of Chester, South Carolina, Industrial
Development Refunding Revenue Bonds (Springs
Industries, Inc. Project), Series 1992,
7.35%, 2-1-2014 ....................... 1,000 1,075,000
Total ................................. 9,498,550
SOUTH DAKOTA - 0.51%
South Dakota Health and Educational
Facilities Authority, Refunding Revenue
Bonds (Westhills Village Retirement
Community Issue), Series 1993,
7.25%, 9-1-2013 ....................... 2,000 1,935,000
TENNESSEE - 2.27%
Memphis-Shelby County Airport Authority,
Special Facilities Revenue Bonds,
Series 1993 (Federal Express Corporation),
6.2%, 7-1-2014 ........................ 3,000 3,000,000
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 2,120,000
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 2,045,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TENNESSEE (Continued)
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 $ 1,533,750
Total ................................. 8,698,750
TEXAS - 3.03%
Alliance Airport Authority, Inc., Special
Facilities Revenue Bonds, Series 1991
(American Airlines, Inc. Project),
7.0%, 12-1-2011 ....................... 4,500 4,820,625
Dallas-Fort Worth International Airport
Facility Improvement Corporation:
American Airlines, Inc. Revenue Bonds,
Series 1990,
7.5%, 11-1-2025 ....................... 2,000 2,112,500
Delta Air Lines, Inc. Revenue Bonds,
Series 1991,
7.6%, 11-1-2011........................ 1,300 1,387,750
Retama Development Corporation, Special
Facilities Revenue Bonds (Retama Park
Racetrack Project), Series 1993,
8.75%, 12-15-2018 ..................... 3,500 2,100,000
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 1,162,219
Total ................................. 11,583,094
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
UTAH - 1.17%
Carbon County, Utah, Solid Waste Disposal
Refunding Revenue Bonds, Series 1991
(Sunnyside Cogeneration Associates Project),
9.25%, 7-1-2018 ....................... $ 2,500 $ 2,725,000
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 1,753,375
Total ................................. 4,478,375
VERMONT - 0.68%
Vermont Industrial Development Authority,
Mortgage Revenue Bonds, Wake Robin
Corporation Project, Series 1993A,
8.75%, 3-1-2023 ....................... 2,500 2,615,625
VIRGIN ISLANDS - 0.39%
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 1,475,250
VIRGINIA - 0.98%
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 2,709,375
Virginia Housing Development Authority,
Commonwealth Mortgage Bonds,
1988 Series C, Subseries C-2,
8.0%, 1-1-2038 ........................ 1,000 1,051,250
Total ................................. 3,760,625
WASHINGTON - 0.25%
Stevens County Public Corporation, Pollution
Control Revenue Refunding Bonds (The
Washington Water Power Company Kettle
Falls Project), Series 1993,
6.0%, 12-1-2023 ....................... 1,000 958,750
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WEST VIRGINIA - 0.94%
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 $ 2,085,000
Upshur County, West Virginia, Solid Waste
Disposal Revenue Bonds (TJ International
Project), Series 1995,
7.0%, 7-15-2025 ....................... 1,500 1,526,250
Total ................................. 3,611,250
WYOMING - 0.67%
Sweetwater County, Wyoming, Solid Waste
Disposal Revenue Bonds (FMC Corporation
Project), Series 1994B,
6.9%, 9-1-2024 ........................ 2,500 2,568,750
TOTAL MUNICIPAL BONDS - 99.32% $376,375,763
(Cost: $360,775,467)
TOTAL SHORT-TERM SECURITIES - 0.51% $ 1,954,000
(Cost: $1,954,000)
TOTAL INVESTMENT SECURITIES - 98.83% $378,329,763
(Cost: $362,729,467)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.17% 4,475,166
NET ASSETS - 100.00% $382,804,929
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
SEPTEMBER 30, 1995
Notes to Schedule of Investments
(A) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(B) Coupon resets weekly to 11.95% - Kenny S&P Index. Minimum coupon rate
is 0%. On February 15, 1999, rate becomes fixed at 6.65%.
(C) Security is paying partial interest.
(D) Coupon resets weekly to 11.95% - Kenny S&P Index. Minimum coupon rate
is 0%. On April 1, 1999, rate becomes fixed at 6.70%.
(E) Non-income producing as the issuer has either missed its most recent
interest payment or declared bankruptcy.
See Note 1 to financial statements for security valuation and other
significant accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $378,329,763
Cash ............................................. 5,259
Receivables:
Interest ........................................ 7,648,890
Fund shares sold ................................ 428,590
Prepaid insurance premium ........................ 12,853
------------
Total assets .................................. 386,425,355
------------
Liabilities
Payable for investment securities purchased ...... 2,076,213
Payable for Fund shares redeemed ................. 1,070,498
Dividends payable ................................ 223,244
Accrued service fee .............................. 70,660
Accrued transfer agency and dividend disbursing .. 26,531
Accrued accounting services fee .................. 5,000
Other ............................................ 148,280
------------
Total liabilities ............................. 3,620,426
------------
Total net assets ............................. $382,804,929
============
Net Assets
$1.00 par value capital stock, authorized --
100,000,000; shares outstanding -- 72,674,203
Capital stock ................................... $ 72,674,203
Additional paid-in capital ...................... 297,551,298
Accumulated undistributed income (loss):
Accumulated undistributed net realized
loss on investment transactions ............... (3,020,868)
Net unrealized appreciation in value of
investments at end of period .................. 15,600,296
------------
Net assets applicable to outstanding
units of capital ............................. $382,804,929
============
Net asset value per share (net assets divided
by shares outstanding) ........................... $5.27
Sales load (offering price x 4.25%)................. .23
-----
Offering price (net asset value divided by 95.75%).. $5.50
=====
On sales of $100,000 or more the sales load is reduced as set forth in the
Prospectus.
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1995
Investment Income
Interest ......................................... $27,187,810
-----------
Expenses (Note 2):
Investment management fee ....................... 1,860,352
Service fee ..................................... 369,260
Transfer agency and dividend disbursing ......... 295,349
Accounting services fee ......................... 56,667
Audit fees ...................................... 31,116
Custodian fees .................................. 20,755
Legal fees ...................................... 14,959
Other ........................................... 112,033
-----------
Total expenses ................................ 2,760,491
-----------
Net investment income ........................ 24,427,319
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net loss on securities .................. (1,115,328)
Realized net loss on futures contracts closed .... (1,606,563)
-----------
Net realized loss on investments ................ (2,721,891)
Unrealized appreciation in value of investments
during the period ............................... 15,084,134
-----------
Net gain on investments ......................... 12,362,243
-----------
Net increase in net assets resulting
from operations .............................. $36,789,562
===========
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
-----------------------------
1995 1994
-------------- ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 24,427,319 $ 21,745,160
Realized net gain (loss)
on investments .................... (2,721,891) 1,527,051
Unrealized appreciation
(depreciation) .................... 15,084,134 (22,927,131)
------------ ------------
Net increase in net assets
resulting from operations ........ 36,789,562 345,080
------------ ------------
Dividends to shareholders:*
From net investment income .......... (24,427,319) (21,745,160)
From realized net gain from
investment transactions ........... --- (4,619,821)
In excess of realized net gain
from investment transactions ...... (1,673,583) ---
------------ ------------
(26,100,902) (26,364,981)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(9,693,367 and 10,978,008 shares,
respectively) ..................... 49,317,843 58,602,026
Proceeds from reinvestment of
dividends and/or capital gains
distribution (3,868,221 and 4,126,763
shares, respectively) ............. 19,837,687 21,969,625
Payments for shares redeemed
(8,253,031 and 7,325,581 shares,
respectively) ..................... (42,201,117) (38,763,374)
------------ ------------
Net increase in net assets
resulting from capital
share transactions ............... 26,954,413 41,808,277
------------ ------------
Total increase ................... 37,643,073 15,788,376
Net Assets
Beginning of period .................. 345,161,856 329,373,480
------------ ------------
End of period ........................$382,804,929 $345,161,856
============ ============
Undistributed net investment
income ............................ $--- $---
==== ====
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.12 $5.53 $5.23 $5.05 $4.85
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income........... .35 .34 .35 .36 .38
Net realized and
unrealized gain
(loss) on
investments ..... .17 (0.34) .34 .18 .20
----- ----- ----- ----- -----
Total from investment
operations ....... .52 0.00 .69 .54 .58
----- ----- ----- ----- -----
Less distributions:
Dividends declared from
net investment
income .......... (0.35) (0.34) (0.35) (0.36) (0.38)
Distribution from
capital gains ... (0.00) (0.07) (0.04) (0.00) (0.00)
Distribution in excess
of capital gains. (0.02) (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- -----
Total distributions. (0.37) (0.41) (0.39) (0.36) (0.38)
----- ----- ----- ----- -----
Net asset value, end
of period ........ $5.27 $5.12 $5.53 $5.23 $5.05
===== ===== ===== ===== =====
Total return* ...... 10.63% 0.05% 13.77% 11.08% 12.35%
Net assets, end
of period (000
omitted) .......... $382,805$345,162$329,373$260,777$224,945
Ratio of expenses to
average net
assets ........... 0.76% 0.76% 0.70% 0.72% 0.77%
Ratio of net investment
income to average
net assets ....... 6.75% 6.39% 6.49% 7.08% 7.63%
Portfolio turnover
rate ............. 19.07% 26.26% 26.13% 54.18% 60.83%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED MUNICIPAL HIGH INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
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 with remaining maturities
of 60 days or less, 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. Net investment income distributions and capital
gains distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for
items such as deferral of wash sales and post-October losses, net
operating losses and expiring capital loss carryforwards.
E. Futures -- See Note 5 -- Futures.
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 $13.3 billion of combined net assets at September 30, 1995)
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 $1,016,772, out of which W&R paid sales commissions of $586,299 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 $13,369.
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 $105,001,566, while proceeds from
maturities and sales aggregated $67,215,923. Purchases of short-term
securities aggregated $113,965,281, while proceeds from maturities and
sales aggregated $127,188,169. No U.S. Government securities were bought
or sold during the period ended September 30, 1995.
For Federal income tax purposes, cost of investments owned at
September 30, 1995 was $363,791,664, resulting in net unrealized
appreciation of $14,538,099, of which $17,892,088 related to appreciated
securities and $3,353,989 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital gain
net income of $301,051 during the fiscal year ended September 30, 1995, all
of which has been paid to shareholders during the period ended September
30, 1995 Remaining net capital gains will be distributed to the Fund's
shareholders.
Internal Revenue Code regulations permit the Fund to defer into its
next fiscal year net capital losses or net long-term capital losses
incurred from November 1 to the end of its fiscal year ("post-October
losses"). From November 1, 1994 through September 30, 1995, the Fund
incurred net capital losses of $1,960,745, which have been deferred to the
fiscal year ending September 30, 1996.
NOTE 5 -- Futures
The Fund may engage in buying and selling interest rate futures
contracts, but only Debt Futures and Municipal Bond Index Futures. Upon
entering into a futures contract, the Fund is required to deposit, in a
segregated account, an amount of cash or U.S. Treasury Bills equal to a
varying specified percentage of the contract amount. This amount is known
as the initial margin. Subsequent payments ("variation margins") are made
or received by the Fund each day, dependent on the daily fluctuations in
the value of the underlying debt security or index. These changes in the
variation margins are recorded by the Fund as unrealized gains or losses.
Upon the closing of the contracts, the cumulative net change in the
variation margin is recorded as realized gain or loss.
<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, 1995, 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, 1995 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
November 3, 1995
<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, 1995
Statements of Assets and Liabilities
For the year ended September 30, 1995
Statements of Operations
For the two years ended September 30, 1995
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of September 30, 1995
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed
because the required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended, attached hereto as
EX-99.B1-charter
Articles Supplementary attached hereto as EX-99.B1-mhartsup
(2) Bylaws, as amended, attached hereto as EX-99.B2-mhbylaw
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant attached hereto as EX-99.B1-
charter; Article I, Article IV and Article VII of the Bylaws
of the Registrant attached hereto as EX-99.B2-mhbylaw
(5) Investment Management Agreement attached hereto as EX-99.B5-
mhima
Assignment of the Investment Management Agreement attached
hereto as EX-99.B5-mhassign
(6) Underwriting Agreement attached hereto as EX-99.B6-mhua
(7) Not applicable
(8) Custodian Agreement attached hereto as EX-99.B8-mhca
(9) (a) Shareholder Servicing Agreement attached hereto as EX-
99.B9-mhssa
(b) Fund Class A Application attached hereto as EX-99.B9-
mhappca
(c) Fund Class Y Application attached hereto as EX-99.B9-
mhappcy
(d) Fund NAV Application attached hereto as EX-99.B9-
mhnavapp
(e) Accounting Services Agreement attached hereto as EX-
99.B9-mhasa
(f) 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*
(g) Amendment to Service Agreement attached hereto as EX-
99.B9-mhsaa
(10) Not applicable
(11) Consent of Independent Accountants attached hereto as EX-
99.B9-mhconsnt
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Service Plan attached hereto as EX-99.B9-mhspca
- ---------------------------------
*Incorporated herein by reference
(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 as EX-27.B17-mhfds
(18) Multiple Class Plan attached hereto as EX-99.B18-mhmcp
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, 1995
-------------- -------------------------------
Common 16,544
27. Indemnification
---------------
Reference is made to Section (7)(c) of Article SEVENTH of the Articles
of Incorporation of Registrant attached hereto as EX-99.B1-charter,
and to Article IV of the Underwriting Agreement attached hereto as EX-
99.B6-mhua, both of which provide indemnification. Also refer to
Section 2-418 of the Maryland General Corporation Law regarding
indemnification of directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is not engaged in any business other than the provision of
investment management services to those registered investment
companies described in Part A and Part B of this Post-Effective
Amendment.
Each director and executive officer of Waddell & Reed Investment
Management Company has had as his sole business, profession, vocation
or employment during the past two years only his duties as an
executive officer and/or employee of Waddell & Reed Investment
Management Company or its predecessors, except as to persons who are
directors and/or officers of the Registrant and have served in the
capacities shown in the Statement of Additional Information of the
Registrant, and except for Mr. Ronald K. Richey. Mr. Richey is
Chairman of the Board and Chief Executive Officer of Torchmark
Corporation, the parent company of Waddell & Reed, Inc., and Chairman
of the Board of United Investors Management Company, a holding company
- ---------------------------------
*Incorporated herein by reference
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.
United Asset Strategy Fund, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United
Science and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on
form BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or
any affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
- ---------------------------------
*Incorporated herein by reference
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).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(a) 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 1st day of December, 1995.
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 1, 1995
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 1, 1995
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 1, 1995
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 1, 1995
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 1, 1995
- ---------------------- ----------------
Henry L. Bellmon
Director
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 1, 1995
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director December 1, 1995
- -------------- ----------------
Linda Graves
/s/John F. Hayes* Director December 1, 1995
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 1, 1995
- ------------------- ----------------
Glendon E. Johnson
/s/James B. Judd* Director December 1, 1995
- ------------------- ----------------
James B. Judd
/s/William T. Morgan* Director December 1, 1995
- ------------------- ----------------
William T. Morgan
Director
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B. Schwartz* Director December 1, 1995
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director December 1, 1995
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director December 1, 1995
- ------------------- ----------------
Paul S. Wise
Director
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., 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: July 12, 1995 /s/Keith A. Tucker
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board July 12, 1995
- -------------------- --------------
Ronald K. Richey
/s/Keith A. Tucker President and Director July 12, 1995
- -------------------- (Principal Executive Officer) --------------
Keith A. Tucker
/s/Theodore W. Howard Vice President, Treasurer July 12, 1995
- -------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and July 12, 1995
- -------------------- Principal Financial --------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director July 12, 1995
- -------------------- --------------
Henry L. Bellmon
Director
- -------------------- --------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director July 12, 1995
- -------------------- --------------
Jay B. Dillingham
/s/Linda Graves Director July 12, 1995
- -------------------- --------------
Linda Graves
/s/John F. Hayes Director July 12, 1995
- -------------------- --------------
John F. Hayes
/s/Glendon E. Johnson Director July 12, 1995
- -------------------- --------------
Glendon E. Johnson
/s/James Judd Director July 12, 1995
- -------------------- --------------
James Judd
/s/William T. Morgan Director July 12, 1995
- -------------------- --------------
William T. Morgan
Director
- -------------------- --------------
Doyle Patterson
/s/Eleanor Schwartz Director July 12, 1995
- -------------------- --------------
Eleanor Schwartz
/s/Frederick Vogel III Director July 12, 1995
- -------------------- --------------
Frederick Vogel III
/s/Paul S. Wise Director July 12, 1995
- -------------------- --------------
Paul S. Wise
Director
- -------------------- --------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.b1-charter
ARTICLES OF INCORPORATION
OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
THIS IS TO CERTIFY:
FIRST: THE UNDERSIGNED, Rodney O. McWhinney, whose post office address is
2400 Pershing Road, Kansas City, Missouri 64108, being of full legal age, does
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations, act as incorporator with the intention of forming a
corporation.
SECOND: The name of the corporation is United Municipal High Income Fund,
Inc. (hereinafter called the "Corporation").
THIRD: The purpose or purposes for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it, are as
follows:
(1) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or
otherwise acquire, hold for investment or otherwise, sell, assign,
negotiate, transfer, exchange or otherwise dispose of or turn to account or
realize upon, securities (which term "securities" shall for the purposes of
these Articles of Incorporation, without limitation of the generality
thereof, be deemed to include any stocks, shares, bonds, debentures, notes,
mortgages or other obligations, and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase, or subscribe
for the same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any issuer
(which term "issuer" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof); and to
exercise as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for
the preservation, protection, improvement and enhancement in value of any
or all such securities.
(2) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration (including without limitation thereto, securities)
now or hereafter permitted by the laws of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine.
(3) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its stock of any class or
series, in any manner and to the extent now or hereafter permitted by the
laws of said State and by these Articles of Incorporation.
(4) To conduct its business in all its branches at one or more
offices in Maryland and elsewhere in any part of the world, without
restriction or limit as to extent.
(5) To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of Maryland, as a member of, or as the
owner or holder of any stock of, or shares of interest in, any issuer, and
in connection therewith to make or enter into such deeds or contracts with
any issuers and to do such acts and things and to exercise such powers, as
a natural person could lawfully make, enter into, do or exercise.
(6) To do any and all such further acts and things and to exercise
any and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent, and construed as
powers as well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of the State of Maryland, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
FOURTH: The post office address of the place at which the principal office
of the Corporation in the State of Maryland will be located is 32 South Street,
Baltimore, Maryland 21202.
The Corporation's resident agent is The Corporation Trust Incorporated,
whose post office address is 32 South Street, Baltimore, Maryland 21202. Said
resident agent is a corporation of the State of Maryland.
FIFTH: (1) The total number of shares of stock of all classes (which
term, as used herein shall include a class designated as a "Series" as set forth
below) which the Corporation has authority to issue is 300,000,000 shares of
capital stock of the par value of $1.00 each, all of one class, and of the
aggregate par value of $300,000,000. The number of the shares of stock of each
class is such number, if any, of shares of unissued stock as is classified or
reclassified into such class by the Corporation's Board of Directors pursuant to
the authority contained in Section 2-105 of the Maryland General Corporation Law
(or any successor provision). The par value of the shares of stock of each
class is one dollar ($1.00) per share. The aggregate par value of all the
shares of all classes is $100,000,000. A description of each class, including
any preferences, conversions or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemptions is set forth below. Unless and until the Corporation's Board of
Directors classifies unissued stock into one or more classes which are in
addition to a single outstanding class, or after the Board has reclassified
issued stock of one or more classes into a single class, all shares of stock of
the Corporation shall be of a single class designated as "Capital Stock." The
Board of Directors of the Corporation may classify unissued shares into one or
more additional classes which shall, together with the issued shares of stock of
the Corporation, have such designations as the Board shall determine (provided
that such designation shall include the word "Class"), and which shall be
treated for all purposes other than as to dividends as if all shares were shares
of one class. The dividends payable to the holders of each such class shall,
subject to any applicable rule, regulation or order of the Securities and
Exchange Commission or other applicable law or regulation, be determined by the
Board and need not be individually declared but may be declared and paid in
accordance with a formula adopted by the Board. The Board of Directors of the
Corporation may in the alternative classify unissued shares into one or more
additional classes, which shall, together with the issued shares of stock of the
Corporation, have such designations as the Board may determine (provided that
such designation shall include the word "Series"), and shall, subject to any
applicable rule, regulation or order of the Securities and Exchange Commission
or other applicable law or regulation, have the following characteristics.
(a) All consideration received by the Corporation for the issue
or sale of shares of stock of each such class, together with all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to the
class of shares of stock with respect to which such assets, payments,
or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled upon the
books of account of the Corporation. Such assets, income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, any asset derived from any
reinvestment of such proceeds, in whatever form the same may be, are
herein referred to as "assets belonging to" such class.
(b) Dividends or distributions on shares of any such class of
stock, whether payable in stock or cash, shall be paid only out of
earnings, surplus or other assets belonging to such class and need not
be individually declared but may be declared and paid in accordance
with a formula adopted by the Board of Directors of the Corporation.
(c) In the event of the liquidation or dissolution of the
Corporation, shareholders of each such class shall be entitled to
receive, as a class, out of the assets of the Corporation available
for distribution to shareholders, but other than general assets not
belonging to any particular class of stock, the assets belonging to
such class; and the assets so distributable to the shareholders of any
such class shall be distributed among such shareholders in proportion
to the number of shares of such class held by them and recorded on the
books of the Corporation. In the event that there are any general
assets not belonging to any particular class of stock and available
for distribution, such distribution shall be made to the holders of
stock of all classes in proportion to the asset value of the
respective classes.
(d) The assets belonging to any such class of stock shall be
charged with the liabilities in respect to such class and shall also
be charged with its share of the general liabilities of the
Corporation, in proportion to the asset value of the respective
classes. The determination of the Board of Directors shall be
conclusive as to the amount of liabilities, including accrued expenses
and reserves, and as to the allocation of the same as to a given
class, and as to whether the same, or general assets of the
Corporation, are allocable to one or more classes. The liabilities so
allocated to a class are herein referred to as "liabilities belonging
to" such class.
(e) At all meetings of stockholders each stockholder of each
share of stock of each such class of the Corporation shall be entitled
to one vote for each share of stock irrespective of the class standing
in his name on the books of the Corporation, except that where a vote
of the holders of the shares of stock of any class, or of more than
one class, voting by class, is required by the Investment Company Act
of 1940 and/or Maryland law as to any proposal, only the holders of
such class or classes, voting by class, shall be entitled to vote upon
such proposal and the holders of any other class or classes shall not
be entitled to vote thereon. Any fractional share, if any such
fractional shares are outstanding, shall carry proportionately all the
rights of a whole share, including the right to vote and the right to
receive dividends.
(f) The provisions of paragraph (2) of this Article FIFTH
relating to voting shall apply when the Corporation has only one class
of shares outstanding or when the Corporation has more than one class
of shares outstanding but which differ only as to their dividend
rights.
(g) When the Corporation has more than one class of shares
outstanding having separate assets and liabilities: (i) the
redemption rights provided to the holders of the Corporation's shares
shall be deemed to apply only to the assets belonging to the class of
stock in question; and (ii) the net asset value per share computation
as provided for in Article SEVENTH shall be applied as if each such
class of shares were the Corporation as referred to in such
computation, but with its assets limited to the assets belonging to
such class and its liabilities limited to the liabilities belonging to
such class.
(2) At all meetings of stockholders each stockholder of the Corporation
shall be entitled to one vote for each share of stock standing in his name on
the books of the Corporation. Any fractional share, if any such fractional
shares are outstanding, shall carry proportionately all the rights of a whole
share, including the right to vote and the right to receive dividends.
(3) Each holder of the capital stock of the Corporation, upon proper
written request (including signature guarantees, if required by the Board of
Directors) to the Corporation, accompanied, when stock certificates representing
such shares are outstanding, by surrender of the appropriate stock certificate
or certificates in proper form for transfer, or any such other form as the Board
of Directors may provide, shall be entitled to require the Corporation to redeem
all or any part of the capital stock standing in the name of such holder on the
books of the Corporation, at the net asset value of such shares. The method of
computing such net asset value, the time as of which such net asset value shall
be computed and the time within which the Corporation shall make payment
therefore shall be determined as hereinafter provided in Article SEVENTH of
these Articles of Incorporation. Notwithstanding the foregoing, the right of
the holders of the capital stock of the Corporation to require the Corporation
to redeem such capital stock shall be suspended when such suspension is required
under the 1940 Act (which term the "1940 Act" shall for the purposes of these
Articles of Incorporation mean the Investment Company Act of 1940 as from time
to time amended and any rule, regulation or order thereunder) and may be
suspended when such suspension is permitted under the 1940 Act.
(4) All shares of the capital stock of the Corporation now or hereafter
authorized shall be subject to redemption and redeemable, in the sense used in
the Maryland General Corporation Law, at the redemption price for any such
shares, determined in the manner set out in these Articles of Incorporation.
The number of the authorized shares of the stock of any class of the Corporation
shall not be reduced by the number of any shares of such class redeemed or
purchased by it; shares redeemed or purchased shall be retired automatically and
shall have the status of authorized but unissued stock.
(5) Notwithstanding any provision of Maryland law requiring any action to
be taken or authorized by the affirmative vote of the holders of a majority or
other designated proportion of the shares, or to be otherwise taken or
authorized by a vote of the stockholders, such action shall be effective and
valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
pursuant to the provisions of these Articles of Incorporation.
(6) No holder of stock of the Corporation shall, as such holder, have any
right to purchase or subscribe for any shares of the capital stock of the
Corporation which it may issue or sell (whether out of the number of shares
authorized by these Articles of Incorporation, or out of any shares of the stock
of the Corporation acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(7) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of these Articles of Incorporation.
SIXTH: The number of Directors of the Corporation shall be twelve and the
names of those who shall act as such until the first annual meeting or until
their successors are duly chosen and qualified are as follows:
Henry L. Bellmon Ira L. Burleson
Benjamin C. Korschot John A. Kroh
Wallace F. Bennett Doyle Patterson
Dodds I. Buchanan Frederick Vogel III
Jay B. Dillingham William T. Morgan
Glendon E. Johnson Leslie S. Wright
However, the By-Laws of the Corporation may fix the number of Directors at
a number greater or less than that named in these Articles of Incorporation and
may authorize the Board of Directors, by the vote of a majority of the entire
Board of Directors, to increase or decrease the number of Directors fixed by
these Articles of Incorporation or by the By-Laws within a limit specified in
the By-Laws, provided that in no case shall the number of Directors be less than
three, and to fill the vacancies created by any such increase in the number of
Directors. Unless otherwise provided by the By-Laws of the Corporation, the
Directors of the Corporation need not be stockholders therein.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining and regulating the powers of the Corporation and of the Directors and
stockholders.
(1) The By-Laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes, but not class shall be elected for a period shorter than that from
the time of the election following the division into classes until the next
annual meeting and thereafter for a period shorter than the interval
between annual meetings or for a period longer than five years, and the
term of office of at least one class shall expire each year.
Notwithstanding the foregoing, no such division into classes shall be made
prior to the first annual meeting of stockholders of the Corporation.
(2) The holders of shares of the Corporation shall have only such
rights to inspect the records, documents, accounts and books of the
Corporation as are provided by Maryland law, subject to reasonable
regulations of the Board of Directors, not contrary to Maryland law, as to
whether and to what extent, and at which times and places, and under what
conditions and regulations such rights shall be exercised.
(3) Any officer elected or appointed by the Board of Directors or by
any committee of said Board or by the stockholders or otherwise, may be
removed at any time with or without cause, in such lawful manner as may be
provided in the By-Laws of the Corporation. A Director may be removed only
as permitted by Maryland laws.
(4) If the By-Laws so provide, the Board of Directors of the
Corporation shall have power to hold their meetings, to have an office or
offices and, subject to the provisions of the laws of Maryland, to keep the
books of the Corporation outside of said State at such places as may from
time to time be designated by them.
(5) In addition to the powers and authority herein by statute
expressly conferred upon them, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws
of Maryland, of these Articles of Incorporation and of the By-Laws of the
Corporation.
(6) Shares of stock in other corporations shall be voted by the
President or a Vice President, or such officer or officers of the
Corporation or such other person or persons as the Board of Directors shall
designate for the purpose, or by a proxy or proxies thereunto duly
authorized by the Board of Directors, except as otherwise ordered by vote
of the holders of a majority of the shares of the capital stock of the
Corporation outstanding and entitled to vote in respect thereto.
(7) (a) Subject to the provisions of the 1940 Act, any director,
officer or employee individually, or any partnership of which any director,
officer or employee may be a member, or any corporation or association of
which any director, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may be pecuniarily
or otherwise interested in, any contract or transaction of the Corporation,
and in the absence of fraud no contract or other transaction shall be
thereby affected or invalidated; provided that in case a director, or a
partnership, corporation or association of which a director is a member,
officer, director, trustee, employee or stockholder is so interested, such
fact shall be disclosed or shall have been known to the Board of Directors,
or a majority thereof; and any director of the Corporation who is so
interested, or who is also a director, officer, trustee, employee or
stockholder of such other corporation or association or a member of such
partnership which is so interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such contract or transaction, and may
vote thereat to authorize any such contract or transaction, with like force
and effect as if he were not such director, officer, trustee, employee or
stockholder of such other corporation or association or not so interested
or a member of a partnership so interested.
(b) Specifically, but without limitation of the foregoing, the
Corporation may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do
business with any manager or investment adviser for the Corporation and/or
principal underwriter of the Corporation or any subsidiary or affiliate of
any such manager or investment adviser and/or principal underwriter and may
permit any such firm or corporation to enter into any contracts or other
arrangements with any other firm or corporation relating to the Corporation
notwithstanding that the Board of Directors of the Corporation may be
composed in part of partners, directors, officers or employees of any such
firm or corporation, and officers of the Corporation may have been or may
be or become partners, directors, officers or employees of any such firm or
corporation, and it the absence of fraud the Corporation and any such firm
or corporation may deal freely with each other, and no such contract or
transaction between the Corporation and any such firm or corporation shall
be invalidated or in any wise affected thereby, nor shall any director or
officer of the Corporation be liable to the Corporation or to any
stockholder or creditor thereof or to any other persons for any loss
incurred by it or him solely because of the existence of any such contract
or transaction; provided that nothing herein shall protect any director or
officer of the Corporation against any liability to the Corporation or to
its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
(c)(1) As used in this subparagraph (c) of this paragraph (7) of this
Article SEVENTH, the following terms shall have the meanings set forth
below:
(i) the term "indemnitee" shall mean any present or former director,
officer or employee of the Corporation (which term as used in this
paragraph (7) shall include a "Corporation" as defined in Section 2-
418(A)(2) of the Maryland General Corporation Law) and any person who while
a director, officer or employee of the corporation is or was serving at the
request of the Corporation as a director, officer, partner, trustee or
employee or agent of another Corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan, any present or former
investment adviser of the Corporation and the heirs, executors,
administrators and successors of any of the foregoing; however, whenever
conduct by an indemnitee is referred to, the conduct shall be that of the
original indemnitee rather than that of the heir, executor, administrator
or successor;
(ii) the term "covered proceeding" shall mean any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was a party
or is threatened to be made a party by reason of the fact or facts under
which he is an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of the office in question and, in the case of a director or
former director of the Corporation, failure to meet the standard of conduct
set forth in Section
2-418(B)(1) of the Maryland General Corporation Law;
(iv) the term "covered expenses" shall mean judgments, penalties,
fines, settlements and reasonable expenses (including attorneys' fees)
actually incurred by an indemnitee in connection with a covered proceeding;
and
(v) the term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse determination as to
the indemnitee whether by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent.
(2) The Corporation shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct.
(3) Except as set forth in (2) above or except as limited in Section 2-
418(B) or 2-418(C) of the Maryland General Corporation Law, the Corporation
shall indemnify any indemnitee for covered expenses in any covered proceeding,
whether or not there is an adjudication of liability as to such indemnitee if a
determination has been made that indemnification is permissible since the
indemnitee was not liable by reason of disabling conduct by (i) a final decision
on the merits of the court or other body before which the covered proceeding was
brought; or (ii) in the absence of such decision, a reasonable determination,
based on a review of the facts, by either (a) the vote of a majority of a quorum
of directors who are neither "interested persons," as defined in the 1940 Act
nor parties to the covered proceeding or (b) any independent legal counsel in a
written opinion, such legal counsel to be selected in the manner set forth in
Section 2-418(E)(II) of the Maryland General Corporation Law; in voting on such
matter, or in giving such opinion, such directors or counsel may consider that
the dismissal of a covered proceeding against an indemnitee for insufficiency of
evidence of any disabling conduct with which the indemnitee has been charged
would provide reasonable assurance that the indemnitee was not liable by reason
of disabling conduct. In the event such determination is made by legal counsel,
authorization of indemnification and determination as to reasonableness of
expenses shall be made as provided in Section 2-418(E) of the Maryland General
Corporation Law.
(4) Covered expenses incurred by an indemnitee in connection with a
covered proceeding shall be advanced by the Corporation to an indemnitee prior
to the final disposition of a covered proceeding upon the request of the
indemnitee for which such advance, the written affirmation required by Section
2-418(F)(1)(I) of the Maryland General Corporation Law and the written
undertaking by or on behalf of the indemnitee to repay the advance unless it is
ultimately determined that the indemnitee is entitled to indemnification
hereunder, but only if one or more of the following is the case; (i) the
indemnitee shall provide security for such undertaking; (ii) the Corporation
shall be insured against losses arising out of any lawful advances; or (iii)
there shall have been a determination, based on a review of the readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that the indemnitee ultimately will be found entitled to
indemnification and that such facts would not preclude indemnification under
Section 2-418 of the Maryland General Corporation Law by either independent
legal counsel (selected as set forth in (3) above) in a written opinion or by
the vote of a majority of a quorum of directors who are neither interested
persons as defined in the 1940 Act nor parties to the covered proceeding. In
the event such determination is made by legal counsel, authorization of the
advance and determination of reasonableness of expenses shall be made as
provided in Section 2-418(E) of the Maryland General Corporation Law.
(5) Nothing herein shall be deemed to affect the right of the Corporation
and/or any indemnitee to acquire and pay for any insurance covering any or all
indemnitees to the extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be entitled to the extent
permitted by the 1940 Act.
(8) The computation of net asset value of each share of capital stock, as
in these Articles of Incorporation referred to, shall be determined as provided
in the 1940 Act, and, except as so provided shall be computed in accordance with
the following rules:
(a) The net asset value of each share of stock of the Corporation
tendered to the Corporation for redemption shall be determined as of the
close of business on the New York Stock Exchange next succeeding the tender
of such share;
(b) The net asset value of each share of stock of the Corporation for
the purpose of the issue of such share shall be determined as of the close
of business on the New York Stock Exchange next succeeding the receipt of
an order to purchase such share;
(c) The net asset value of each share of stock of the Corporation,
shall be the quotient obtained by dividing the value, as at the last close
of business referenced in subparagraph 8(a), of the net assets of the
Corporation (i.e., the value of the assets of the Corporation less the
liabilities of the Corporation exclusive of the par value of its shares and
surplus) by the total number of shares of stock of the Corporation
outstanding at such close. The assets and liabilities of the Corporation
shall be determined in accordance with generally accepted accounting
principles; provided, however, that in determining the liabilities, there
shall be included such reserves for taxes or contingent liabilities as may
be authorized or approved by the Board of Directors, and provided further
that in determining the value of the assets of the Corporation for the
purpose of obtaining the net asset value, each security listed on the New
York Stock Exchange shall be valued on the basis of the closing sale
thereof on the New York Stock Exchange on the business day as of which such
value is being determined; if there be no sale on such day, then the
security shall be valued on the basis of the mean between closing bid and
asked prices on such day; if no bid and asked prices are quoted for such
day, then the security shall be valued by such method as the Board of
Directors shall deem in good faith to reflect its fair market value;
securities not listed on the New York Stock Exchange shall be valued in
like manner on the basis of quotations on any other stock exchange which
the Board of Directors may from time to time approve for that purpose;
readily marketable securities traded in the over-the-counter market shall
be valued at the mean between their bid and asked prices, or, if the Board
of Directors shall so determine, at their bid prices; and all other
securities and other assets of the Corporation and all securities as to
which the Corporation might be considered an "underwriter" (as that term is
used in the Securities Act of 1933), whether or not such securities are
listed or traded in the over-the-counter market, shall be valued by such
method as they shall deem in good faith to reflect their fair market value.
In connection with the accrual of any fee or refund payable to or by an
investment adviser of the Corporation, the amount of which accrual is not
definitely determinable as of any time at which the net asset value of each
share of the capital stock of the Corporation is being determined due to
the contingent nature of such fee or refund, the Board of Directors is
authorized to establish from time to time formulae for such accrual, on the
basis of the contingencies in question to the date of such determination,
or on such other basis as the Board of Directors may establish.
For the purposes hereof:
(A) Shares of stock to be issued shall be deemed to be
outstanding as of the time of the determination of the net asset value
per share applicable to such issuance and the net price thereof shall
be deemed to be an asset of the Corporation.
(B) Shares of stock to be redeemed by the Corporation shall be
deemed to be outstanding until the time of the determination of the
net asset value applicable to such redemption and thereupon and until
paid the redemption price thereof shall be deemed to be a liability of
the Corporation.
(d) The net asset value of each share of capital stock of the
Corporation, as of any time other than the close of business on the New
York Stock Exchange on any day, may be determined by applying to the net
asset value as of the close of business on that Exchange on the preceding
business day, computed as provided in paragraph 7(c) of this Article
SEVENTH, such adjustments as are authorized by or pursuant to the direction
of the Board of Directors and designed reasonably to reflect any material
changes in the market value of securities and other assets of the
Corporation and any other material changes in the assets or liabilities of
the Corporation and in the number of its outstanding shares which shall
have taken place since the close of business on such preceding business
day.
(e) In addition to the foregoing, the Board of Directors is
empowered, in its absolute discretion, to establish other bases or times,
or both, for determining the net asset value of each share of stock of the
Corporation in accordance with the 1940 Act and to authorize the voluntary
purchase by the Corporation, either directly or through an agent, of shares
of capital stock of the Corporation upon such terms and conditions and for
such consideration as the Board of Directors shall deem advisable in
accordance with the 1940 Act. Without limiting the generality of the
foregoing, the Board of Directors may authorize the payment of dividends on
each day, the amounts of which are designed to reflect all income and
expenses and all realized and unrealized capital gains and losses, to the
end that the net asset value per share remains fixed, unless and until the
Board of Directors elects to change such dividend policy.
(f) Payment of the net asset value of shares of capital stock of the
Corporation properly surrendered to it for redemption shall be made by the
Corporation within seven days after tender of such stock to the Corporation
for such purpose plus any period of time during which the right of the
holders of the shares of capital stock of the Corporation to require the
Corporation to redeem such capital stock has been suspended. Any such
payment may be made in portfolio securities of the Corporation and/or in
cash, as the Board of Directors shall deem advisable, and no shareholder
shall have a right, other than as determined by the Board of Directors, to
have his shares redeemed in kind.
(g) The Board of Directors is empowered to cause the redemption of
the shares held in any account if the aggregate net asset value of such
shares (taken at cost or value, as determined by the Board) is less than
$500, or such lesser amount as the Board may fix, upon such notice to the
shareholders in question, with such permission to increase the investment
in question and upon such other terms and conditions as may be fixed by the
Board of Directors in accordance with the 1940 Act.
(h) In the event that any person advances the organizational expenses
of the Corporation, such advances shall become an obligation of the
Corporation subject to such terms and conditions as may be fixed by, and on
a date fixed by, or determined in accordance with criteria fixed by the
Board of Directors, to be amortized over a period or periods to be fixed by
the Board.
(i) Whenever any action is taken under this paragraph (7) of this
Article SEVENTH of these Articles of Incorporation under any authorization
to take action which is permitted by the 1940 Act, such action shall be
deemed to have been properly taken if such action is in accordance with the
construction of the 1940 Act then in effect as expressed in "no action"
letters of the staff of the Securities and Exchange Commission or any
release, rule, regulation or order under the 1940 Act or any decision of a
court of competent jurisdiction notwithstanding that any of the foregoing
shall later be found to be invalid or otherwise reversed or modified by any
of the foregoing.
(j) Any action which may be taken by the Board of Directors of the
Corporation under this paragraph (7) of this Article SEVENTH of these
Articles of Incorporation may be taken by the description thereof in the
then effective prospectus relating to the Corporation's shares under the
Securities Act of 1933 rather than by formal resolution of the Board.
(k) Whenever under this paragraph (7) of this Article SEVENTH of
these Articles of Incorporation, the Board of Directors of the Corporation
is permitted or required to place a value on assets of the Corporation,
such action may be delegated by the Board, and/or determined in accordance
with a formula determined by the Board, to the extent permitted by the 1940
Act.
(9) Subject to the provisions of the 1940 Act, the Corporation may borrow
from banks for the purpose of obtaining funds for investment purposes or for
temporary or emergency purposes and mortgage or pledge assets of the Corporation
in connection therewith.
EIGHTH: From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed upon the vote of the holders
of a majority of the shares of capital stock of the Corporation outstanding and
entitled to vote, and other provisions which might under the statutes of the
State of Maryland at the time in force be lawfully contained in articles of
incorporation, may be added or inserted upon such a vote and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article EIGHTH.
The term "these Articles of Incorporation" as used herein and in the By-
Laws of the Corporation shall be deemed to mean these Articles of Incorporation
as from time to time amended and restated.
IN WITNESS WHEREOF, the undersigned incorporator of United Municipal High
Income Fund, Inc., who executed the foregoing Articles of Incorporation hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, information and belief the matters and facts set forth therein
are true in all material respects under the penalties of perjury.
Dated the 26th day of February, 1985.
/s/Rodney O. McWhinney
Rodney O. McWhinney
STATE OF MISSOURI )
)ss.
COUNTY OF JACKSON )
This is to certify that on this 26th day of February, 1985, before me, the
subscriber, a Notary Public of the State of Missouri, personally appeared Rodney
O. McWhinney and acknowledged the foregoing Articles of Incorporation to be his
act.
Witness my hand and Notarial Seal the day and year last above written.
(SEAL) /s/Sharon K. Amerine
Sharon K. Amerine, Notary
Public
My Commission Expires: 8/21/86
EX-99.B1-mhartsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
UNITED MUNICIPAL HIGH INCOME FUND, INC.
United Municipal High Income Fund, Inc. (the "Corporation"), a Maryland
corporation, having its principal office in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of
shares of capital stock which the Corporation is authorized to issue at Three
Hundred Million (300,000,000) shares of capital stock, (par value $1.00 per
share), amounting in the aggregate to a par value of Three Hundred Million
Dollars ($300,000,000.00). All authorized shares that have not been designated
or classified remain available for future designation or classification.
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly designates and classifies the capital stock of the
Corporation among the classes of the Corporation as follows:
Class A (150,000,000 shares)
Class Y (150,000,000 shares)
The aggregate number of shares of all classes of stock of the Corporation
remains at Three Hundred Million (300,000,000) shares of capital stock, the par
value remains $1.00 per share, and the aggregate value of all authorized stock
remains Three Hundred Million Dollars ($300,000,000.00).
THIRD: The capital stock of the Corporation is divided into classes and
there are no changes in the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as shares of capital stock as set forth in the
Corporation's Articles of Incorporation, except as follows:
(1) The capital stock of Class A shares shall be subject to fees,
including a front-end sales load and a Rule 12b-1 fee, as
determined by the Board of Directors of the Corporation from time
to time;
(2) The capital stock of the Class Y shares shall not be subject to
either a front-end or contingent deferred sales charge or Rule 12b-
1 fees and is subject to a shareholder servicing fee which differs
from that of the Class A shares.
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
___ day of _________, 1995.
__________________________
Sharon K. Pappas, Vice President
Attest: _________________
Amy D. Eisenbeis
Assistant Secretary
The undersigned, Vice President of United Municipal High Income Fund, Inc.
who executed on behalf said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the act
of said Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
UNITED MUNICIPAL HIGH INCOME
FUND, INC.
By:
Sharon K. Pappas, Vice President
EX-99.B2-mhbylaw
UNITED MUNICIPAL HIGH INCOME FUND, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such date
within 31 days after the 1st day of June in each year as may be fixed by the
Board of Directors for the purpose of electing directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called at by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at
such meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
eleven Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until the annual
meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board; may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. No Director shall receive any
stated salary or fees from the Corporation for his services as such Director if
such Director is, otherwise than by reason of being such Director, affiliated
(as such term is defined in the Investment Company Act of 1940) with the
Corporation or with any investment adviser of the Corporation. Except as
provided in the preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give High
Income, with sufficient surety to the Corporation and the transfer agent, if
any, to indemnify it and such transfer agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
MISCELLANEOUS
Section 1. Custodianship. All cash and securities owned by the
Corporation shall be held by one or more banks or trust companies of good
standing, each having a capital, surplus and undivided profits aggregating not
less than two million ($2,000,000), provided such a bank or trust company can be
found ready and willing to act. Upon the resignation or inability to serve of
any such bank or trust company the Corporation shall (i) use its best efforts to
obtain a qualified successor, (ii) require the cash and securities of the
Corporation held by such bank or trust company to be delivered directly to the
successor, and (iii) in the event that no qualified successor can be found,
submit to the holders of the shares of the capital stock of the Corporation at
the time outstanding and entitled to vote, before permitting delivery of such
cash and securities to anyone other than a qualified successor, the question
whether the Corporation shall be dissolved and liquidated or shall function
without a qualified bank of trust company selected by it, such assets to be held
subject to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article VII.
Nothing herein contained, however, shall prevent the termination of any
agreement between the Corporation and any such bank or trust company by the
Corporation at the discretion of the Board of Directors, and any such agreement
shall be terminated upon the affirmative vote of the holders of a majority of
all the shares of the capital stock of the Corporation at the time outstanding
and entitled to vote.
Section 2. Certain Transactions. The Corporation shall not purchase or
sell any securities (other than stock which may be issued by the Corporation)
from or to any of the following acting as principals and shall not make any loan
to any of the following: (i) any officer or director of the Corporation; (ii)
any person or organization furnishing managerial or supervisory services to the
Corporation; or (iii) any officer, director or partner of any person or
organization furnishing such managerial or supervisory services.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment, addition or
repeal of the By-Laws by action of the Board of Directors may be altered or
repealed by the stockholders. Article VII may be altered, amended or repealed
only by the stockholders.
EX-99.B5-mhima
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of August, 1990, by and between UNITED MUNICIPAL
HIGH INCOME FUND, INC. (hereinafter called "United"), and WADDELL & REED, INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed, Inc., agrees to act as investment adviser to United with
respect to the investment of its assets and in general to supervise the
investments of United, subject at all times to the direction and control of the
Board of Directors of United, all as more fully set forth herein.
II. Duties of Waddell & Reed, Inc., with respect to investment of assets of
United
A. Waddell & Reed Inc., shall regularly provide investment
advice to United and shall, subject to the succeeding provisions of this
section, continuously supervise the investment and reinvestment of cash,
securities or other property comprising the assets of the investment portfolios
of United; and in furtherance thereof, Waddell & Reed, Inc., shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or one or more of the
portfolios of United, and whether concerning the individual companies whose
securities are included in United's portfolios or the industries in which they
engage, or with respect to securities which Waddell & Reed, Inc., considers
desirable for inclusion in United's portfolios;
2. furnish continuously an investment program for each of the portfolios
of United;
3. determine what securities shall be purchased or sold by United;
4. take, on behalf of United, all actions which appear to Waddell & Reed,
Inc., necessary to carry into effect such investment programs and supervisory
functions as aforesaid, including the placing of purchase and sale orders.
B. Waddell & Reed, Inc., shall make appropriate and regular reports to the
Board of Directors of United on the actions it takes pursuant to Section II.A.
above. Any investment programs furnished by Waddell & Reed, Inc., under this
section, or any supervisory function taken hereunder by Waddell & Reed, Inc.,
shall at all times conform to and be in accordance with any requirements imposed
by:
1. the provisions of the Investment Company Act of 1940 and any rules or
regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of United as amended
from time to time;
4. the provisions of the Bylaws of United as amended from time to time;
5. the terms of the registration statements of United, as amended from
time to time, under the Securities Act of 1933 and the Investment Company Act of
1940.
C. Any investment programs furnished by Waddell & Reed, Inc., under this
section or any supervisory functions taken hereunder by Waddell & Reed, Inc.,
shall at all times be subject to any directions of the Board of Directors of
United, its Executive Committee, or any committee or officer of United acting
pursuant to authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of United and the expenses of Waddell & Reed, Inc., in
performing its functions under this Agreement shall be divided into two classes,
to wit:
(i) those expenses which will be paid in full by Waddell & Reed, Inc., as
set forth in subparagraph "A" hereof, and (ii) those expenses which will be paid
in full by United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed, Inc., under Section II
above, it shall pay in full, except as to the brokerage and research services
acquired through the allocation of commissions as provided in Section IV
hereinafter, for (a) the salaries and employment benefits of all employees of
Waddell & Reed, Inc. who are engaged in providing these advisory services; (b)
adequate office space and suitable office equipment for such employees; and (c)
all telephone and communications costs relating to such functions. In addition,
Waddell & Reed, Inc., shall pay the fees and expenses of all directors of United
who are affiliated with Waddell & Reed, Inc., or an affiliated corporation and
the salaries and employment benefits of all officers of United who are
affiliated persons of Waddell & Reed, Inc.
B. United shall pay in full for all of its expenses which are not listed
above (other than those assumed by Waddell & Reed, Inc., or its affiliates in
its capacity as Accounting Services Agent for United), including (a) the costs
of preparing and printing prospectuses and reports to shareholders of United
including mailing costs; (b) the costs of printing all proxy statements and all
other costs and expenses of meetings of shareholders of United; (c) interest,
taxes, brokerage commission and premiums on fidelity and other insurance; (d)
audit fees and expenses of independent accountants and legal fees and expenses
of attorneys, but not of attorneys who are employees of Waddell & Reed, Inc.;
(e) fees and expenses of its directors not affiliated with Waddell & Reed, Inc.;
(f) custodian fees and expenses; (g) fees payable by United under the Securities
Act of 1933, the Investment Company Act of 1940, and the securities or "Blue-
Sky" laws of any jurisdiction; (h) fees and assessments of the Investment
Company Institute or any successor organization; (i) such non recurring or
extraordinary expenses as may arise, including litigation affecting United and
any indemnification by United of its officers, directors, employees and agents
with respect thereto; (j) the costs and expenses provided for in any Shareholder
Servicing Agreement or Accounting Services Agreement, including amendments
thereto, contemplated by subsection C of this section III. In the event that
any of the foregoing shall, in the first instance, be paid by Waddell & Reed,
Inc., United shall pay the same to Waddell & Reed, Inc., on presentation of a
statement with respect thereto.
C. Waddell & Reed, Inc., or an affiliate of Waddell & Reed, Inc., may also
act as (i) transfer agent or shareholder servicing agent of United and/or as
(ii) accounting services agent of United if at the time in question there is a
separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between United and Waddell & Reed,
Inc., or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to such Agreement with United is referred to as
the "Agent." Each such Agreement shall provide in substance that it shall not
go into effect, or may be amended, or a new agreement covering the same topics
between United and the Agent may be entered into only if the terms of such
Agreement, such amendment or such new agreement have been approved by the Board
of Directors of United, including the vote of a majority of the directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
of either party to the Agreement, such amendment or such new agreement
(considering Waddell & Reed, Inc., to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed, Inc.), cast in person at a
meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of United and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of United; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in light of the usual and customary charges made by others
for services of the same nature and quality. Any such Agreement may also
provide in substance that any disinterested director vote may be conditioned on
the favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class of
United. Any such Agreement shall also provide in substance that it may be
terminated by the Agent at any time without penalty upon giving United one
hundred twenty (120) days' written notice (which notice may be waived by United)
and may be terminated by United at any time without penalty upon giving the
Agent sixty (60) days' written notice (which notice may be waived by the Agent),
provided that such termination by United shall be directed or approved by the
vote of a majority of the Board of Directors of United in office at the time or
by the vote of the holders of a majority (as defined in or under the Investment
Company Act of 1940) of the outstanding shares of each class of United.
IV. Brokerage
(a) Waddell & Reed, Inc., may select brokers to effect the portfolio
transactions of United on the basis of its estimate of their ability to obtain,
for reasonable and competitive commissions, the best execution of particular and
related portfolio transactions. For this purpose, "best execution" means prompt
and reliable execution at the most favorable price obtainable. Such brokers may
be selected on the basis of all relevant factors including the execution
capabilities required by the transaction or transactions, the importance of
speed, efficiency, or confidentiality, and the willingness of the broker to
provide useful or desirable investment research and/or special execution
services. Waddell & Reed, Inc., shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed, Inc., shall have discretion,
in the interest of United, to direct the execution of its portfolio transactions
to brokers who provide brokerage and/or research services (as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934) for United
and/or other accounts for which Waddell & Reed, Inc., and its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Act of 1934); and in connection with such transactions, to pay
commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed, Inc., determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of Waddell & Reed, Inc.,
and its investment advisory affiliates with respect to the accounts for which
they exercise investment discretion. In reaching such determination, Waddell &
Reed, Inc., will not be required to attempt to place a specified dollar amount
on the brokerage and/or research services provided by such broker; provided that
Waddell & Reed, Inc., shall be prepared to demonstrate that such determinations
were made in good faith, and that all commissions paid by United over a
representative period selected by its Board of Directors were reasonable in
relation to the benefits to United.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell &
Reed, Inc., may also consider sales of insurance policies funded by United's
shares and sales of shares of investment companies distributed by Waddell &
Reed, Inc., or its affiliates, and portfolio valuation or pricing services as a
factor in the selection of brokers to execute brokerage and principal portfolio
transactions.
V. Compensation of Waddell & Reed, Inc.
As compensation in full for services rendered and for the facilities and
personnel furnished under sections I, II, and IV of this Agreement, United will
pay to Waddell & Reed, Inc., for each day the fees specified in Exhibit A
hereto.
The amounts payable to Waddell & Reed, Inc., shall be determined as of the
close of business each day; shall, except as set forth below, be based upon the
value of net assets computed in accordance with the Articles of Incorporation of
United; and shall be paid in arrears whenever requested by Waddell & Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or policies of any
state in which shares of United are qualified for sale limit the operation and
management expenses of United, Waddell & Reed, Inc., will refund to United the
amount by which such expenses exceed the lowest of such state limitations.
VI. Undertakings of Waddell & Reed, Inc.; Liabilities
Waddell & Reed, Inc., shall give to United the benefit of its best
judgment, efforts and facilities in rendering advisory services hereunder.
Waddell & Reed, Inc., shall at all times be guided by and be subject to
United's investment policies, the provisions of its Articles of Incorporation
and Bylaws as each shall from time to time be amended, and to the decision and
determination of United's Board of Directors.
This Agreement shall be performed in accordance with the requirements of
the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed, Inc., as an investment adviser and
affiliated person of United, Waddell & Reed, Inc., shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed, Inc., it shall not be subject to liability to United or to any stockholder
of United (direct or beneficial) for any act or omission in the course of or
connected with rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on the date
hereof and shall continue in effect, unless terminated as hereinafter provided,
for a period of one year and from year-to-year thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of each class of United and
by the vote of a majority of the directors who are not parties to this Agreement
or "interested persons" (as so defined) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed, Inc., at any time
without penalty upon giving United one hundred twenty (120) days' written notice
(which notice may be waived by United) and may be terminated by United at any
time without penalty upon giving Waddell & Reed, Inc. sixty (60) days' written
notice (which notice may be waived by Waddell & Reed, Inc.), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of United. This Agreement shall automatically terminate in
the event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) UNITED MUNICIPAL HIGH INCOME FUND, INC.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
Vice President
ATTEST:
/s/Sharon K. Pappas
- ---------------------
Sharon K. Pappas, Secretary
(Seal) WADDELL & REED, INC.
By:/s/Robert L. Hechler
-----------------------
Robert L. Hechler
Executive Vice President
ATTEST:
/s/Rodney O. McWhinney
- -----------------------
Rodney O. McWhinney, Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED MUNICIPAL HIGH INCOME FUND, INC.
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on net asset value at the annual
rate of .15 of 1% of net assets; and
2. A pro rata participation based on the relative net asset size of United
in a "Group" fee computed each day on the combined net asset values of all the
Funds in the United Group listed hereafter at the annual rates shown in the
following table:
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate For Each Level
------------------------- --------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Determined as of the close of business that day or, if not a business day, as of
the close of business the first business day preceding.
The Funds in the United Group are:
United Funds, Inc.
United High Income Fund
United Income Fund
United Accumulative Fund
United Science & Technology Fund
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
United Municipal High Income Fund, Inc.
United Municipal High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc.
United Asset Strategy Fund, Inc.
and such other funds for which Waddell & Reed, Inc., may now or hereafter act as
investment adviser, provided that the parties to this Agreement expressly agree
in writing that such fund shall be included in the present United Group for the
purpose of determining the group fee rate.
EX-99.B5-mhassign
Assignment
Waddell & Reed, Inc. ("W&R") does hereby assign, transfer and convey, and United
Municipal High Income Fund, Inc. ("Fund") does hereby consent to the assignment,
transfer and conveyance of, effective January 8, 1992, the Investment Management
Agreement between W&R and the Fund, dated August l, 1990, to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of W&R. W&R
has provided certain undertakings, agreements and guarantees in connection with
this assignment as provided in the Guarantee of Performance attached hereto as
Exhibit A.
Executed this 8th day of January, 1992.
Waddell & Reed, Inc.
By: William T. Morgan
William T. Morgan, President
United Municipal High Income Fund, Inc.
By William T. Morgan
William T. Morgan, President
Accepted:
Waddell & Reed Investment Management Company
By Rodney O. McWhinney
Rodney O. McWhinney, Sr. Vice President
Guarantee of Performance
In consideration of each of the Funds' listed in Exhibit A hereto consent to the
assignment by Waddell & Reed, Inc., of the Investment Management Agreement
between Waddell & Reed, Inc., and the particular Fund to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of Waddell &
Reed, Inc., Waddell & Reed, Inc. hereby undertakes and agrees that at all times
WRIMCO shall be staffed and adequately supported to assure that WRIMCO is fully
capable of carrying out any and all of its obligations, duties and
responsibilities under the Investment Management Agreements assigned to it and
hereby further guarantees that WRIMCO shall perform its obligations, duties and
responsibilities in accordance with the terms of the several Investment
Management Agreements and in accordance with all applicable Federal laws and
regulations.
Dated this 11th day of December, 1991.
Waddell & Reed, Inc.
By: Rodney O. McWhinney
Rodney O. McWhinney
Senior Vice President
<PAGE>
EXHIBIT A
United Funds, Inc.
United High Income Fund
United Income Fund
United Accumulative Fund
United Science & Energy Fund
United Municipal High Income Fund, Inc.
United Municipal High Income Fund, Inc.
United Government Securities Fund, Inc.
United Vanguard Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Retirement Shares, Inc.
United High Income Fund II, Inc.
United High Income Fund, Inc.
United Gold & Government Fund, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
TMK/United Funds, Inc.
High Income Portfolio
Growth Portfolio]
High Income Portfolio
Income Portfolio
Money Market Portfolio
EX-99.B6-mhua
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 8th day of February, 1995, by and between United
Municipal High Income Fund, Inc. (hereinafter the "Company"), a Maryland
corporation, and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware
corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) the shares of each of its classes of shares ("Fund") and of
each sub-class thereof ("Class"), if any, are, as of the date of the
effectiveness of this Agreement as to each such Fund or Class, registered with
the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Company in all states in which the shares are
currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of Securities
Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance sales
organization consisting in part of a number of representatives authorized under
Federal and state securities laws to solicit as representatives of W&R orders
for Company shares and other securities;
4) it maintains and enforces procedures to enable it to
supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for compliance
with applicable securities laws, rules and regulations all sales literature and
promotional materials used by it and authorized to be used by its
representatives in solicitation of orders to buy Company shares, and it files,
when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to act,
as the Company's principal underwriter under the terms and provisions of this
Agreement.
A. Company agrees
1) to use its best efforts to register from time to time under
the Securities Act of 1933 (the "Securities Act") adequate amounts of its shares
for sale by W&R to the public and to qualify or to permit W&R to qualify such
shares for offering to the public in such states as may from time to time be
agreed upon;
2) to immediately advise W&R (i) when any post-effective
amendment to its registration statement or any further amendment or supplement
thereto or any further registration statement or amendment or supplement thereto
becomes effective, (ii) of any request by the SEC for amendments to the
registration statement(s) or any then effective prospectus or for additional
information, (iii) of the issuance by the SEC of any stop-order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, and (iv) of the happening of any event which makes untrue any
material statement made in the registration statement or any then effective
prospectus or which, in the opinion of counsel for the Company, requires the
making of a change in the registration statement or any then effective
prospectus in order to make the statements therein not misleading; in case of
the happening at any time of any event which materially affects the Company or
its securities and which should be set forth in a supplement to or an amendment
of any then effective prospectus in order to make the statements therein not
misleading, to prepare and furnish to W&R such amendment or amendments to that
prospectus as will correct the prospectus so that as corrected it will not
contain, or such supplement or supplements to that prospectus which when read in
conjunction with that prospectus will make the combined information not contain
any untrue statement of a material fact or any omission to state any material
fact necessary in order to make the statements in that prospectus not
misleading; if any time the SEC shall issue any stop-order suspending the
effectiveness of the registration statement, to make every reasonable effort to
obtain the prompt lifting of such order; and, before filing any amendment to the
registration statement or to any then effective prospectus, to furnish W&R with
a copy of the proposed amendment;
3) to advise W&R of the net asset value of the shares of each of
its Funds and Classes, as applicable, as often as computed and to furnish to W&R
as soon as practical such information as may be reasonably requested by W&R in
order that it may know all of the facts necessary to sell shares of the Company;
4) to make delivery of its shares subject to the provisions of
its Articles of Incorporation and Bylaws to W&R as ordered by W&R as soon as
reasonably possible after receipt of the orders and against payment of the
consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses incident to the
issuance, transfer, registration and delivery of its shares, all taxes in
connection therewith, costs and expenses incident to preparing and filing any
registration statements and prospectuses and any amendments or supplements to a
registration statement or a prospectus, statutory fees incidental to the
registration of additional shares with the SEC, statutory fees and expenses
incurred in connection with any Blue Sky law qualifications undertaken by or at
the request of W&R, and the fees and expenses of the Company's counsel,
accountants or any other experts used in connection with the foregoing; and
6) not without the consent of W&R to offer any of its shares for
sale directly or to any persons or corporations other than W&R, except only
a) the reinvestment of dividends and/or distributions or
their declaration in shares of the Company, in optional form or otherwise;
b) the issuance of additional shares to stock splits or
stock dividends;
c) sale of shares to another investment or securities
holding company in the process of purchasing all or a portion of its assets;
d) in connection with an exchange of shares of the Company
for shares in another investment or securities holding company;
e) the sale of shares to registered unit investment trusts;
or
f) in connection with the exchange of one Fund's shares for
shares of another Fund of the Company.
B. W&R agrees
1) to offer Company shares in such states as may be agreed upon
through its retail account representatives and, at its sole discretion, through
broker-dealers which are members of the NASD on such terms as are not
inconsistent with this Agreement;
2) to order shares from the Company only after it has received a
purchase order therefor;
3) to pay to the Company the net asset value of shares sold
within two business days after the day payment is received by W&R at its
principal place of business from the investor or broker-dealer, or pay the
Company at such other time as may be agreed upon hereafter by the Company and
W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the provisions of the
Articles of Incorporation and Bylaws of the Company and with the provisions
stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or proceeding to
terminate, revoke or suspend W&R's registration as a broker-dealer with the SEC,
membership in the NASD, or authority with any state securities commission to
offer Company shares; and
6) to pay the cost of all sales literature, advertising and
other materials which it may at its discretion use in connection with the sale
of Company shares, including the cost of reports to the shareholders of the
Company in excess of the cost of reports to existing shareholders and the cost
of printing the prospectus(es) furnished to it by the Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters relating to
promotion and sale of Company shares, including the preparation and use of all
advertising, sales literature and other promotional materials, and shall make
and enter into all other arrangements, agreements and contracts as principal on
its own account and not as agent for the Company. Title to shares issued and
sold by the Company through W&R shall pass directly from the Company to the
dealer or investor, or shall first pass to W&R as it may from time to time be
determined by W&R and the Company; except provided, however, that W&R may, if so
agreed by W&R and the Company, act as agent of the Company without commission on
repurchase of shares of the Company;
2) certificates for shares shall not be created or delivered by
the Company in any case in which the purchase is pursuant to any provisions of
the Company described in its applicable then current prospectus(es) under the
terms of which certificates are not to be issued to the shareholder. Shares
sold by W&R shall be registered in such name or names and amounts as W&R may
request from time to time, and all shares when so paid for and issued shall be
fully paid and non-assessable;
3) the offering price at which shares of the Company may be sold
by W&R shall include such selling commission as may be applicable to that Class
and as may be fixed from time to time by W&R but shall not be in excess of 8.5
percent of the offering price. W&R shall retain any such sales commission and
may re-allow all or any part of the sales commission to its account
representatives and to selected brokers and dealers who sell shares of the
Company; and
4) W&R may designate, reduce or eliminate its selling
commissions in certain sales or exchanges to the extent described in the
applicable then current prospectus(es) of the Company and in accordance with
Section 22(d) of the Investment Company Act of 1940 and any rules, regulations
or orders of the SEC thereunder.
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (a
"Plan"), which Plan is applicable to certain shares and that the Company may in
the future adopt Plans applicable to certain Funds and Classes, respectively.
B. With respect to any Fund or Class as to which the Company has
adopted a Plan, pursuant to that Plan, each day the Company shall pay to W&R a
distribution fee and/or a service fee at the maximum rates and under the terms
and conditions set forth in the applicable Plan, as amended from time to time,
or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption proceeds
that portion represented by the reinvestment of dividends and distributions and
the appreciation of the value of Fund shares being redeemed, promptly pay W&R an
amount, if any, equal to the percent of the amount invested as determined by W&R
and as is then stated in the Company's current prospectus applicable to the
shares redeemed (the "contingent deferred sales charge"). For purposes of
determining the applicable contingent deferred sales charge, if any: the
redemptions shall be deemed in order of investment made when more than one
investment has been made; and when the shares being redeemed were acquired by
exchange of shares of another Fund or Class of the Company, or corresponding
class of another registered investment company for which W&R or its affiliate
serves as principal underwriter, the investment shall be deemed as if it had
been made when the Company's shares were first purchased, and the applicable
contingent deferred sales charges, if any, shall be with respect to the amount
originally invested in Company shares; and provided that any contingent deferred
sales charge shall be determined in accordance with and in the manner set forth
in the applicable then current prospectus and any applicable Order or Rule
issued by the SEC.
D. It is contemplated that W&R may pay commissions to its field sales
force at the time of sale of the Company's shares and may incur other expenses
substantially in advance of receiving the distribution fee, if any, that may be
applicable to the payment of such commissions and expenses. W&R recognizes that
such payments are at its risk and that this Agreement may be terminated or not
continued as hereinafter provided without the payment to it of any further
distribution fees or service fees whatsoever and without the payment of any
penalty. The contingent deferred sales charges, if any, shall, however, be
payable to W&R with respect to all subject sales made prior to the termination
of this Agreement.
E. W&R shall at least quarterly provide to the Company's board of
directors a written report with respect to each Fund or Class, as applicable, of
the amounts of the distribution and/or service fees expended and the purposes
for which these expenditures were made. W&R shall in addition furnish to the
board of directors of the Company such information as may be requested or as may
be necessary to an informed determination by the directors of whether or not the
directors should continue the Company's Plan(s) and continue this Agreement and
to determine whether there is reasonable likelihood that the Plan(s) and this
Agreement will benefit the Company and its shareholders affected by such
Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and each
person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold harmless
W&R and any such controlling person from and against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, under any other statute, at common law
or otherwise, and to reimburse the underwriter and such controlling persons, if
any, for any legal or other expenses (including the cost of any investigation
and preparation) reasonably incurred by them or any of them in connection with
any litigation whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any prospectus or any amendment
thereof or supplement thereto or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that this indemnity agreement shall not apply to amounts paid in settlement of
any such litigation if such settlement is effected without the consent of the
Company or to any such losses, claims, damages, liabilities or litigation
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or prospectus or any
amendment thereof or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon information furnished in writing
to the Company by W&R for inclusion in any registration statement or any
prospectus or any amendment thereof or supplement thereto. W&R and each such
controlling person shall promptly, after the complaint shall have been served
upon W&R or such controlling person in any litigation against W&R or such
controlling person in respect of which indemnity may be sought from the Company
on account of its agreement contained in this paragraph, notify the Company in
writing of the commencement thereof. The omission of W&R or such controlling
person so to notify the Company of any such litigation shall relieve the Company
from any liability which it may have to W&R or such controlling person on
account of the indemnity agreement contained in this paragraph but shall not
relieve the Company from any liability which it may have to W&R or controlling
person otherwise than on account of the indemnity agreement contained in this
paragraph. In case any such litigation shall be brought against W&R or any such
controlling person and the underwriter or such controlling person shall notify
the Company of the commencement thereof, the Company shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense but such defense shall be conducted by counsel of
good standing and satisfactory to W&R or such controlling person or persons,
defendant or defendants in the litigation. The indemnity agreement of the
Company contained in this paragraph shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of W&R or any such
controlling person and shall survive any delivery of shares of the Company. The
Company agrees to notify W&R promptly of the commencement of any litigation or
proceeding against it or any of its officers or directors of which it may be
advised in connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the agreement in
Section A of this article, insofar as it constitutes a basis for reimbursement
by the Company for liabilities (other than payment by the Company of expenses
incurred or paid in the successful defense of any action, suit or proceeding)
arising under the Securities Act, shall not extend to the extent of any interest
therein of any person who is an underwriter or a partner or controlling person
of an underwriter within the meaning of Section 15 of the Securities Act or who,
at the date of this Agreement, is a director of the Company, except to the
extent that an interest of such character shall have been determined by a court
of appropriate jurisdiction the question of whether or not such interest is
against public policy as expressed in the Securities Act.
C. W&R agrees to indemnify and hold harmless the Company and its
directors and such officers as shall have signed any registration statement from
and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such directors or officers may become subject
under the Securities Act, under any other statute, at common law or otherwise,
and will reimburse the Company or such directors or officers for any legal or
other expenses (including the cost of any investigation and preparation)
reasonably incurred by it or them or any of them in connection with any
litigation, whether or not resulting in any liability insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
which statement or omission was made in reliance upon information furnished in
writing to the Company by W&R for inclusion in any registration statement or any
prospectus, or any amendment thereof or supplement thereto, or which statement
was made in, or the alleged omission was from, any advertising or sales
literature (including any reports to shareholders used as such) which relate to
the Company.
W&R shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. The Company and
its directors and such officers, defendant or defendants, in any such litigation
shall, promptly after the complaint shall have been served upon the Company or
any such director or officer in any litigation against the Company or any such
director or officer in respect of which indemnity may be sought from W&R on
account of its agreement contained in this paragraph, notify W&R in writing of
the commencement thereof. The omission of the Company or such director or
officer so to notify the underwriter of any such litigation shall relieve W&R
from any liability which it may have to the Company or such director or officer
on account of the indemnity agreement contained in this paragraph, but shall not
relieve W&R from any liability which it may have to the Company or such director
or officer otherwise than on account of the indemnity agreement contained in
this paragraph. In case any such litigation shall be brought against the
Company or any such officer or director and notice of the commencement thereof
shall have been so given to W&R, W&R shall be entitled to participate in (and,
to the extent that it shall wish, to direct) the defense thereof at its own
expense, but such defense shall be conducted by counsel of good standing and
satisfactory to the Company. The indemnity agreement of W&R contained in this
paragraph shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company and shall survive any delivery
of shares of the Company. W&R agrees to notify the Company promptly of the
commencement of any litigation or proceeding against it or any of its officers
or directors or against any such controlling person of which it may be advised,
in connection with the issue and sale of the Company's shares.
D. Notwithstanding any provision contained in this Agreement, no
party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Company or its security holders to which
they would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of their duties or by reason of their
reckless disregard of their obligations and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from acting as
underwriter and/or dealer for any other mutual fund, from engaging in any other
aspects of the securities business, whether or not such may be deemed in
competition with the sale of shares of the Company, and to carry on any other
lawful business whatsoever.
B. Except as expressly provided in Article V and hereinabove, the
agreements herein set forth have been made and are made solely for the benefit
of the Company and W&R, and the persons expressly provided for in Article V,
their respective heirs and successors, personal representatives and assigns, and
except as so provided, nothing expressed or mentioned herein is intended or
shall be construed to give any person, firm or corporation other than the
Company, W&R and the persons expressly provided for in Article V any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
representation, warranty or agreement herein contained. Except as so provided,
the term "heirs, successors, personal representatives and assigns" shall not
include any purchaser of shares merely because of such purchase.
C. This Agreement shall continue in effect, unless terminated as
hereinafter provided, for a period of one (1) year and thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to the Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) or any such party and who have no direct or indirect financial
interest in the operation of any Plan or any agreement relating to that Plan
(hereafter the "Plan directors"), cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by W&R at
any time without penalty upon giving the Company sixty (60) days' written notice
(which notice may be waived by the Company) and may be terminated by the Company
at any time without penalty upon giving W&R sixty (60) days' written notice
(which notice may be waived by W&R), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Plan
directors, or by the vote of a majority (as defined in the Investment Company
Act of 1940) of the outstanding voting securities of a Fund with respect to that
Fund. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940.
D. This Agreement shall be governed and construed in accordance with
the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers and their corporate seals to be
affixed as of the day and year first above written.
United Municipal High Income Fund, Inc.
By:_____________________________
Sharon K. Pappas, Vice President
and Secretary
ATTEST:
By:_____________________
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By:____________________________
Robert L. Hechler, President
ATTEST:
By:_____________________
Sharon K. Pappas, Secretary
<PAGE>
EX-99.B8-mhca
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Between
UNITED MISSOURI BANK, n.a.
and
UNITED MUNICIPAL HIGH INCOME FUND, INC.
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposit
2.13 Foreign Exchange Transactions
2.14 Securities Loan
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality
Appendices
Appendix "A"
Appendix "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 26th day of November, 1991 between United
Municipal High Income Fund, Inc. (the "Fund") and United Missouri Bank, n.a.
(the "Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as may
be required by the applicable provisions of the Internal Revenue Code, the laws
of any State or territory of the United States and the laws of any jurisdiction
in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a)
cash, certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national securities exchange of which the Custodian is a member; or (c) credit
to the Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , a "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however, the
Custodian shall promptly notify the Fund in writing of any intent to exercise a
right of set-off against Assets hereunder and shall not exercise any such right
of set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice of intent to
exercise a right of set-off), any Overdraft, together with all accrued interest
thereon. Notwithstanding the provisions of any applicable law, including,
without limitation, the Uniform Commercial Code, the only rights or remedies
which the Custodian is entitled to with respect to Overdrafts is the right of
set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined) in
accordance with this Article IV. For purposes of this Agreement, all Domestic
Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and Interim Sub-
Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United States
of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
and qualifications of any proposed Foreign Sub-Subcustodian, and (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of the
Fund shall be listed on the Subcustodian List. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a proposed investment
which is to be held in a country in which no Foreign Sub-Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian or any Domestic Subcustodian to effect the appropriate arrangements
with a proposed Foreign Sub-Subcustodian, including obtaining approval as
provided in this Section 4.02(a). In connection with the appointment of any
Foreign Sub-Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a sub-subcustodian agreement with the Foreign Sub-
Subcustodian in form and substance approved by the Fund, provided that the
agreement shall, in all events, comply with the provisions of the 1940 Act and
the rules and regulations thereunder, and the terms and provisions of this
Agreement. The Custodian shall not and shall cause any Domestic Subcustodian
not to consent to the amendment of any sub-subcustodian agreement entered into
with a Foreign Sub-Subcustodian, or agree to any changes thereunder, or waive
any rights under such agreement, except upon prior approval pursuant to Special
Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which no Foreign Sub-Subcustodian is authorized to act, the Custodian
shall, or shall cause the Domestic Subcustodian to, promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing of the unavailability of an approved Foreign
Sub-Subcustodian in such country; and upon the receipt of Special Instructions,
the Custodian shall, or shall cause the Domestic Subcustodian to, appoint or
approve any Person (as hereinafter defined) designated by the Fund in such
Special Instructions, to hold such security or other Asset. (Any Person
appointed or approved as a sub-subcustodian pursuant to this Section 4.02(b) is
hereinafter referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its use
of such entities with respect to the Fund, in accordance with the termination
provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to open-
end management investment companies under the provisions of the 1940 Act; and
(ii) the execution, delivery and performance by the Custodian of this Agreement
are (w) within its power (x) have been duly authorized by all necessary action,
and (y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The Custodian acknowledges receipt of a copy of the
Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought;
provided, however, the Subcustodian List may be amended from time to time by the
Fund's execution and delivery to the Custodian of an amended Subcustodian List,
in which case such amendment shall take effect immediately upon execution by the
Custodian.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
United Municipal High Income Fund, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
United Missouri Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
UNITED MUNICIPAL HIGH INCOME FUND, INC. UNITED MISSOURI BANK, n.a.
By: /s/Rodney O. McWhinney By: /s/David F. Larrabee
Name: Rodney O. McWhinney Name: David F. Larrabee
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
UNITED MUNICIPAL HIGH INCOME FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of September 5, 1995
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, Brazil BOVESPA, CLC
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 Bank KASSENVEREIN
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing
Company
India Citibank, N.A., Bombay None
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank Mexico, s.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
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
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
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED MUNICIPAL HIGH INCOME FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of January 1, 1995
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 Depositary
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:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(c)For each futures/options contract written 25.00
(d)For each principal/interest paydown 6.00
(e)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 charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note:Fee Schedule eliminates sub-custodian asset and transaction-based out-of-
pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits
(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:
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
D. Euroclear Eligible Issues:
(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 UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-mhssa
SHAREHOLDER SERVICING AGREEMENT
(as Amended and Restated)
THIS AGREEMENT, made as of the 1st day of November, 1992, by and between
UNITED MUNICIPAL HIGH INCOME FUND, INC., and Waddell & Reed Services Company
(the "Agent"), as amended and restated as of January 30, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder and includes
shares subject to instructions by the shareholder with respect to periodic
redemptions and/or reinvestment in additional shares of any dividends payable on
said shares. An account does not include shares held under a plan or program
issued by a unit investment trust for which Waddell & Reed, Inc. was or is the
depositor or sponsor;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement;
(iv) costs for special reports or information furnished on request pursuant to
this Agreement and not specifically required by the Agent by Paragraph 3 of this
Agreement; and (v) reasonable costs and expenses incurred by the Agent in
connection with the duties of the Agent described in Paragraph (3)(1)(i). In
addition, the Company agrees to promptly pay over to the Agent any fees or
payment of charges it may receive from a shareholder for services furnished to
the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's facilities in accordance with reasonable procedures at the
frequency necessary to assure proper administration of the Agreement. The Agent
will cooperate with the Company's auditors or representatives of appropriate
regulatory agencies and furnish all reasonably requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED MUNICIPAL HIGH INCOME FUND, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
High Income protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.0208 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
High Income or
Name of High Income Policy No. Insurer
Investment Company 87015195B ICI Mutual
Blanket High Income Form Insurance
Company
Fidelity $17,500,000
Audit Expense 500,000
On Premises 17,500,000
In Transit 17,500,000
Forgery or Alteration 17,500,000
Securities 17,500,000
Counterfeit Currency 17,500,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 17,500,000
Total Limit 17,500,000
Directors and Officers/ 87015195D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument High Income (Mail Loss) 30S100639551
Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
Probate Waiver 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-mhappca
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office Stamp
Shawnee Mission, KS 66201-9217 APPLICATION
I (We make application for an account to be established as follows:
________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: ________
Date Transmitted: _____
________________________________________________________________________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other:___________________________
(Use this section for
Retirement Plans with
Custodians other than
Fiduciary Trust Co.)
________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new, Plan tear out
page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457 ____________________________________________
(If billing is required, Employer's Name (Do not Abbreviate)
attach form #CUF1417) _____________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________ Amt $______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: _____________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
________________________________________________________________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT:
(Must have same ownership) [][][][][][][]-[]
Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
_________________________
_______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
_________________________ _____________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
____________________________ ______________ ________ ____/_______-______
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS Make check payable to Waddell & Reed
Code Code
621-Income 626-Gold & Government
622-Science and Technology 627-Continental Income
623-Accumulative 628-High Income
624-Bond 629-Vanguard
625-International Growth 630-New Concepts
Code Code
634-High Income II 760-Municipal Bond (not available
680-Retirement Shares for Ret. Plans)
684-Asset Strategy 762-Municipal High Income (not
750-Cash Management available for Ret. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
Fund Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
Total $_________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
$_________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[][][] $__________ $__________ 19_____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
______ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This Purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671) [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___,___,___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time: _______________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_______________________________________________
Name & Address of Bank/Broker/Savings & Loan
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_______________________________________________
Name of Its Commercial Bank
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
___________________________________________________________________________
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents ___
4. Occupation: _________________________ 5. Employer Name: _____________________
6. Employer Address: ___________________________________________________________
7. Savings and Liquid Assets: $___ 11. Investment Objectives (mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $___ [] Retirement Savings
9. Net Worth (Assets minus liabilities): $___ [] Children's College []Income
10. Are you associated with an NASD Member? Yes ___ No ___ [] Other
needs/goals
(specify in
Special
Remarks)
12. Special Remarks/Considerations: _______________________________________
___________________________________________________________________________
13. Residence Address: ____________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus of the Funds selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct and
(strike the following if not true) that I am not subject to tax withholding
because I have not been notified by the IRS that I am subject to withholding
as a result of a failure to report all interest and dividends or I was
subject to withholding and the IRS has notified me that I am no longer
subject to withholding.
* Since a major portion of the sales charge for Variable Investment Programs
is deducted from payments made in the first year, I understand that a loss
will undoubtedly result if I withdraw or discontinue payments during the
early years of the program.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ______________________________
Date Representative Signature
[OSJ: (H.O.USE) ] [][][][][]
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the
Custody Agreement:
By:____________________________________________
Fiduciary Trust Company Authorized Signature
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Partnership Confidential Questionnaire (CRP1186)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications _______________________________________
[] Check enclosed # _________________________________
[] Other: ___________________________________________
CAP0001(11/94)
EX-99.B9-mhappcy
UNITED FUND GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
INSTRUCTIONS You can open an account by calling 1-800-366-2520 or by mailing
an application and check to Waddell & Reed, Inc., 6300 Lamar, Shawnee Mission,
Kansas 66202 Date:
Fill in where applicable 6300 Lamar, Shawnee Mission, Kansas 66202.
Account Name ___________________________________________________________________
Tax I.D. No. _________________________________
Registration
Name _______________________________________________________________or
______________________________________________________________________
Number and Street _____________________________________________________
Soc. Sec. No. _________________________________
FULL ADDRESS
Please fill in completely, including telephone number.
City______________State _________Zip Code _________
Telephone _________________________________________________ Citizen of: []
U.S. [] Other (specify) ___________________________
[] Please establish an account(s) as follows:
INITIAL Dividends and capital
INVESTMENT(S): gains to be paid in:*
Account No. Assigned _________________Amount Shares Cash
FUND(S) TO BE PURCHASED
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
Total amount $________________ *If no election is checked,
all payments will be made in shares.
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions
received by telephone to have amounts withdrawn from my organization's
account(s) in the Portfolio(s) and wired or mailed to the bank account designed
below.
I (We) hereby ratify any such instructions and agree that none of the Fund(s),
Waddell & Reed, Inc. nor Waddell & Reed Services will be liable for any loss,
liability, cost or expense for acting upon such instructions in accordance with
the procedures set forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank should be a member of the Federal
Reserve System.
SERVICE
Please fill in completely.
Name of Bank
_____________________________________________________________________
Bank A.B.A. No. _________________________
Number and Street
____________________________________________________________________________
City ___________________________________________________ State
_________________________________ Zip Code ___________________
Account Name __________________________________________________________ Account
No. ________________________________________
TELEPHONE This account will be established with a telephone exchange
EXCHANGE privilege which will authorize Waddell & Reed Services Co. to act upon
PRIVILEGE instructions by telephone to exchange Fund shares held in my (our)
account for shares of other Funds eligible under the Exchange Privilege to be
held in an identically registered account(s) (see Prospectus for details),
unless you check the box on the left to indicate your rejection of this service.
Check box at the right
if this service is NOT requested. I (We) hereby ratify any instructions given
pursuant to this authorization and agree that none of the funds, Waddell & Reed,
Inc. nor Waddell & Reed Services Company will be liable for any loss, liability,
cost or expense for acting upon instructions believed to be genuine.[]
Under penalties of perjury, I (we) certify that the number shown on this
application is the correct Tax Identification Number of my organization (or my
correct Social Security Number if the account is for my personal use) and that
the organization is not (I am not) subject to backup withholding either because
if it has not (I have not) been notified that it is (I am) subject to backup
withholding as a result of a failure to report all interest, dividends or
capital gains, or the Internal Revenue Service has notified it (me) that it is
no (I am no) longer subject to backup withholding. The undersigned certify that
I (we) have full authority and legal capacity to purchase shares of the Fund and
affirm that I (we) have received a current Prospectus and agree to be bound by
its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate resolution on
reverse side.
1.___________________ 2. ___________________________
Authorized Signature Authorized Signature
_____________________ ____________________________
Title Title
3. _________________ 4. ___________________________
Authorized Signature Authorized Signature
____________________ ____________________________
Title Title
.
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. AFFILIATES AND ITS CUSTODIAN
BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY WRITTEN
NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he is duly elected (title)
__________________________________________ of (corporate name)
_________________________ a corporation organized under the laws of (the State
of) __________________________ and that the following is a true and correct copy
of a resolution adopted by the corporation's Board of Directors at a meeting
duly called and held on (date) ________________________________.
RESOLVED, that any (enter number required to act) _________ of the corporation's
following identified officers (enter titles only)
____________________________________
____________________________________________________________________ are
authorized to execute investment applications with the United Fund Group/W&R
Funds and any Fund investment accounts in the name of the corporation; to invest
such funds of the corporation in shares issued by one or more United Fund/W&R
Funds ("Fund Shares"), as they deem appropriate; and to issue instructions
(including the execution of money fund drafts, if applicable) pertaining to the
redemption, exchange or transfer of Fund Shares.
FURTHER RESOLVED, that each shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals occupy the
offices designated. (Attach additional list if necessary.)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
___________________________________________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes: _______________________________________________
Name and Title
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Annual Income: $_______________________________ 2. Taxable Income:
$________
3. Total Investment Assets: ________________________________________________
4. Other Assets: _______________________________________
5. Net Worth (Assets minus Liabilities):
________________________________________________________________________________
________________
6. Investment Objectives (mark all that apply)6. [] Retirement Needs h
Reserves6. [] Other needs/goals (specify in Special Remarks)
7. Special Remarks/Considerations:
________________________________________________________________________________
________________________________
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
Obtain account number from the Fund. Complete Purchase Application
Telephone toll free: 1-800-366-2520 Make check payable to Waddell & Reed, Inc.
Instruct bank to transmit investment by Federal funds wire to: u
Mail application and check to:
United Missouri Bank Waddell & Reed Services
Co.,Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _____________________________________
Fund Acct # _______________________________
FUND CODES
737 - United Accumulative - Class Y 763 - United Municipal High
Income - Class Y
785 - United Asset Strategy - Class Y 748 - United New Concepts -
Class Y
738 - United Bond - Class Y 783 - United Retirement Shares
- - Class Y
745 - United Continental Income - Class Y 736 - United Science and
Technology - Class Y
744 - United Gold & Government - Class Y 747 - United Vanguard -Class Y
754 - United Government Securities - Class Y 716 - W&R Asset Strategy -
Class Y
746 - United High Income - Class Y 715 - W&R International Growth
- - Class Y
749 - United High Income II - Class Y 712 - W&R Growth - Class Y
735 - United Income - Class Y 713 - W&R Limited-Term Bond -
Class Y
739 - United International Growth - Class Y 714 - W&R Municipal Bond -
Class Y
761 - United Municipal Bond - Class Y 711 - W&R Total Return Class Y
EX-99.B9-mhavapp
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P.O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
________________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
________________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
________________________________________________________________________________
RETIREMENT PLAN
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant* (Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant* (Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name _____________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
________________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
________________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction Authorization
(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain CR=Cash Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vice
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service from Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at net
asset value will be permitted provided the new registration maintains owner-
ship by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
________________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
________________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement Plan
and Custody Agreement and agree to the terms and conditions set forth therein,
and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am wait-
ing for a number to be issued to me) and (strike the following if not true)
that I am not subject to backup withholding because (a) I am exempt fro backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to back-
up withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________ _______________________________________
Name of Waddell & Reed Employee or Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment as
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
EX-99.B9-mhasa
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the 1st day of August, 1990, by and between
United Municipal High Income Fund, Inc. (the "Fund"), a Maryland corporation and
Waddell & Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting Services
Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting Services
Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services Agent
for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this Paragraph B
as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of the
Fund's attorneys and independent accountants, to prepare or assist the Fund's
attorneys and independent accountants to prepare, as may be applicable, reports
required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be required by rules and regulations of the Securities and
Exchange Commission adopted under Section 31(a) of the Investment Company Act of
1940 as amended (the "Act").
(3) Agent shall cause the subject records of the Fund to be
maintained and preserved pursuant to the requirements under the Act.
(4) In pricing daily the value of shares of the Fund, Agent may make
arrangements to and obtain the value of portfolio securities from pricing
services or quotation services that are compensated by the Fund directly or
indirectly through the placement of portfolio transactions with broker-dealers
who provide such valuation or quotation services to the Agent.
(5) The Agent shall maintain duplicate copies of, or information from
which copies of, the records necessary to the preparation of the Fund's
financial statements and valuations of its assets may be reconstructed. Such
duplicate copies or information shall be maintained at a location other than
where the Agent performs its normal duties hereunder so that in the event the
records established and maintained pursuant to the foregoing provisions of this
Section B are damaged or destroyed, the Agent shall be able to provide the
bookkeeping and accounting services and assistance specified in this Section B.
(6) In the event any of the Agent's facilities or equipment necessary
for the performance of its duties hereunder is damaged, destroyed or rendered
inoperable by reason of fire, vandalism, riot, natural disaster or otherwise,
Agent will use its best efforts to restore all services hereunder to the Fund
and will not seek from the Fund additional compensation to repair or replace
damaged or destroyed facilities or equipment. The Agent shall also make and
maintain arrangements for emergency use of alternative facilities for use in the
event of the aforesaid destruction of or damage to its facilities.
C. Compensation of the Agent.
The Fund agrees to pay to the Agent for its services under this
Agreement, an amount payable on the first day of the month as shown on the
following table pertinent to the average daily net assets of the Fund during the
prior month:
Fund's Average Daily Net Asset for Monthly Fee
the Month
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,333
$200 - $ 350 million $ 4,167
$350 - $ 550 million $ 5,000
$550 - $ 750 million $ 5,833
$750 - $ 1.0 billion $ 7,083
$1.0 billion and over $ 8,333
D. Right of Fund to Inspect, and Ownership of Records.
The Fund will have the right under this Agreement to perform on-site
inspection of records and accounts, and audits directly pertaining to the Fund's
accounting and portfolio records maintained by the Agent hereunder at the
Agent's facilities. The Agent will cooperate with the Fund's independent
accountants or representatives of appropriate regulatory agencies and furnish
all reasonably requested records and data. Agent acknowledges that these
records are the property of the Fund, and that it will surrender to the Fund all
such records promptly on request.
E. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel, facilities and equipment as well as the accurate performance of all
services to be performed by it hereunder within, at a minimum, the time
requirements of any applicable statutes, rules or regulations and in conformity
with the Fund's Articles of Incorporation, Bylaws and representations made in
the Fund's current registration statement as filed with the Securities and
Exchange Commission.
The Agent shall not be responsible for, and the Fund agrees to
indemnify the Agent for, any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Fund hereunder; (ii) for any delay, error or omission by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties (except with respect to the Agent's employees),
fire, mechanical breakdown beyond its control, flood catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply; or (iii) for any action taken or omitted to be
taken by the Agent in good faith in reliance on the accuracy of any information
provided to it by the Fund or its directors or in reliance on any advice of
counsel who may be internally employed counsel or outside counsel for the Fund
or advice of any independent accountant or expert employed by the Fund with
respect to the preparation and filing of any document with a governmental agency
or authority.
In order for the rights to indemnification to apply, it is understood
that if in any case the Fund may be asked to indemnify or hold the Agent
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend the
Agent against any claim which may be the subject of this indemnification and, in
the event that the Fund so elects, it will so notify the Agent, and thereupon
the Fund shall take over complete defense of the claim, and the Agent shall
sustain no further legal or other expenses in such situation for which the Agent
shall seek indemnification under this paragraph. The Agent will in no case
confess any claim or make any compromise in any case in which the Fund will be
asked to indemnify the Agent except with the Fund's prior written consent.
F. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one (1) year and from year-to-year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended, or a new agreement covering the same topics between the Fund and the
Agent may be entered into only if the terms of this Agreement, such continuance,
the terms of such amendment or the terms of such new agreement have been
approved by the Board of Directors of the Fund, including the vote of a majority
of the directors who are not "interested persons," as defined in the Act, of
either party to this Agreement, the agreement to be continued, amendment or new
agreement, cast in person at a meeting called for the purpose of voting on such
approval. Such a vote is hereinafter referred to as a "disinterested director
vote."
Any disinterested director's vote shall, in favor of continuance,
amendment or execution of a new agreement, include a determination that (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund and its shareholders; (ii) the services to be performed
under the Agreement, the Agreement as amended, new agreement or agreement to be
continued, are services required for the operation of the Fund; (iii) the Agent
can provide services, the nature and quality of which are at least equal to
those provided by others offering the same or similar services; and (iv) the
fees for such services are fair and reasonable in the light of the usual and
customary charges made by others for services of the same nature and quality.
Nothing herein contained shall prevent any disinterested director vote
from being conditioned on the favorable vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Fund.
G. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Fund at least one hundred twenty (120) days' written
notice (which notice may be waived by the Fund) and may be terminated by the
Fund at any time without penalty upon giving the Agent at least sixty (60) days'
written notice (which notice may be waived by the Agent), provided that such
termination by the Fund shall be directed or approved by the vote of a majority
of the Board of Directors of the Fund in office at the time or by the vote of
the holders of a majority (as defined in or under the Act) of the outstanding
shares of the Fund.
(2) On termination, the Agent will deliver to the Fund or its
designee all files, documents and records of the Fund used, kept or maintained
by the Agent in the performance of its services hereunder, including such of the
Fund's records in machine readable form as may be maintained by the Agent, as
well as such summary and/or control data relating thereto used by or available
to the Agent.
(3) In addition, on such termination or in preparation therefore at
the request of the Fund and at the Fund's expense, the Agent shall provide, to
the extent that its capabilities then permit, such documentation, personnel and
equipment as may be reasonably necessary in order for a new agent or the Fund to
fully assume and commence to perform the agency functions described in this
Agreement with a minimum disruption to the Fund's activities.
(4) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940 and the rules and
regulations thereunder of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date and year first above written.
United Municipal High Income Fund, Inc.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
ATTEST:
By:/s/Sharon K. Pappas
- ----------------------
Sharon K. Pappas, Secretary
WADDELL & REED SERVICES COMPANY
By: /s/Robert L. Hechler
------------------------
Robert L. Hechler
ATTEST:
By:/s/Rodney O. McWhinney
- -------------------------
Rodney O. McWhinney, Secretary
EX-99.B9-mhsaa
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 16th day of January, 1996, by
and between United Municipal High Income Fund, Inc. (the "Company") and Waddell
& Reed, Inc. ("W&R").
WHEREAS, the Company and W&R have entered into a certain Service Agreement dated
October 1, 1993, as amended September 1, 1994, which the parties now desire to
amend to clarify that the Service Agreement, as amended, relates solely to the
Class A shares of the Company, as such shares may now or in the future exist;
AND WHEREAS, the Company has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan applicable to Class A shares.
NOW THEREFORE, it is mutually agreed as follows:
1. It is understood that the Service Agreement, as previously amended, is
applicable only with respect to the Class A shares of the Company, as such
shares may now or in the future exist.
2. The Company represents that this Amendment has been approved by vote of the
Board of Directors of the Company and of the directors of the Company who
are not interested persons of the Company 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 approval of this Amendment.
3. 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.
UNITED MUNICIPAL HIGH INCOME FUND, INC.
By:
------------------------
Sharon K. Pappas
Waddell & Reed, Inc.
By:
-----------------------
Robert L. Hechler
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
November 3, 1995, relating to the financial statements and financial highlights
of United Municipal High Income Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Class A Shares Prospectus and the Class Y Shares Prospectus which constitute
part of this Registration Statement. We also consent to the reference to us
under the heading "Custodial and Auditing Services" in such Statement of
Additional Information, to the reference to us under the heading "Financial
Highlights" in the Class A Shares Prospectus and to the references to us under
the heading "Independent Accountants" in the Class A Shares Prospectus and the
Class Y Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
December 1, 1995
EX-99.B15-mhspca
SERVICE PLAN
FOR CLASS A SHARES
(Adopted on October 1, 1993
and Restated on January 30, 1996)
This Plan is adopted by United Municipal High Income Fund, Inc. (the "Company"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") to provide for payment by the Company of certain expenses in connection
with the provision of personal services to the Company's Class A shareholders
and/or maintenance of its Class A shareholder accounts. Payments under the Plan
are to be made to Waddell & Reed, Inc. ("W&R") which serves as the principal
underwriter for the Company under the terms of a written Service Agreement
("Agreement") separate and apart from the Underwriting Agreement pursuant to
which W&R offers and sells the shares of the Company.
Service Fee
The Company is authorized to pay to W&R an amount not to exceed .25 of 1% of the
average net assets of the Class A shares as a "service fee" to finance
shareholder servicing by W&R, its affiliated companies and broker-dealers who
may sell Class A shares and to encourage and foster the maintenance of Class A
shareholder accounts. The amounts shall be payable to W&R monthly or at such
other intervals as the board of directors may determine to reimburse W&R for
costs and expenses incurred.
NASD Definition
For purposes of this Plan the "service fee" shall be considered a payment made
by the Company for personal service and/or maintenance of Class A shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, Inc. ("NASD"), provided, however, if the NASD adopts a definition of
"service fee" for purposes of Article III, Section 26(b) of its Rules of Fair
Practice that differs from the definition of "service fee" as presently used, or
if the NASD adopts a related definition intended to define the same concept, the
definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the service fee paid or payable to it under this Plan and the
purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective when it has been approved by a vote of at least
a majority of the outstanding Class A voting securities of the Company (as
defined in the Act) and by a vote of the board of directors of the Company and
of the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purpose of voting on such Plan. The initial Agreement shall become effective
the effective date of this Plan, provided, however, that it has been approved in
accordance with the requirements of Rule 12b-1 under the Act.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year-to-year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of a Plan by the directors and independent directors.
Director Consideration
In considering whether to adopt, implement or continue this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to furnish,
such information as may be reasonably necessary to an informed determination of
whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Company or by a vote of the majority of the
outstanding Class A voting securities of the Company without penalty. On
termination, the payment of all service fees shall cease, and the Company shall
have no obligation to W&R to reimburse it for any cost or expenditure it has
made or may make to service Class A shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
personal service and/or maintenance of shareholder accounts without approval of
the Class A shareholders, and all material amendments of this Plan must be
approved in the manner prescribed for the adoption of the Plan as provided
hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
Records
Copies of this Plan, the Agreement and reports made pursuant to this Plan shall
be preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B18-mhmcp
UNITED MUNICIPAL HIGH INCOME FUND, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for United Municipal High Income Fund, Inc. ("Fund"). This
multiple class structure was approved by the Board of Directors of the Fund on
February 8, 1995, under an order of exemption issued by the Securities and
Exchange Commission on January 11, 1995. Subsequent to such approval, Rule 18f-
3 under the 1940 Act was adopted. It was determined that the Fund operate under
Rule 18f-3, and this Plan was adopted pursuant to Rule 18f-3. This Plan
describes the classes of shares of stock of the Fund -- Class A shares and Class
Y shares -- offered to the public on or after January 30, 1996 ("Implementation
Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 4.25% of the amount
invested and declines to 0% based on discounts for volume purchases. The
initial sales charge is waived for certain eligible purchasers.
Class A shares also will be subject to a service fee charged pursuant to a
Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1")
that provides for a maximum fee of .25% of the average annual net assets of the
Class A shares of the Fund. All of the shares of the Fund issued pursuant to a
Fund prospectus effective prior to the Implementation Date and that are
outstanding on the Implementation Date will be designated as Class A shares.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and without a 12b-1 fee. Class Y shares are designed for institutional
investors and will be available for purchase by: (i) participants of employee
benefit plans established under section 403(b) or section 457, or qualified
under section 401, including 401(k) plans, of the Internal Revenue Code of 1986
("Code"), when the plan has 100 or more eligible employees and holds the shares
in an omnibus account on the Fund's records; (ii) banks, trust institutions and
investment fund administrators investing for their own accounts or for the
accounts of their customers where such investments for customer accounts are
held in an omnibus account on the Fund's records; (iii) government entities or
authorities and corporations whose investment within the first twelve months
after initial investment is $10 million or more; and (iv) certain retirement
plans and trusts for employees and sales representatives of Waddell & Reed, Inc.
and its affiliates.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class A shares
and Class Y shares of the Fund differ with respect to the applicable shareholder
servicing fees. Class A shares pay a monthly shareholder servicing fee of
$1.0208 for each Class A shareholder account which was in existence during the
prior month, plus $0.30 for each Class A account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
For any Fund, these expenses may, but are not required to, be directly
attributed and charged to a particular Class. The shareholder servicing fees
and other expenses listed above that are attributed and charged to a particular
Class are borne on a pro rata basis by the outstanding shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class A shares of a Fund may be exchanged for corresponding shares of any
other fund in the United Group of Mutual Funds.
Class Y shares may be exchanged for Class Y shares of any other fund in the
United Group of Mutual Funds.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the Fund's multiple class structure.
December 1, 1995
Effective: January 30, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED SEPTEMBER 30, 1995 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-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 362,729,467
<INVESTMENTS-AT-VALUE> 378,329,763
<RECEIVABLES> 8,077,480
<ASSETS-OTHER> 12,853
<OTHER-ITEMS-ASSETS> 5,259
<TOTAL-ASSETS> 386,425,355
<PAYABLE-FOR-SECURITIES> 2,076,213
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,544,213
<TOTAL-LIABILITIES> 3,620,426
<SENIOR-EQUITY> 72,674,203
<PAID-IN-CAPITAL-COMMON> 297,551,298
<SHARES-COMMON-STOCK> 72,674,203
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,020,868)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,600,296
<NET-ASSETS> 382,804,929
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,187,810
<OTHER-INCOME> 0
<EXPENSES-NET> (2,760,491)
<NET-INVESTMENT-INCOME> 24,427,319
<REALIZED-GAINS-CURRENT> (2,721,891)
<APPREC-INCREASE-CURRENT> 15,084,134
<NET-CHANGE-FROM-OPS> 36,789,562
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,427,319)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (1,673,583)
<NUMBER-OF-SHARES-SOLD> 9,693,367
<NUMBER-OF-SHARES-REDEEMED> (8,253,031)
<SHARES-REINVESTED> 3,868,221
<NET-CHANGE-IN-ASSETS> 37,643,073
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,860,352
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,760,491
<AVERAGE-NET-ASSETS> 361,929,732
<PER-SHARE-NAV-BEGIN> 5.12
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.27
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
