<PAGE>
File No. 2-77329
File No. 811-3458
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. 21
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 18
UNITED GOVERNMENT SECURITIES FUND, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Overland Park, Kansas City 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on June 30, 1996 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
===========================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f(a)(1). Notice for the Registrant's
fiscal year ending March 31, 1996 was filed on or about May 24, 1996.
<PAGE>
UNITED GOVERNMENT SECURITIES 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) ..................... About the Management and Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... Expenses; About the Management and Expenses of the
Fund
(g) ..................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... About Your Account
(f) ..................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account; About the
Management and Expenses of the Fund
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
<PAGE>
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- -------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated June 30, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
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 Government Securities Fund, Inc.
Class A Shares
This Fund seeks to provide as high a current income as is consistent with safety
of principal by investing in a portfolio of debt securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. Neither the United
States, nor any agency of the United States, has guaranteed, sponsored or
approved the Fund or its shares.
This Prospectus describes one class of shares of the Fund -- Class A shares.
Prospectus
June 30, 1996
UNITED GOVERNMENT SECURITIES FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND......................................3
EXPENSES........................................................5
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE.....................................................8
Explanation of Terms ..........................................8
ABOUT WADDELL & REED............................................9
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....................10
Investment Goal and Principles ...............................10
Risk Considerations ........................................10
Securities and Investment Practices ..........................10
ABOUT YOUR ACCOUNT.............................................18
Ways to Set Up Your Account ..................................18
Buying Shares ................................................19
Minimum Investments ..........................................21
Adding to Your Account .......................................21
Selling Shares ...............................................21
Shareholder Services .........................................24
Personal Service ...........................................24
Reports ....................................................25
Exchanges ..................................................25
Automatic Transactions .....................................25
Dividends, Distributions and Taxes ...........................26
Distributions ..............................................26
Taxes ......................................................27
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................29
WRIMCO and Its Affiliates ....................................30
Breakdown of Expenses ........................................31
Management Fee .............................................31
Other Expenses .............................................32
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United Government
Securities Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United Government Securities Fund, Inc. (the "Fund")
seeks as high a current income as is consistent with safety of principal. The
Fund seeks to achieve this goal by investing in a portfolio of debt securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. See "About the Investment Principles of the Fund" for
further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of the Fund
is the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Risk Considerations: The value of the Fund's investments and the income
generated will vary from day to day, generally reflecting changes in interest
rates. 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 0.41%
12b-1 fees 0.12%
Other expenses1 0.33%
Total Fund operating
expenses2 0.86%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $ 51
3 years $ 69
5 years $ 88
10 years $144
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class A shares of the Fund will
bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater or
lesser than those shown. For a more complete discussion of certain expenses and
fees, see "Breakdown of Expenses."
1Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
2Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
3Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended March 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $5.13 $5.23 $5.44 $5.01 $4.85 $4.76 $4.71 $4.91 $5.70 $6.17
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ... .34 .32 .30 .33 .37 .39 .41 .39 .40 .46
Net realized and unrealized
gain (loss) on
investments ........... .19 (0.10) (0.21) .43 .16 .09 .05 (0.20) (0.60) .04
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .............. .53 .22 .09 .76 .53 .48 .46 .19 (0.20) .50
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends declared
from net investment
income ................ (0.34) (0.32) (0.30) (0.33) (0.37) (0.39) (0.41) (0.39) (0.40) (0.46)
Distribution from
capital gains ......... (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.19) (0.51)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ....... (0.34) (0.32) (0.30) (0.33) (0.37) (0.39) (0.41) (0.39) (0.59) (0.97)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........... $5.32 $5.13 $5.23 $5.44 $5.01 $4.85 $4.76 $4.71 $4.91 $5.70
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ............ 10.48% 4.49% 1.56% 15.62% 11.22% 10.68% 10.06% 4.12% -3.05% 9.36%
Net assets, end
of period (000
omitted) ................ $146,594 $149,533 $176,649 $177,167 $138,753 $118,703 $104,045 $112,684 $146,993 $191,434
Ratio of expenses to
average net assets ...... 0.83% 0.82% 0.75% 0.71% 0.75% 0.80% 0.78% 0.76% 0.77% 0.72%
Ratio of net investment
income to average
net assets .............. 6.34% 6.30% 5.50% 6.29% 7.40% 8.27% 8.55% 8.15% 8.12% 8.15%
Portfolio turnover
rate .................... 63.05% 41.57% 122.62% 81.41% 124.51% 187.55% 257.18% 205.79% 234.57% 240.25%
*On July 31, 1995, the Fund began offering Class Y shares to the public. Fund shares outstanding prior to that date were
designated Class A shares.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and distributions.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may not reflect deduction
of the applicable sales charge or may be for periods other than those required
to be presented or may otherwise differ from standardized total return. Total
return quotations that do not reflect the applicable sales charge will reflect a
higher rate of return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. The Fund's yield
is based on a 30-day period ending on a specific date and is computed by
dividing the Fund's net investment income per share earned during the period by
the Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goal and Principles
The goal of the Fund is to seek as high a current income as is consistent
with safety of principal. The Fund seeks to achieve this goal by investing in a
portfolio of debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities"). There is no
assurance that the Fund will achieve its goal.
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.
The Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
stripped securities and mortgage-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies WRIMCO may employ in
pursuit of the Fund's 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 in which the Fund may invest are
fundamental policies. Unless otherwise indicated, the types of other assets in
which the Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
U.S. Government Securities. 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. The Fund
will invest in securities of agencies and instrumentalities only when WRIMCO is
satisfied that the credit risk is acceptable.
Securities issued or guaranteed by the U.S. Government include a variety of
Treasury securities that differ only in their interest rates, maturities and
dates of issuance. These 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.
The value of the U.S. Government Securities in which the Fund invests will
fluctuate depending in large part on changes in prevailing interest rates. If
these rates go up after the Fund buys a security, the value of the security may
go down; if these rates go down, the value of the security may go up. Changes
in value and yield based on changes in prevailing interest rates may have
different effects on short-term debt obligations than on long-term obligations.
Long-term obligations (which often have higher yields) may fluctuate in value
more than short-term ones. The Fund has no policy limiting the maturity of the
U.S. Government Securities in which it may invest.
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") are among the U.S.
Government Securities in which the Fund may invest. Mortgage-backed securities
may include pools of mortgages, such as collateralized mortgage-backed
securities 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
Ginnie Mae (but not Freddie Mac or Fannie Mae) 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.
Bank Deposits. The Fund may invest in deposits in banks (represented by
certificates of deposit or other evidence of deposit of varying maturities
issued by such banks) to the extent that the principal of such deposits is
insured by the Federal Deposit Insurance Corporation ("Insured Deposits"). Such
insurance (and accordingly, the Fund's investment) is currently limited to
$100,000 per bank; interest earned above that amount is not insured. Insured
Deposits have limited marketability.
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 only invest in stripped
securities that are issued by or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Fund will not invest more than 25% of its
total assets in stripped mortgage-backed securities.
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 has no fundamental policy as to percentage limitations on its
use of options or on the purchase or sale of futures contracts; however, as an
operating policy, the Fund will not invest more than 5% of its total assets in
puts.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right to
buy, and obligates the writer to sell, the underlying investment at the agreed
upon exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying investment at
the agreed upon exercise price during the option period. Purchasers of options
pay an amount, known as a premium, to the option writer in exchange for the
right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into or the option expires.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
and write put and call options (including optional delivery standby commitments)
only on U.S. Government Securities and the options on futures contracts
described below.
As a fundamental policy, calls written by the Fund on U.S. Government
Securities must be covered (i.e., the Fund must own the related investments or
other investments acceptable for escrow arrangements).
As a fundamental policy, the Fund may write puts only if they are listed
on a domestic securities or commodities exchange or quoted on Nasdaq (National
Association of Securities Dealers Automated Quotations system).
The Fund will only write a put when it has determined that 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 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 buy and
sell futures contracts but only those relating to U.S. Government Securities and
options thereon.
The Fund intends to use futures contracts and options thereon only for
purposes of hedging.
Indexed Securities are securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. The
performance of indexed securities depends to a great extent on the performance
of the security, currency, or other instrument to which they are indexed, and
may also be influenced by interest rate changes in the United States and abroad.
At the same time, indexed securities are subject to the credit risks associated
with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
Policies and Restrictions: As a fundamental policy, the Fund may invest
in indexed securities only if they are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. The Fund will not invest more
than 25% of its total assets in indexed securities.
Risks of Derivative Instruments. The use of options, futures contracts and
options on futures contracts, and the investment in indexed securities, stripped
securities and mortgage-backed securities, involve special risks, including (i)
possible imperfect or no correlation between price movements of the portfolio
investments (held or intended to be purchased) involved in the transaction and
price movements of the instruments involved in the transaction, (ii) possible
lack of a liquid secondary market for any particular instrument at a particular
time, (iii) the need for additional portfolio management skills and techniques,
(iv) losses due to unanticipated market price movements, (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction, (vi) incorrect forecasts
by WRIMCO concerning interest rates or currency exchange 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 something that
is not intrinsic to the security itself. The use of derivative instruments for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due
to the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general interest
rate or currency exchange 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 or currency exchange 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 transactions
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 the payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Policies and Restrictions: The Fund may purchase U.S. Government
Securities on a when-issued or delayed-delivery basis or sell them on a delayed-
delivery basis.
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: As a fundamental policy, the Fund will not
enter into a repurchase transaction that will cause more than 10% of its net
assets to be invested in illiquid investments, which include repurchase
agreements not terminable within seven days.
Illiquid Investments. 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.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
only from banks to meet redemptions, for temporary or emergency purposes, but
only up to 10% of its total assets.
As a fundamental policy, the Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's assets.
Lending. Securities loans may be made on a short-term or a long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend
more than 30% of its assets at any one time and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- ----------------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- ----------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- ----------------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- ----------------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
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.
Percent Percent
of of
Size of OfferingAmount
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
$1,000,000 1.75 1.78
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
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. U.S. Government Securities are
generally valued according to prices quoted by a dealer in U.S. Government
Securities that offers a pricing service. Short-term U.S. Government 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 of United Municipal Bond Fund, Inc. or United
Municipal High Income Fund, Inc., with the NAV 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"). Purchases by certain
related persons may be grouped. Additional information and applicable forms are
available from Waddell & Reed account representatives.
Class A shares may be purchased at NAV by the Directors and officers of
the Fund, employees of Waddell & Reed, Inc., employees of their affiliates,
account representatives of Waddell & Reed, Inc. and the spouse, children,
parents, children's spouses and spouse's parents of each such Director, officer,
employee and account representative. Purchases of Class A shares in certain
retirement plans and certain trusts for these persons may also be made at NAV.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at NAV. Shares may also be issued at NAV in a
merger, acquisition or exchange offer made pursuant to a plan of reorganization
to which the Fund is a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment
Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
a letter showing your account number, the account registration and stating
the fund whose shares you wish to purchase. Mail to Waddell & Reed, Inc. at
the address printed on your confirmation or year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class
A NAV.
To sell shares 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.
To sell shares by check: If you have elected this method in your
application or by subsequent authorization, the Fund will provide you with forms
of checks drawn on UMB Bank, n.a. You may make these checks payable to the
order of any payee in any amount of $250 or more.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint The written
Tenant instructions must be
signed by all persons
required to sign for
transactions, exactly
as their names appear
on the account.
Sole Proprietorship The written
instructions must be
signed by the
individual owner of
the business.
UGMA, UTMA The custodian must
sign the written
instructions
indicating capacity as
custodian.
Retirement Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
Conservator, Guardian The written
or Other Fiduciary instructions must be
signed by the person
properly authorized by
court order to act in
the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by Waddell
& Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you hold a certificate, it must be properly endorsed and sent to the Fund.
If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
There is an initial charge of $10 for establishing the check writing
privilege, but there are no additional charges for the maintenance of the
privilege or for processing checks.
The check writing privilege is not available for shares represented by
certificates or for retirement plan accounts.
If you have elected the check writing privilege, UMB Bank, n.a. (the
"Bank") will request that the Fund redeem a sufficient number of full and
fractional shares in your account to cover the amount of the check when a
check is presented to the Bank for payment. You will continue to receive
dividends on those shares equaling the amount being redeemed until such time
as the check is presented to the Bank for payment. No "stop-payment" order
can be placed against the checks. Checks may be dishonored if shares were
recently purchased as discussed above or if the NAV per share has declined so
that there are insufficient shares to be redeemed to cover the amount of the
check.
As with any redemption of shares, redemption by check writing will, for
Federal income tax purposes, result in a capital gain or loss on shares
redeemed.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will give
you notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested amounts
must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc.
has available, the plan may have the right to make a loan to a plan participant
by redeeming Fund shares held by the plan. Principal and interest payments on
the loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in Class A shares of any of the funds
in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Fund.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class A shares and buy Class A shares of other funds
in the United Group.
You may exchange 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 Class A 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 Class A shares of United Municipal Bond Fund, Inc.
or United Municipal High Income 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. Dividends are declared daily from
the Fund's net investment income, which includes accrued interest, earned
discount, dividends and other income earned on portfolio assets less expenses.
Ordinarily, dividends are distributed monthly on the 27th day of each month or
on the last business day prior to the 27th if the 27th falls on a weekend or
holiday. When shares are redeemed, any declared but unpaid dividends on those
shares will be paid with the next regular dividend payment and not at the time
of redemption. 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.
For retirement accounts, all distributions are automatically paid in Class
A shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment
as a regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gain
over net short-term capital loss) that are distributed to its shareholders.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital gain,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. The Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year.
No portion of the dividends paid by the Fund will be eligible for the
dividends-received deduction allowed to corporations.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within ninety days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day reinvestment
privilege or exchange privilege. See "About Your Account." In these cases, any
gain on the disposition of the Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly-purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Government Securities Fund, Inc. is a mutual fund: an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the Fund is an open-end, diversified management investment
company organized as a corporation under Maryland law on March 26, 1982.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to July 31, 1995, the Fund
offered only one class of shares to the public. Shares outstanding on that date
were designated as Class A shares, which are offered by this Prospectus. In
addition, the Fund offers Class Y shares through a separate prospectus. Class Y
shares are designed for institutional investors. Class Y shares are not subject
to a sales charge on purchases and are not subject to redemption fees. Class Y
shares are not subject to a Rule 12b-1 fee. Additional information about Class
Y shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's
Board of Directors. WRIMCO provides investment advice to the Fund and
supervises the Fund's investments. Waddell & Reed, Inc. and its predecessors
have served as investment manager to each of the registered investment companies
in the United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992, when
it assigned its duties as investment manager and assigned its professional staff
for investment management services to WRIMCO. WRIMCO has also served as
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and United Asset Strategy Fund, Inc. since it commenced
operations in March 1995.
John E. Sundeen, Jr. is primarily responsible for the day-to-day
management of the portfolio of the Fund. Mr. Sundeen has held his Fund
responsibilities since February 1991. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is Vice President of the Fund and Vice President of other investment
companies for which WRIMCO serves as investment manager. Mr. Sundeen has served
as the portfolio manager for investment companies managed by Waddell & Reed,
Inc. and its successor, WRIMCO, since January 1991 and has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since June 1983. 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 is a pro rata participation based on the relative net
asset size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown in
the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollarsFor Each
in millions)Level
- ---------------------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000.36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The management fee is accrued and paid to WRIMCO daily.
The combined net asset values of all of the funds in the United Group
were approximately $14.0 billion as of March 31, 1996. Management fees for the
fiscal year ended March 31, 1996 were 0.41% of the Fund's average net
assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class A shares, the Fund pays the Shareholder Servicing Agent a monthly fee for
each Class A shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act
with respect to its Class A shares. Under the Plan, the Fund may pay monthly a
fee to Waddell & Reed, Inc. in an amount not to exceed .25% of the Fund's
average annual net assets of its Class A shares. The fee is to be paid to
reimburse Waddell & Reed, Inc. for amounts it expends in connection with the
provision of personal services to Class A shareholders and/or maintenance of
Class A shareholder accounts. In particular, the Service Plan and a related
Service Agreement between the Fund and Waddell & Reed, Inc. contemplate that
these expenditures may include costs and expenses incurred by Waddell & Reed,
Inc. and its affiliates in compensating, training and supporting registered
account representatives, sales managers and/or other appropriate personnel in
providing personal services to Class A shareholders and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders by
office personnel located at field sales offices; engaging in other activities
useful in providing personal services to Class A shareholders and/or the
maintenance of Class A shareholder accounts; and in compensating broker-dealers
who may regularly sell Class A shares, and other third parties, for providing
Class A shareholder services and/or maintaining Class A shareholder accounts.
The total expenses for the fiscal year ended March 31, 1996 for the
Fund's Class A shares were 0.83% 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>
United Government Securities Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, Kansas Accounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Government Securities Fund, Inc.
Class A Shares
PROSPECTUS
June 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1011(6-96)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated June 30, 1996. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
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 Government Securities Fund, Inc.
Class Y Shares
This Fund seeks to provide as high a current income as is consistent with safety
of principal by investing in a portfolio of debt securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities. Neither the United
States, nor any agency of the United States, has guaranteed, sponsored or
approved the Fund or its shares.
This Prospectus describes one class of shares of the Fund -- Class Y shares.
Prospectus
June 30, 1996
UNITED GOVERNMENT SECURITIES FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................................3
EXPENSES........................................................4
FINANCIAL HIGHLIGHTS............................................5
PERFORMANCE.....................................................6
Explanation of Terms ..........................................6
ABOUT WADDELL & REED............................................7
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND.....................8
Investment Goal and Principles ................................8
Risk Considerations .........................................8
Securities and Investment Practices ...........................8
ABOUT YOUR ACCOUNT.............................................16
Buying Shares ................................................16
Minimum Investments ..........................................17
Adding to Your Account .......................................17
Selling Shares ...............................................18
Telephone Transactions .......................................20
Shareholder Services .........................................20
Personal Service ...........................................20
Reports ....................................................20
Exchanges ..................................................20
Dividends, Distributions and Taxes ...........................20
Distributions ..............................................20
Taxes ......................................................21
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................23
WRIMCO and Its Affiliates ....................................24
Breakdown of Expenses ........................................25
Management Fee .............................................25
Other Expenses .............................................26
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United Government
Securities Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United Government Securities Fund, Inc. (the "Fund")
seeks as high a current income as is consistent with safety of principal. The
Fund seeks to achieve this goal by investing in a portfolio of debt securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. See "About the Investment Principles of the Fund" for
further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class Y share of the Fund
is the net asset value of a Class Y share. There is no sales charge incurred
upon purchase of Class Y shares of the Fund. See "About Your Account" for
information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption procedures.
Risk Considerations: The value of the Fund's investments and the income
generated will vary from day to day, generally reflecting changes in interest
rates. Performance will also depend on WRIMCO's skill in selecting investments.
See "About the Investment Principles of the Fund" for information about the
risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).4
Management fees0.41%
12b-1 fees None
Other expenses 0.26%
Total Fund operating
expenses 0.67%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return5 and (2) redemption at the end of each time period:
1 year $ 7
3 years $21
The purpose of this table is to assist you in understanding the various
costs and expenses that a shareholder of the Class Y shares of the Fund will
bear directly or indirectly. The example should not be considered a
representation of past or future expenses; actual expenses may be greater or
lesser than those shown. For a more complete discussion of certain expenses and
fees, see "Breakdown of Expenses."
4Expense ratios are based on the management fees and other Fund-level
expenses of the Fund for the fiscal year ended March 31, 1996; and the other
expenses attributable to the Class Y shares that are anticipated for the
current year based on annualization of the Class Y expenses incurred during the
fiscal year ended March 31, 1996. Actual expenses may be greater or lesser
than those shown.
5Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP,
included in the SAI.
For a Class Y Share Outstanding Throughout the Period:
For the
period
from 9/27/95
through
3/31/96*
--------
Net asset value,
beginning of period $5.33
-----
Income from investment
operations:
Net investment
income .......... .17
Net realized and
unrealized loss
on investments... (0.01)
-----
Total from investment
operations ........ .16
-----
Less dividends declared
from net investment
income ............ (0.17)
-----
Net asset value,
end of period ..... $5.32
=====
Total return ....... 3.04%
Net assets, end of
period (000
omitted) ......... $542
Ratio of expenses
to average net
assets ............ 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.40%**
Portfolio
turnover rate ..... 63.05%
*On July 31, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A
shares.
**Annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and distributions.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may be for periods other
than those required to be presented or may otherwise differ from standardized
total return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. The Fund's yield
is based on a 30-day period ending on a specific date and is computed by
dividing the Fund's net investment income per share earned during the period by
the Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goal and Principles
The goal of the Fund is to seek as high a current income as is consistent
with safety of principal. The Fund seeks to achieve this goal by investing in a
portfolio of debt securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities"). There is no
assurance that the Fund will achieve its goal.
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.
The Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
stripped securities and mortgage-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies WRIMCO may employ in
pursuit of the Fund's 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 in which the Fund may invest are
fundamental policies. Unless otherwise indicated, the types of other assets in
which the Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
U.S. Government Securities. 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. The Fund
will invest in securities of agencies and instrumentalities only when WRIMCO is
satisfied that the credit risk is acceptable.
Securities issued or guaranteed by the U.S. Government include a variety of
Treasury securities that differ only in their interest rates, maturities and
dates of issuance. These 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.
The value of the U.S. Government Securities in which the Fund invests will
fluctuate depending in large part on changes in prevailing interest rates. If
these rates go up after the Fund buys a security, the value of the security may
go down; if these rates go down, the value of the security may go up. Changes
in value and yield based on changes in prevailing interest rates may have
different effects on short-term debt obligations than on long-term obligations.
Long-term obligations (which often have higher yields) may fluctuate in value
more than short-term ones. The Fund has no policy limiting the maturity of the
U.S. Government Securities in which it may invest.
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") are among the U.S.
Government Securities in which the Fund may invest. Mortgage-backed securities
may include pools of mortgages, such as collateralized mortgage-backed
securities 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
Ginnie Mae (but not Freddie Mac or Fannie Mae) 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.
Bank Deposits. The Fund may invest in deposits in banks (represented by
certificates of deposit or other evidence of deposit of varying maturities
issued by such banks) to the extent that the principal of such deposits is
insured by the Federal Deposit Insurance Corporation ("Insured Deposits"). Such
insurance (and accordingly, the Fund's investment) is currently limited to
$100,000 per bank; interest earned above that amount is not insured. Insured
Deposits have limited marketability.
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 only invest in stripped
securities that are issued by or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Fund will not invest more than 25% of its
total assets in stripped mortgage-backed securities.
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 has no fundamental policy as to percentage limitations on its
use of options or on the purchase or sale of futures contracts; however, as an
operating policy, the Fund will not invest more than 5% of its total assets in
puts.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right to
buy, and obligates the writer to sell, the underlying investment at the agreed
upon exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying investment at
the agreed upon exercise price during the option period. Purchasers of options
pay an amount, known as a premium, to the option writer in exchange for the
right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the put or call. If the Fund is not able to enter into a
closing transaction on an option it has written, it will be required to maintain
the securities subject to the call or the collateral underlying the put until a
closing purchase transaction can be entered into or the option expires.
Policies and Restrictions: As a fundamental policy, the Fund may
purchase and write put and call options (including optional delivery standby
commitments) only on U.S. Government Securities and the options on futures
contracts described below.
As a fundamental policy, calls written by the Fund on U.S. Government
Securities must be covered (i.e., the Fund must own the related investments or
other investments acceptable for escrow arrangements).
As a fundamental policy, the Fund may write puts only if they are listed
on a domestic securities or commodities exchange or quoted on Nasdaq (National
Association of Securities Dealers Automated Quotations system).
The Fund will only write a put when it has determined that 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 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 buy and
sell futures contracts but only those relating to U.S. Government Securities and
options thereon.
The Fund intends to use futures contracts and options thereon only for
purposes of hedging.
Indexed Securities are securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically, but
not always, are debt securities or deposits whose value at maturity or coupon
rate is determined by reference to a specific instrument or statistic. The
performance of indexed securities depends to a great extent on the performance
of the security, currency, or other instrument to which they are indexed, and
may also be influenced by interest rate changes in the United States and abroad.
At the same time, indexed securities are subject to the credit risks associated
with the issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Indexed securities may be more
volatile than the underlying instruments.
Policies and Restrictions: As a fundamental policy, the Fund may invest
in indexed securities only if they are issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. The Fund will not invest more
than 25% of its total assets in indexed securities.
Risks of Derivative Instruments. The use of options, futures contracts
and options on futures contracts, and the investment in indexed securities,
stripped securities and mortgage-backed securities, involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest rates or currency exchange
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 something that
is not intrinsic to the security itself. The use of derivative instruments for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due
to the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general interest
rate or currency exchange 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 or currency exchange 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 transactions
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 the payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Policies and Restrictions: The Fund may purchase U.S. Government
Securities on a when-issued or delayed-delivery basis or sell them on a delayed-
delivery basis.
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: As a fundamental policy, the Fund will not
enter into a repurchase transaction that will cause more than 10% of its net
assets to be invested in illiquid investments, which include repurchase
agreements not terminable within seven days.
Illiquid Investments. 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.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
only from banks to meet redemptions, for temporary or emergency purposes, but
only up to 10% of its total assets.
As a fundamental policy, the Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's assets.
Lending. Securities loans may be made on a short-term or a long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend
more than 30% of its assets at any one time and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
<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 and other
third parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
certain retirement plans and trusts for employees and account representatives
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day. The offering price of a Class Y share (price to
buy one Class Y share) is the Fund's Class Y net asset value ("NAV"). The
Fund's Class Y shares are sold without a sales charge.
To purchase by wire, you must first obtain an account number by calling
1-800-366-2520, then mail a completed application to Waddell & Reed, Inc., P. O.
Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding, with respect to that Class, the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. U.S. Government Securities are
generally valued according to prices quoted by a dealer in U.S. Government
Securities that offers a pricing service. Short-term U.S. Government 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 Account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by Waddell
& Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will give
you notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account with
the Fund. Call 913-236-2000 if you need copies of annual or semiannual reports
or historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of the Fund may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. Dividends are declared daily from
the Fund's net investment income, which includes accrued interest, earned
discount, dividends and other income earned on portfolio assets less expenses.
Ordinarily, dividends are distributed monthly on the 27th day of each month or
on the last business day prior to the 27th if the 27th falls on a weekend or
holiday. When shares are redeemed, any declared but unpaid dividends on those
shares will be paid with the next regular dividend payment and not at the time
of redemption. Net capital gains (and any net realized gains from foreign
currency transactions) ordinarily are distributed in December. The Fund may
make additional distributions if necessary to avoid Federal income or excise
taxes on certain undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class Y shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class
Y shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) and net capital gains (the
excess of net long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are certain tax requirements that the Fund must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income are taxable to you as ordinary income whether received in cash or
paid in additional Fund shares. Distributions of the Fund's net capital gain,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. The Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year.
No portion of the dividends paid by the Fund will be eligible for the
dividends-received deduction allowed to corporations.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the United Group generally will have similar tax consequences. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares (regardless of class) at a loss, part or all of that
loss will not be deductible and will increase the basis of the newly-purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United Government Securities Fund, Inc. is a mutual fund: an investment
that pools shareholders' money and invests it toward a specified goal. In
technical terms, the Fund is an open-end, diversified management investment
company organized as a corporation under Maryland law on March 26, 1982.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Fund has issued and outstanding Class A shares
which are offered by Waddell & Reed, Inc. through a separate prospectus. Prior
to July 31, 1995, the Fund offered only one class of shares to the public.
Shares outstanding on that date were designated as Class A shares. Class A
shares are subject to a sales charge on purchases but are not subject to
redemption fees. Class A shares are subject to a Rule 12b-1 fee at an annual
rate of up to 0.25% of the Fund's average net assets attributable to Class A
shares. Additional information about Class A shares may be obtained by calling
913-236-2000 or by writing to Waddell & Reed, Inc. at the address on the inside
back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's
Board of Directors. WRIMCO provides investment advice to the Fund and
supervises the Fund's investments. Waddell & Reed, Inc. and its predecessors
have served as investment manager to each of the registered investment companies
in the United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992, when
it assigned its duties as investment manager and assigned its professional staff
for investment management services to WRIMCO. WRIMCO has also served as
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992 and United Asset Strategy Fund, Inc. since it commenced
operations in March 1995.
John E. Sundeen, Jr. is primarily responsible for the day-to-day
management of the portfolio of the Fund. Mr. Sundeen has held his Fund
responsibilities since February 1991. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is Vice President of the Fund and Vice President of other investment
companies for which WRIMCO serves as investment manager. Mr. Sundeen has served
as the portfolio manager for investment companies managed by Waddell & Reed,
Inc. and its successor, WRIMCO, since January 1991 and has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since June 1983. 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 is a pro rata participation based on the relative net
asset size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown in
the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollarsFor Each
in millions)Level
- -------------------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000.36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The management fee is accrued and paid to WRIMCO daily.
The combined net asset values of all of the funds in the United Group
were approximately $14.0 billion as of March 31, 1996. Management fees for the
fiscal year ended March 31, 1996 were 0.41% 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>
United Government Securities Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent AccountantsAgent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, KansasAccounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Government Securities Fund, Inc.
Class Y Shares
PROSPECTUS
June 30, 1996
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1011-Y(6-96)
printed on recycled paper
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
June 30, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
("Prospectus") for the Class A shares or Class Y shares, as applicable, of
United Government Securities Fund, Inc. (the "Fund") dated June 30, 1996, which
may be obtained from the Fund or its underwriter, Waddell & Reed, Inc., at the
address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ............................ 2
Goals and Investment Policies ...................4
Investment Management and Other Services ........... 21
Purchase, Redemption and Pricing of Shares ......... 26
Directors and Officers ............................. 40
Payments to Shareholders ........................... 46
Taxes .............................................. 47
Portfolio Transactions and Brokerage ............... 49
Other Information .................................. 52
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return, 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
March 31, 1996, which is the most recent balance sheet included in this SAI, for
the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from April 1, 1995 to
March 31, 1996: 5.79% 10.48%
Five-year period from April 1, 1991 to
March 31, 1996: 7.62% 8.56%
Ten-year period from April 1, 1986 to
March 31, 1996: 6.85% 7.32%
Prior to July 31, 1995, the Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Fund have been available to certain
institutional investors.
The aggregate total return quotations for Class Y shares as of March 31,
1996, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
Period from inception* to
March 31, 1996: 3.04%
*United Government Securities Fund, Inc. commenced selling Class Y shares on
September 27, 1995.
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 or one month period ended on March 31, 1996, the date of
the most recent balance sheet included in this SAI, is 6.23%. The yield for
Class Y shares of the Fund computed according to the formula for the 30-day or
one month period ended on March 31, 1996, the date of the most recent balance
sheet included in this SAI, is 6.57%.
Changes 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 and 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.
U.S. Government Securities
The Fund invests in debt securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities").
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 ("Fannie Mae"), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only
by the credit of the instrumentality and 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. The Fund
will invest in securities of agencies and instrumentalities only if Waddell &
Reed Investment Management Company ("WRIMCO"), the Fund's investment manager, is
satisfied that the credit risk involved is acceptable.
Among the U.S. Government Securities that the Fund may purchase are
"mortgage-backed securities" of Ginnie Mae, Freddie Mac and Fannie Mae. These
mortgage-backed securities include pass-through securities and participation
certificates. Another type of mortgage-backed security is the 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 paragraph could be adversely affected by actions of the U.S. Government
to tighten the availability of its credit.
Mortgage-Backed Securities
The Fund may invest an unlimited amount in 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 a 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 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. 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 Fund will not invest more than 25% of its total assets in these
types of 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.
Bank Deposits
The Fund may invest in deposits in banks (represented by certificates of
deposit or other evidence of deposit issued by such banks of varying maturities)
to the extent that the principal of such deposits is insured by the Federal
Deposit Insurance Corporation ("FDIC"); such deposits are referred to as
"Insured Deposits." Such insurance (and, accordingly, the Fund's investment) is
currently limited to $100,000 per bank; any interest above that amount is not
insured. Insured Deposits are not marketable, and the Fund will invest in them
only within the 10% limit mentioned below under "Illiquid Investments" unless
such obligations are payable at principal amount plus accrued interest on demand
or within seven days after demand.
Lending Securities
One of the ways in which the Fund may try to realize income is by
lending its securities. If the Fund does this, the borrower pays the Fund an
amount equal to the dividends or interest on the securities that the Fund would
have received if it had not loaned the securities. The Fund also receives
additional compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can be changed only by shareholder vote. Under the present Guidelines,
the collateral must consist of cash, U.S. Government Securities or bank letters
of credit, at least equal in value to the market value of the securities loaned
on each day the loan is outstanding. If the market value of the loaned
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities loaned.
If the market value of the securities decreases, the borrower is entitled to
return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of the banks providing them
(which might include the Fund's custodian bank) must be satisfactory to the
Fund. Under the Fund's current securities lending procedures, the Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. The Fund will make loans only under rules of the New York Stock
Exchange (the "NYSE") which presently require the borrower to give the
securities back to the Fund within five business days after the Fund gives
notice to do so. If the Fund loses its voting rights on securities loaned, it
will have the securities returned to it in time to vote them if a material event
affecting the investment is to be voted on. The Fund may pay reasonable
finder's, administrative and custodian fees in connection with loans of
securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to (i) whom securities may be loaned, (ii) the investment of cash collateral, or
(iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. As a
fundamental policy, the Fund will not enter into a repurchase transaction that
will cause more than 10% of its net assets to be invested in illiquid
investments, which include repurchase agreements not terminable within seven
days. See "Illiquid Investments." A repurchase agreement is an instrument
under which the Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will repurchase
the security at a specified time and price. The amount by which the resale
price is greater than the purchase price reflects an agreed-upon market interest
rate effective for the period of the agreement. The return on the securities
subject to the repurchase agreement may be more or less than the return on the
repurchase agreement.
The majority of the repurchase agreements in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays and
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans, i.e., the
value of the underlying securities, which will be held by the Fund's custodian
bank or by a third party that qualifies as a custodian under Section 17(f) of
the Investment Company Act of 1940, as amended (the "1940 Act"), is and, during
the entire term of the agreement, will remain at least equal to the value of the
loan, including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
When-Issued and Delayed-Delivery Transactions
The Fund may also purchase U.S. Government Securities on a when-issued
or delayed-delivery basis or sell them on a delayed-delivery basis. The U.S.
Government Securities so purchased 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
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of the securities in determining
its net asset value per share. The U.S. Government Securities sold by the Fund
on a delayed-delivery basis are also subject to market fluctuation; their value
when the Fund delivers them may be more than the purchase price the Fund
receives. When the Fund makes a commitment to sell securities on a delayed-
delivery basis, it will record the transaction and thereafter value the
securities at the sales price in determining the Fund's net asset value per
share.
Ordinarily the Fund purchases U.S. Government Securities on a when-issued
or delayed-delivery basis with the intention of actually taking delivery of the
securities. However, before the securities are delivered to the Fund and before
it has paid for them (the "settlement date"), the Fund could sell the securities
if WRIMCO decided it was advisable to do so for investment reasons. The Fund
will hold aside or segregate cash or other U.S. Government 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 U.S.
Government Securities may, however, be sold at or before the settlement date to
pay the purchase price of the when-issued or delayed-delivery securities.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides 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) securities for which market quotations are not readily available; (iii)
Insured Deposits, unless they are payable at principal amount plus accrued
interest on demand or within seven days after demand; and (iv) over-the-counter
("OTC") options and their underlying collateral. The assets used as cover for
OTC options written by the Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
Indexed Securities
Indexed Securities are securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. The Fund may invest in indexed
securities only if they are issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The Fund will not invest more than 25% of its
total assets in indexed securities.
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. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
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 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 this SAI will be supplemented
to the extent that new products or techniques involve materially different risks
than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities and interest rate
markets, which requires different skills than predicting changes in the prices
of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded.
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 to segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. The Fund may write (i.e., sell) call options (i) only on U.S.
Government Securities, (ii) that are listed or unlisted, and (iii) only if the
calls are covered, i.e., the Fund owns the related investments (or other
investments acceptable for escrow arrangements) while the call option is
outstanding.
The Fund may only purchase call options on U.S. Government Securities. The
Fund may only purchase put options on U.S. Government Securities or "optional
delivery standby commitments." The puts and calls purchased by the Fund may be
listed or unlisted.
The Fund may write (i.e., sell) puts only on U.S. Government Securities
and only if the puts are listed on a domestic securities or commodities exchange
or quoted on the automated quotation system of Nasdaq (National Association of
Securities Dealers Automated Quotations system).
The Fund may also purchase and sell the options on futures contracts
discussed below.
The above limitations on the puts and calls the Fund may write or purchase
are fundamental policies, i.e., rules that may not be changed without a
shareholder vote. The Fund has no fundamental policy as to percentage
limitations on its use of options; however, as an operating policy, the Fund
will not invest more than 5% of its total assets in puts.
The Fund has undertaken with a state securities commission that it will
not engage in options trading on Nasdaq listed securities. In order to comply
with certain state regulations, the Fund has adopted an operating policy that
provides that the aggregate premiums paid for all such options held by the Fund
at any one time, adjusted for the portion of the premium attributable to the
difference between the option strike price and the market value of the
underlying security or futures contract at the time of purchase, may not exceed
20% of the Fund's total net assets.
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 on 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 when
it considers that the amount of the premium represents adequate compensation for
the loss of the opportunity. If the call option is an OTC option, the
securities or other assets used as cover would be considered illiquid to the
extent described under "Illiquid Investments."
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security 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 only when it
has determined that it would be willing to purchase the underlying security at
the exercise price. If the put option is an OTC option, the securities or other
assets used as cover would be considered illiquid to the extent described under
"Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
A type of put that the Fund may purchase is an "optional delivery standby
commitment," which is entered into by parties selling U.S. Government Securities
to the Fund. An optional delivery standby commitment gives the Fund the right
to sell the security back to the seller on specified terms. This right is
provided as an inducement to purchase the security.
Risks of Options on Securities. The Fund is authorized to write covered
call options on U.S. Government Securities, to write listed put options on U.S.
Government Securities and to write call options and purchase options that are
listed or unlisted.
Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. In
contrast, OTC options are contracts between the Fund and its counterparty
(usually a securities dealer or a bank) with no clearing organization guarantee.
Thus, when the Fund purchases an OTC option, it relies on the counterparty from
whom it purchased the option to make or take delivery of the underlying
investment upon exercise of the option. Failure by the counterparty to do so
would result in the loss of any premium paid by the Fund as well as the loss of
any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although the Fund will enter into OTC options only with major dealers
in unlisted options, there is no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration.
WRIMCO will evaluate the ability to enter into closing purchase transactions on
unlisted options prior to writing them. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to its expiration.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Futures Contracts and Options on Futures Contracts. The Fund may engage
in buying and selling interest rate futures contracts, but only those relating
to U.S. Government Securities ("Government Securities Futures") and options
thereon. This limitation of the Fund's engaging in interest rate futures
contracts to those relating to U.S. Government Securities is a fundamental
policy that may only be changed by a shareholder vote. In addition, as a
fundamental policy, the Fund may only purchase or sell options on Government
Securities Futures and these options must be listed on a domestic securities or
commodities exchange or quoted on Nasdaq. The Fund has no other fundamental
policies as to its use of futures contracts and options thereon and thus no
fundamental policy as to a percentage limit thereon; however, see below for
limitations relating to the CFTC.
The Fund will not use Government Securities Futures or puts and calls
related thereto for speculation but only to attempt to hedge against future
changes in interest rates that might otherwise adversely affect the value of the
U.S. Government Securities held in the Fund's portfolio.
The purchase of Government Securities Futures or call options on such
futures can serve as a long hedge, and the sale of Government Securities Futures
or the purchase of put options on such futures can serve as a short hedge.
Writing call options on Government Securities Futures contracts can serve as a
limited short hedge, using a strategy similar to that used for writing call
options on securities. Similarly, writing put options on Government Securities
Futures contracts can serve as a limited long hedge.
Government Securities 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 Government Securities Future or a call option thereon, or purchase a put
option on a Government Securities Future. If WRIMCO wishes to lengthen the
average duration of the Fund's fixed-income portfolio, the Fund may buy a
Government Securities Future 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 Government Securities 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 Government
Securities Future, the premium paid plus transaction costs is all that is at
risk. In contrast, when the Fund purchases or sells a Government Securities
Future 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 on
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 Government Securities Futures and
options on such 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 Government Securities Futures or
options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures or an option on a futures contract can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or options on
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the future or option or to maintain cash
or securities in a segregated account.
As an operating policy, to the extent that the Fund enters into futures
contracts or options on futures contracts, in each case other than for bona fide
hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money" at the time of purchase) will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any contracts the Fund has entered into. (In
general, a call option on a futures contract is "in-the-money" if the value of
the underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of the Fund's assets that are at risk
in futures contracts and options on futures contracts.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the nature of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
future contracts through offsetting transactions, which could distort the normal
relationship between the cash and futures markets. Second, the liquidity of the
futures market depends on participants entering into offsetting transactions,
rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest or currency exchange 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 or
currency exchange rate movements or the time span within which the movements
take place.
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.
Other Investments
The Fund does not invest in restricted securities; restricted securities
are securities that cannot freely be sold for legal reasons. The Fund may not
invest any of its assets in companies, including predecessors, with less than
three years continuous operation. The Fund may not buy or continue to hold
securities if the Fund's Directors or officers or certain others own too much of
the same securities; if any one of these people owns more than one two-
hundredths (i.e., .5 of 1%) of the shares of a company and if the people who own
that much or more own one twentieth (i.e., 5%) of that company's shares, the
Fund cannot buy that company's shares or continue to own them.
Investment Restrictions
Certain of the Fund's investment restrictions and policies are described in
the Prospectus. The following are also fundamental policies and, together with
certain restrictions described in the Prospectus, cannot be changed without
shareholder approval. Under these additional restrictions, the Fund may not:
(i) Buy any securities or commodities other than U.S. Government Securities,
put and call options (see "Options and Futures Contracts and Options on
Futures Contracts" above) and Government Securities Futures (see "Futures
Contracts and Options on Futures Contracts" above). Put and call options
and Government Securities Futures may, for various purposes, be
considered to be "commodities" or "securities" but the Fund may buy them
whether they are "commodities" or "securities." The Fund may not buy any
voting securities, any mineral related programs or leases or any shares
of other investment companies;
(ii) Buy real estate nor any nonliquid interest in real estate investment
trusts; however, the Fund may buy obligations or instruments which it may
otherwise buy even though the issuer invests in real estate or interests
in real estate;
(iii) Make loans other than certain limited types of loans as indicated above;
the Fund can buy the U.S. Government Securities which it is permitted to
buy; it can also lend its portfolio securities (see "Lending Securities"
above) and enter into repurchase agreements except as indicated above
(see "Repurchase Agreements" above);
(iv) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(v) Sell securities short or buy securities on margin; however, the Fund may
make margin deposits in connection with Government Securities Futures and
options thereon; also, the Fund may not engage in arbitrage transactions;
(vi) Engage in the underwriting of securities, that is, the selling of
securities for others;
(vii) Borrow to purchase securities or increase income, but only to meet
redemptions so it will not have to sell portfolio securities for this
purpose. The Fund may borrow money from banks for temporary or emergency
purposes but only up to 10% of its total assets. It can mortgage or
pledge its assets in connection with such borrowing but only up to the
lesser of the amounts borrowed or 5% of the value of the Fund's assets.
The Fund will not purchase securities while outstanding borrowings are
more than 5% of the value of its assets. Interest on borrowing would
reduce the Fund's income. The Fund may, without violation of this
restriction, make the escrow deposits required by its put and call
activities.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by
taking the lesser of purchases or sales of portfolio securities for a year and
dividing it by the monthly average of the market value of such securities during
the year, excluding certain short-term securities. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares. The Fund's
portfolio turnover rate for the fiscal years ended March 31, 1996 and 1995, was
63.05% and 41.57%, respectively.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed. Inc. is 6300 Lamar Avenue, P. O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly-held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to TMK/United Funds, Inc. since that
fund's inception, until January 8, 1992 when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for Waddell & Reed Funds,
Inc. since its inception in September 1992 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995. Waddell & Reed, Inc. serves as
principal underwriter for the investment companies in the United Group of Mutual
Fund 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 during the fiscal years ended March 31, 1996, 1995 and 1994 were
$625,544, $665,237 and $777,354, 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 $1.3125 ($1.0208 prior to April
1, 1996) for each shareholder account that was in existence at any time during
the prior month, plus $.30 for each account on which a dividend or distribution,
of cash or shares, had a record date in that month, and $.75 for each
shareholder check it processes. For Class Y shares, the Fund pays the Agent a
monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of
that class for the preceding month. The Fund also pays certain out-of-pocket
expenses of the Agent, including long distance telephone communications costs;
microfilm and storage costs for certain documents; forms, printing and mailing
costs; and costs of legal and special services not provided by Waddell & Reed,
Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended March 31, 1996, 1995
and 1994 were $40,000, $40,000 and $40,000, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay by requiring WRIMCO to reduce its fee to the extent any
included expenses exceed 2.5% of the Fund's first $30 million of average net
assets, 2% of the next $70 million of average net assets and 1.5% of any
remaining average net assets during a fiscal year. The limit does not include
interest, taxes, brokerage commissions and extraordinary expenses such as
litigation that usually do not arise in the normal operations of a mutual fund.
The Fund's other expenses, including its management fee, are included. The Fund
will notify shareholders of any change in the limitation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund. The aggregate dollar amounts of
underwriting commissions for Class A shares for the fiscal years ended March 31,
1996, 1995 and 1994 were $393,413, $456,390 and $1,325,275, respectively. The
amounts retained by Waddell & Reed, Inc. for each fiscal year were $171,342,
$192,625 and $563,717, 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.
Fees paid (or accrued) as service fees by the Fund with respect to Class
A shares for the fiscal year ended March 31, 1996 were $286,281.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by the affected shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding Class A shares of the Fund, and (iv)
while the Plan remains in effect, the selection and nomination of the Directors
who are Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In general,
the Custodian is responsible for holding the Fund's cash and securities. Price
Waterhouse LLP, Kansas City, Missouri, the Fund's independent accountants,
audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of the Fund is the value of
the assets of that class, less the 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
March 31, 1996 was as follows:
Net asset value per Class A share (Class A
net assets divided by Class A shares outstanding) $5.32
Add: selling commission (4.25% of offering price) .24
-----
Maximum offering price per Class A share
(Class A net asset value per share (divided by
95.75%) $5.56
=====
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 the 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 each day that the NYSE is open for trading as of the later of the close of
the regular session of the NYSE or the close of the regular session of any
domestic securities or commodities exchange on which an option or future held by
the Fund is traded. The NYSE annually announces the days on which it will not
be open for trading. The most recent announcement indicates that it 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 business day.
The Board of Directors has decided to use the prices quoted by a dealer in
bonds which offers a pricing service to value U.S. Government Securities. The
Board believes that such a service does quote their fair value. The Board,
however, may hereafter determine to use another service or use the bid price
quoted by dealers if it should determine that such service or quotes more
accurately reflect the fair value of U.S. Government Securities held by the
Fund.
Short-term U.S. Government Securities are valued at amortized cost, which
approximates market value. Securities or other assets which are not valued by
either of the foregoing methods and for which market quotations are not readily
available would be valued by appraisal at their fair value as determined in good
faith under procedures established by and under the general supervision and
responsibility of the Board of Directors.
Puts, calls and Government Securities Futures purchased and held by the
Fund are valued at the last sales price thereof on the securities or commodities
exchanges on which they are traded, or, if there are no transactions, at the
mean between bid and asked prices. Ordinarily, the close of the regular session
of option trading on national securities exchanges is 4:10 P.M. Eastern time and
the close of the regular session of commodities exchanges is 4:15 P.M. Eastern
time. Futures contracts will be valued by reference to established futures
exchanges. The value of a futures contract purchased by the Fund will be either
the closing 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.
When the Fund writes a put or call, an amount equal to the premium received
is included in the Fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to-market" to reflect the current market value of the
put or call. If a call the Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
the Fund received. If the Fund exercised a call it purchased, the amount paid
to purchase the related investments is increased by the amount of the premium
paid. If a put written by the Fund is exercised, the amount the Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If the Fund exercises a put it purchased, the amount the Fund
receives from the sale of the related investment is reduced by the amount of the
premium it paid. If a put or call written by the Fund expires, it has a gain in
the amount of the premium; if it enters into a closing purchase transaction, the
Fund will have a gain or loss depending on whether the premium was more or less
than the cost of the closing transaction.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500, with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A minimum
initial investment of $25 is applicable to purchases made through payroll
deduction for or by employees of WRIMCO, Waddell & Reed, Inc., their affiliates,
or certain retirement plan accounts. Except with respect to certain exchanges
and automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. For the
purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in
a Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
("UTMA") account;
6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), Section 457 of the Code salary reduction plan
account provided that such purchases are subject to a sales charge (see
"Net Asset Value Purchases"), tax sheltered annuity account ("TSA") or
Keogh plan account, provided that the individual and spouse are the only
participants in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens an UGMA account for grandson A; Grandmother has
an account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there is
more than one participant where one or more of the participants is other than
the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee benefit
plan of an incorporated business will be grouped. A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code. All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping may
be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $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 of Class
A shares in excess of $100,000. H's original purchase was subject to
a full sales charge and the reduced charge does not apply
retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced sales
charge and provide Waddell & Reed. Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a contractual
plan the shares held under the plan may be combined with the additional purchase
only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by Waddell & Reed, Inc. Each purchase made from time to time under the
Statement of Intention is treated as if the purchaser were buying at one time
the total amount which he or she intends to invest. The sales charge applicable
to all purchases of Class A shares made under the terms of the Statement of
Intention will be the sales charge in effect on the beginning date of the 13-
month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement of
Intention is accepted by Waddell & Reed, Inc. of $15,000; H's wife, W,
has an account in her own name invested in another fund in the United
Group which charges the same sales load as the Fund, with a net asset
value as of the date of acceptance of the Statement of Intention of
$10,000; H needs to invest $75,000 in Class A shares over the 13-month
period in order to qualify for the reduced sales load applicable to a
purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement of Intention. An
amount equal to 5% of the purchase required under the Statement of Intention
will be held "in escrow." If a purchaser does not, during the period covered by
the Statement of Intention, invest the amount required to qualify for the
reduced sales charge under the terms of the Statement of Intention, he or she
will be responsible for payment of the sales charge applicable to the amount
actually invested. The additional sales charge owed on purchases of Class A
shares made under a Statement of Intention which is not completed will be
collected by redeeming part of the shares purchased under the Statement of
Intention and held "in escrow" unless the purchaser makes payment of this amount
to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for
payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell
& Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of Intention will be deducted in computing the aggregate purchases
under the Statement of Intention.
Statements of Intention are not available for purchases made under a SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a sales
charge. A purchase of, or shares held, in any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group have shares that are subject to
a maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United Retirement
Shares, Inc., United High Income Fund, Inc., United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc., United High Income Fund II, Inc. and United
Asset Strategy Fund, Inc. The following funds in the United Group have shares
that are subject to a "reduced" sales charge as described in the prospectus of
each fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of obtaining
the lower sales charge which applies to large purchases, purchases in a fund in
the United Group of shares that are subject to a full sales charge may not be
grouped with purchases of shares in a fund in the United Group that are subject
to a reduced sales charge; conversely, purchases of shares in a fund with a
reduced sales charge may not be grouped or combined with purchases of shares of
a fund that are subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be purchased
at net asset value by the Directors and officers of the Fund, employees of
Waddell & Reed, Inc., employees of their affiliates, account representatives of
Waddell & Reed, Inc. and the spouse, children, parents, children's spouses and
spouse's parents of each such Director, officer, employee and account
representative. "Child" includes stepchild; "parent" includes stepparent.
Purchases of Class A shares in an IRA sponsored by Waddell & Reed, Inc.
established for any of these eligible purchasers may also be at net asset value.
Purchases in any tax qualified retirement plan under which the eligible
purchaser is the sole participant may also be made at net asset value. Trusts
under which the grantor and the trustee or a co-trustee are each an eligible
purchaser are also eligible for net asset value purchases of Class A shares.
"Employees" includes retired employees. A retired employee is an individual
separated from service from Waddell & Reed, Inc. or affiliated companies with a
vested interest in any Employee Benefit Plan sponsored by Waddell & Reed, Inc.
or its affiliated companies. Account representatives" includes retired account
representatives. A "retired account representative" is any account
representative who was, at the time of separation from service from Waddell &
Reed, Inc., a Senior Account Representative. A custodian under UGMA or UTMA
purchasing for the child or grandchild of any employee or account representative
may purchase Class A shares at net asset value whether or not the custodian
himself is an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Reasons for Difference in Public Offering Price of Class A Shares
As described herein and in the Prospectus for Class A shares there are a
number of instances in which the Fund's Class A shares are sold or issued on a
basis other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The reasons
for these quantity discounts are, in general, that (i) they are traditional and
have long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts, (ii)
certain quantity discounts are required by rules of the National Association of
Securities Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and 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 for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted in the 1940 Act from the otherwise applicable restrictions as to what
sales charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing Class A shareholders
adversely affected since, in each case, the Fund receives the net asset value
per share of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). The Service is
available not only for Class A shares of the Fund but also for Class A shares of
any of the funds in the United Group. It would be a disadvantage to an investor
to make additional purchases of Class A shares while a withdrawal program is in
effect as this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
Class A shares which you still own of any of the funds in the United Group; or,
you must own Class A shares having a value of at least $10,000. The value for
this purpose is not the net asset value but the value at the offering price,
i.e., the net asset value plus the sales charge.
To start the Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for
the Service are paid in additional Class A shares. All payments are made by
redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments exceed dividends and distributions, the number of Class A
shares you own will decrease. When all of the shares in an 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. You can change to any one 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 Class A shares of one or more of the
other funds in the United Group rather than Class A shares of the Fund. You may
exchange Class A shares of the Fund if you have held the shares for at least six
months unless the exchange is for Class A shares of United Municipal Bond Fund,
Inc. or United Municipal High Income Fund, Inc. or unless the Class A shares of
the Fund were acquired by reinvestment of a dividend or distribution, in which
cases there is no holding period. You may exchange for Class A 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.
Class A shares of the Fund may be received in exchange for Class A
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, you may have a specific dollar amount of
Class A shares of United Cash Management, Inc. automatically exchanged each
month into Class A shares of the Fund or any other fund in the United Group.
The shares of United Cash Management, Inc. which you designate for automatic
exchange must be worth at least $100 or you must own Class A shares of the fund
in the United Group into which you want to exchange. The minimum value of
shares which you may designate for automatic exchange monthly is $100, which may
be allocated among the Class A shares of different funds in the United Group so
long as each fund receives a value of at least $25. Minimum initial investment
and minimum balance requirements apply to such automatic exchange service.
You may redeem your Class A shares of 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 the Fund may be exchanged for Class Y shares of any other
fund in the United Group.
General Exchange Information
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your exchange request is received in good order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be set
up as a funding vehicle for a retirement plan. For individual taxpayers meeting
certain requirements, Waddell & Reed, Inc. offers prototype documents for the
following retirement plans. All of these plans involve investment in shares of
the Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures. Redemption
payments are made within seven days unless delayed because of emergency
conditions determined by the SEC, when the NYSE is closed other than for
weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemption of shares of the Fund may be made
in portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege for
Class A shares under which, if you redeem your Class A shares and then decide it
was not a good idea, you may reinvest. If Class A shares of the Fund are then
being offered, you can put all or part of your redemption payment back into
Class A shares of the Fund without any sales charge at the net asset value next
determined after you have returned the amount. Your written request to do this
must be received within 30 days after your redemption request was received. You
can do this only once as to Class A shares of the Fund. You do not use up this
privilege by redeeming Class A shares to invest the proceeds at net asset value
in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board 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.
Additional Information on Check Writing
Checks may not be presented for payment at the office of the bank upon
which the checks are drawn because under 1940 Act rules, redemptions may be
effected only at the next price determined after the redemption request is
presented to the Fund's transfer agent. This limitation does not affect checks
used for payment of bills or cashed at other banks. Shareholders may not close
their accounts through the writing of a check. If a shareholder is subject to
backup withholding described in the Prospectus, no checks will be honored. This
privilege is not available for most retirement plan accounts. Contact the
Shareholder Servicing Agent for further information.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wise is a member of the Fund's Board of Directors. The other
persons are officers but not Board members. For purposes of this section, the
term "Fund Complex" includes each of the registered investment companies in the
United Group of Mutual Funds, Waddell & Reed Funds, Inc. and TMK/United Funds,
Inc. Each of the Fund's Directors is also a Director of each of the other funds
in the Fund Complex and each of its officers is also an officer of one or more
of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corporation; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Professor of Marketing,
College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Retired.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Chairman, Gilliland & Hayes, P.A., a
law firm; formerly, President, Gilliland & Hayes, P.A.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired
as Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Director, Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
John M. Holliday
Vice President of the Fund and eight other funds in the Fund Complex;
Senior Vice President of WRIMCO and Waddell & Reed Asset Management Company;
formerly, Senior Vice President of Waddell & Reed, Inc.
John E. Sundeen, Jr.
Vice President of the Fund; Vice President of WRIMCO; Assistant Vice
President of Waddell & Reed Asset Management Company.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be deemed to
be "interested persons" as defined in the 1940 Act of its underwriter, Waddell &
Reed, Inc., or of WRIMCO. The Directors who may be deemed to be "interested
persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no authority
or responsibility with respect to management of the Fund. Mr. Leslie S. Wright
retired as a Director of the Fund and of each of the funds in the Fund Complex
effective April 1, 1996, and has elected a position as Director Emeritus.
During the Fund's fiscal year ended March 31, 1996, Mr. Wright received total
compensation for his service as a Director of $42,000 from the Fund Complex and
aggregate compensation from the Fund of $465.
As of April 1, 1996, the funds in the United Group, TMK/United Funds, Inc.
and Waddell & Reed Funds, Inc. pay to each Director a total of $44,000 per year,
plus $1,000 for each meeting of the Board of Directors attended (prior to April
1, 1996, the funds in the United Group (with exception of United Asset Strategy
Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $40,000 per year, plus $1,000 for each meeting of the Board of
Directors attended) and $500 for each committee meeting attended which is not in
conjunction with a Board of Directors meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the funds in the United Group, TMK/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size. During the Fund's
fiscal year ended March 31, 1996, the Fund's Directors received the following
fees for service as a director:
Compensation Table
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 507 0 46,000
Dodds I. Buchanan 507 0 46,000
Jay B. Dillingham 507 0 46,000
Linda Graves 249 0 24,000
John F. Hayes 507 0 46,000
Glendon E. Johnson 507 0 46,000
William T. Morgan 507 0 46,000
Doyle Patterson 507 0 46,000
Eleanor B. Schwartz 249 0 24,000
Frederick Vogel III 507 0 46,000
Paul S. Wise 507 0 46,000
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 1996, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date no
person owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are 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 capital
gains, which are derived from the proceeds received from the sale of securities
at a price higher than the Fund's tax basis (usually cost) in such securities;
these gains can be either long-term or short-term, depending on how long the
Fund has owned the securities before it sells them. The 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.
Ordinarily, on the 27th day of each month or on the preceding business day
if the 27th falls on a Saturday, Sunday or holiday, all dividends declared since
the last dividend payment are paid. The shares whose holders are entitled to
receive each such dividend are those shares which are held on the Fund's books
at the close of business on the prior day. Therefore, dividends are ordinarily
paid on shares starting on the day after they are issued and on the day they are
redeemed. When shares are redeemed, any declared but unpaid dividends on these
shares will ordinarily be paid on the shares with the next regular dividend
payment and not at the time of redemption.
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 gains, depending on whether securities are sold and at
what price. If the Fund has net realized capital gains, it will pay
distributions once each year, in the latter part of the fourth calendar quarter.
Even if the Fund has net capital gains for a year, the Fund does not pay the
gains out 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 Fund 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 reinvested 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 payment
date for the dividend or distribution, although this could be changed by the
Board of Directors.
Even if you get dividends and distributions on Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of the
Fund at net asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of taxable net investment income and net short-term
capital gains) 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 other income (including gains from options or futures contracts)
derived with respect to its business of investing in securities ("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, options or
futures that were held for less than three months ("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 (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.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for a dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gains net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.
Income from Options and Futures
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures for hedging purposes, 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 contracts 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 gains (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 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 covered call options is taxed as
short-term capital gains. If the Fund enters into a closing purchase
transaction, it will have a short-term capital gain or loss based on the
difference between the premium it receives for the call it wrote and the premium
it pays for the call it buys. If a call written by the Fund lapses without
being exercised, the premium it receives also will be a short-term gain. If
such a call is exercised and thus the Fund sells the securities subject to the
call, 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 covered
calls that it could fail to continue to qualify as a RIC.
Certain options and futures in which the Fund may invest will 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 are 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) may also affect the taxation
of options and futures contracts in which the Fund may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If the Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Fund are not entirely clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by 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 their 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 and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist 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.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group,
TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. or accounts over which
Waddell & Reed Asset Management Company exercises investment discretion
frequently buy or sell the same securities at the same time. If this happens,
the amount of each purchase or sale is divided. This is done on the basis of
the amount of securities each fund or account wanted to buy or sell. Sharing in
large transactions could affect the price the Fund pays or receives or the
amount it buys and sells. However, sometimes a better negotiated commission is
available.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class Y. Prior to July
31, 1995, the Fund offered only one class of shares to the public. Shares
outstanding on that date were designated as Class A shares. Each class
represents 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 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 GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 103 $ 108,706
7.5%, 9-1-2007 ........................ 200 203,344
7.0%, 1-15-2021 ....................... 5,000 4,871,850
8.0%, 2-1-2023 ........................ 3,288 3,346,880
6.5%, 11-1-2024 ....................... 2,873 2,746,355
7.0%, 12-1-2025 ....................... 9,736 9,495,516
Total ................................. 20,772,651
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,864 4,937,178
7.5%, 4-25-2002 ....................... 3,388 3,401,755
7.0%, 11-25-2003 ...................... 6,720 6,724,167
7.5%, 12-25-2006 ...................... 5,000 5,090,600
6.0%, 6-25-2007 ....................... 5,000 4,842,150
8.4%, 2-25-2009 ....................... 5,000 5,275,000
11.0%, 10-1-2020 ...................... 5,692 6,392,971
7.0%, 12-1-2023 ....................... 9,849 9,597,054
7.42%, 10-1-2025 ...................... 6,250 6,343,666
Total ................................. 52,604,541
Government National Mortgage Association:
9.5%, 5-20-2014 ....................... 14 14,839
8.5%, 5-15-2023 ....................... 2,168 2,264,171
7.0%, 7-15-2023 ....................... 4,416 4,301,258
7.5%, 7-15-2023 ....................... 824 821,943
7.5%, 9-15-2023 ....................... 4,389 4,379,357
7.5%, 2-15-2024 ....................... 4,258 4,248,537
9.75%, 11-15-2028 ..................... 2,961 3,231,436
10.5%, 3-15-2029 ...................... 1,037 1,129,273
Total ................................. 20,390,814
United States Treasury:
6.375%, 8-15-2002 ..................... 9,500 9,554,910
7.875%, 11-15-2004 .................... 11,500 12,615,845
0.0%, 5-15-2008 ....................... 20,000 8,939,600
Total ................................. 31,110,355
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Miscellaneous United States Government
Backed Securities:
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... $4,011 $ 4,478,026
U.S. Government Guaranteed Development
Company Participation Certificates,
Series 1995-20 F, Guaranteed by the U.S.
Small Business Administration (an
Independent Agency of the United States),
6.8%, 6-1-2015 ...................... 4,920 4,809,354
Synthetic Off-the-Run Treasuries,
Series 1994-2,
6.0%, 2-15-2009 ..................... 6,200 5,857,140
Total ............................... 15,144,520
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 95.17% $140,022,881
(Cost: $138,986,964)
Number
of Contracts
OPTIONS - 0.16%
June 114 Put Options on Treasury Bond
Futures, Expires 5-18-96 .............. 75 $ 242,550
(Cost: $119,303)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES - 4.17%
J. P. Morgan Securities, 5.2% Repurchase
Agreement dated 3-29-96, to be
repurchased at $6,142,661 on 4-1-96* .. $6,140 $ 6,140,000
(Cost: $6,140,000)
TOTAL INVESTMENT SECURITIES - 99.50% $146,405,431
(Cost: $145,246,267)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.50% 730,719
NET ASSETS - 100.00% $147,136,150
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1996
Notes to Schedule of Investments
*Collateralized by $4,277,000 U.S. Treasury Notes, 12% due 8-15-2013; market
value and accrued interest aggregate $6,245,846.
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 GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $146,405,431
Cash ............................................ 10,392
Receivables:
Investment securities sold ...................... 3,078,605
Interest ........................................ 1,228,855
Fund shares sold ................................ 80,188
Prepaid insurance premium ........................ 10,540
------------
Total assets .................................. 150,814,011
------------
Liabilities
Payable for investment securities purchased ...... 2,731,142
Payable for Fund shares redeemed ................. 761,132
Dividends payable ................................ 76,944
Accrued service fee .............................. 44,281
Accrued transfer agency and dividend disbursing .. 21,890
Accrued accounting services fee .................. 3,333
Other ............................................ 39,139
------------
Total liabilities ............................. 3,677,861
------------
Total net assets.............................. $147,136,150
============
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 276,809
Additional paid-in capital ...................... 150,297,504
Accumulated undistributed gain (loss):
Accumulated undistributed net realized loss on
investment transactions ....................... (4,597,327)
Net unrealized appreciation in value of
investments at end of period ................... 1,159,164
------------
Net assets applicable to outstanding units
of capital ................................... $147,136,150
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.32
Class Y .......................................... $5.32
Capital shares outstanding
Class A .......................................... 27,579,012
Class Y .......................................... 101,937
Capital shares authorized ..........................3,000,000,000
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1996
Investment Income
Interest ......................................... $10,903,880
-----------
Expenses (Note 2):
Investment management fee ....................... 625,544
Transfer agency and dividend disbursing - Class A 286,281
Service fee - Class A ........................... 189,811
Accounting services fee ......................... 40,000
Audit fees ...................................... 17,951
Custodian fees .................................. 11,089
Legal fees ...................................... 9,125
Shareholder servicing - Class Y ................. 93
Other ........................................... 80,840
-----------
Total expenses ................................ 1,260,734
-----------
Net investment income ........................ 9,643,146
-----------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 1,790,777
Realized net gain on options ..................... 116,144
-----------
Net realized gain on investments ................ 1,906,921
Unrealized appreciation in value of investments
during the period ............................... 3,688,092
-----------
Net gain on investments ......................... 5,595,013
-----------
Net increase in net assets resulting from
operations ................................... $15,238,159
===========
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
-------------------------
1996 1995
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............ $ 9,643,146 $ 10,053,860
Realized net gain (loss)
on investments ................. 1,906,921 (3,955,179)
Unrealized appreciation........... 3,688,092 243,620
------------ ------------
Net increase in net assets
resulting from operations ..... 15,238,159 6,342,301
------------ ------------
Dividends to shareholders from
net investment income:*
Class A .......................... (9,639,561) (10,053,860)
Class Y ............................. (3,585) ---
------------ ------------
(9,643,146) (10,053,860)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (2,816,516 and 3,328,430
shares, respectively) ......... 15,113,673 16,881,689
Class Y (110,748 and 0
shares, respectively) ............ 598,202 ---
Proceeds from reinvestment of
dividends:
Class A (1,617,273 and 1,794,421
shares, respectively) ......... 8,677,824 9,097,091
Class Y (599 and 0
shares, respectively) ............ 3,186 ---
Payments for shares redeemed:
Class A (6,026,762 and 9,750,153
shares, respectively) ......... (32,333,592) (49,383,242)
Class Y (9,410 and 0
shares, respectively) ............ (51,097) ---
------------ ------------
Net decrease in net
assets resulting from capital
share transactions ............ (7,991,804) (23,404,462)
------------ ------------
Total decrease ................ (2,396,791) (27,116,021)
Net Assets
Beginning of period ............... 149,532,941 176,648,962
------------ ------------
End of period ..................... $147,136,150 $149,532,941
============ ============
Undistributed net investment
income ......................... $--- $---
==== ====
*See "Financial Highlights" on pages .
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... 5.13 $5.23 $5.44 $5.01 $4.85
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... .34 .32 .30 .33 .37
Net realized and
unrealized gain
(loss) on
investments ..... .19 (0.10) (0.21) .43 .16
----- ----- ----- -----
Total from investment
operations ....... .53 .22 .09 .76 .53
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.34) (0.32) (0.30) (0.33) (0.37)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.32 $5.13 $5.23 $5.44 $5.01
===== ===== ===== ===== =====
Total return* ...... 10.48% 4.49% 1.56% 15.62% 11.22%
Net assets, end
of period (000
omitted) ......... $146,594$149,533$176,649$177,167$138,753
Ratio of expenses
to average net
assets ........... 0.83% 0.82% 0.75% 0.71% 0.75%
Ratio of net investment
income to average
net assets ....... 6.34% 6.30% 5.50% 6.29% 7.40%
Portfolio turnover
rate ............. 63.05% 41.57% 122.62% 81.41% 124.51%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period
from 9/27/95
through
3/31/96*
--------
Net asset value,
beginning of period $5.33
-----
Income from investment
operations:
Net investment
income .......... .17
Net realized and
unrealized loss on
investments...... (0.01)
-----
Total from investment
operations ........ .16
-----
Less dividends declared
from net investment
income ............ (0.17)
-----
Net asset value,
end of period ..... $5.32
=====
Total return ....... 3.04%
Net assets, end of
period (000
omitted) ......... $542
Ratio of expenses
to average net
assets ............ 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.40%**
Portfolio
turnover rate ..... 63.05%
*On July 31, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A
shares.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 -- Significant Accounting Policies
United Government Securities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. Its investment objective is to provide as high a current
income as is consistent with safety of principal by investing in a portfolio of
debt securites issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. 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 -- The Fund invests in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and in options
and futures contracts on those securities. Government debt securities are
valued using a pricing system provided by a major dealer in bonds. Other
securities are valued at the latest sale price thereof on the last business
day of the fiscal period as reported by the principal securities exchange
on which the issue is traded or, if no sale is reported, the average of the
latest bid and asked prices. Short-term debt securities are valued at
amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Interest income is recorded on the
accrual basis and includes differences between cost and face amount on
principal reductions of securities. See Note 3 -- Investment Security
Transactions.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
D. Dividends and distributions -- 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. At March 31, 1996, $7,393,852 was reclassified
between accumulated undistributed net realized gain on investment
transactions and additional paid-in capital.
E. Repurchase Agreements -- Repurchase agreements are collateralized by the
value of the resold securities which, during the entire period of the
agreement, remains at least equal to the value of the loan, including
accrued interest thereon. The collateral for the repurchase agreement is
held by the Fund's custodian bank.
F. Options -- See Note 5 -- Options.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of a "Group" fee computed each day on the combined net asset values of
all of the funds in the United Group of mutual funds (approximately $14.0
billion of combined net assets at March 31, 1996) at annual rates of .51% of the
first $750 million of combined net assets, .49% on that amount between $750
million and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45%
between $2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion,
.40% between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.0208 for each
shareholder account which was in existence at any time during the prior month
and $0.75 for each shareholder check which was processed, plus $0.30 for each
account on which a dividend or distribution of cash or shares was paid in that
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of .15% of the average daily net assets of the class for the
preceding month. The Fund also reimburses W&R and WARSCO for certain out-of-
pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions for Class A shares (which are not an expense of
the Fund) of $393,413, out of which W&R paid sales commissions of $222,071 and
all expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan for Class A shares adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay monthly a
fee to W&R in an amount not to exceed .25% of the Fund's average annual net
assets. The fee is to be paid to reimburse W&R for amounts it expends in
connection with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $6,107.
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 U.S. Government securities aggregated $99,435,663 while
proceeds from maturities and sales aggregated $92,364,780. Purchases of options
aggregated $1,103,694 while proceeds from options aggregated $1,100,535.
Purchases of short-term securities aggregated $809,355,000 while proceeds from
maturities and sales aggregated $824,350,000.
For Federal income tax purposes, cost of investments owned at March 31,
1996 was $145,347,789, resulting in net unrealized appreciation of $1,057,642,
of which $2,736,680 related to appreciated securities and $1,679,038 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$403,780 during the year ended March 31, 1996, which included losses of
$2,174,332 deferred from the year ended March 31, 1995 (see discussion below).
Capital loss carryovers aggregated $4,500,408 at March 31, 1996 and are
available to offset future realized capital gain net income for Federal income
tax purposes through March 31, 1997; $2,774,920 of this amount is available
through March 31, 1998; $2,015,486 is available through March 31, 2003; and
$403,780 is available through March 31, 2004.
Internal Revenue Code regulations permit the Fund to defer into its next
fiscal year net capital losses incurred between each November 1 and the end of
its fiscal year ("post-October losses"). From November 1, 1994 through March
31, 1995, the Fund incurred net long-term capital losses of $2,174,332 which
were deferred to the fiscal year ended March 31, 1996.
NOTE 5 -- Options
Options purchased by the Fund are accounted for in the same manner as
marketable portfolio securities. The cost of portfolio securities acquired
through the exercise of call options is increased by the premium paid to
purchase the call. The proceeds from securities sold through the exercise of
put options are decreased by the premium paid to purchase the put. The Fund
uses options to attempt to reduce the overall risk of its investments.
NOTE 6 -- Commencement of Multiclass Operations
On July 31, 1995, the Fund was authorized to offer investors a choice of two
classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. Class Y shares are not subject to a sales charge
on purchases; they are not subject to a Rule 12b-1 Service Plan and have a
separate transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of either class are
offered is contained in the prospectus and the Statement of Additional
Information for the Fund. The Fund commenced multiclass operations on September
27, 1996.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Government Securities 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 Government Securities Fund,
Inc. (the "Fund") at March 31, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
each of the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
May 10, 1996
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Government Securities Fund, Inc.
Included in Part B:
-------------------
As of March 31, 1996
Statement of Assets and Liabilities
For the fiscal year ended March 31, 1996
Statement of Operations
For each of the two years in the period ended March 31, 1996
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1996
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended, filed June 1, 1995 as EX-
99.B1-gschart to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*
Articles Supplementary, filed June 1, 1995 as EX-99.B1-gsarsupy
to Post-Effective Amendment No. 20 to the Registration Statement
on Form N-1A*
(2) Bylaws, as amended, attached hereto as EX-99.B2-gsbylaws
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed June 1, 1995 as
EX-99.B2-gschart to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A*; Article I, Article IV and
Article VII of the Bylaws of the Registrant, as amended, attached
hereto as EX-99.B2-gsbylaws
(5) Investment Management filed June 1, 1995 as EX-99.B5-gsima to
Post-Effective Amendment No. 20 to the Registration Statement on
Form N-1A*
Assignment of the Investment Management Agreement filed June 1,
1995 as EX-99.B5-gsassign to Post-Effective Amendment No. 20 to
the Registration Statement on Form N-1A*
(6) Underwriting Agreement, filed June 1, 1995 as EX-99.B6-gsua to
Post-Effective Amendment No. 20 to the Registration Statement on
Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended filed June 1, 1995 as EX-99.B8-
gsca to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A*
(9) Shareholder Servicing Agreement, attached hereto as EX-99.B9-
gsssa
Fund Class A application, attached hereto as EX-99.B9-gsappca
Fund Class Y application, filed June 1, 1995 as EX-99.B9-gsappcy
to Post-Effective Amendment No. 20 to the Registration Statement
on Form N-1A*
Fund NAV application, filed June 1, 1995 as EX-99.B9-gsappnav to
Post-Effective Amendment No. 20 to the Registration Statement on
Form N-1A*
Fund Class Y Letter of Understanding, attached hereto as EX-
99.B9-gslou
Accounting Services Agreement filed June 1, 1995 as EX-99.B9-
gsasa to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A*
Service Agreement filed by EDGAR July 30, 1993 as Exhibit (b)(15)
to Post-Effective Amendment No. 15 to the Registration Statement
on Form N-1A*
- ---------------------------------
*Incorporated herein by reference
Amendment to Service Agreement, filed June 1, 1995 as EX-99.B9-
gssaa to Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A*
(10) Not Applicable
(11) Consent of Independent Accountants, attached hereto as EX-99.B11-
gsconsnt
(12) Not Applicable
(13) Not Applicable
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-s401gis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd to
Pre-Effective Amendment No. 1 to the Registration Statement
- ---------------------------------
*Incorporated herein by reference
on Form N-1A of United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-smppgis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description
field December 16, 1994 as EX-99.B14-17-spspgis to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
(15) Service Plan, as restated, filed June 1, 1995 as EX-99.B15-gsspca
to Post-Effective Amendment No. 20 to the Registration Statement
on Form N-1A*
(16) Schedule for computation of average annual total return
performance quotations for Class A shares filed through EDGAR on
July 30, 1993 as Exhibit (b)(16) to Post-Effective Amendment No.
15 to the Registration Statement on Form N-1A*
Computation of yield performance quotations for Class A and Class
Y shares attached hereto as EX-99.B16-gsyield
(17) Financial Data Schedule, attached hereto as EX-27.B17-gsfds
(18) Multiple Class Plan, attached hereto as EX-99.B18-gsmcp
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class March 31, 1996
-------------- -------------------------------
Class A Capital Stock 15,055
Class Y Capital Stock 54
27. Indemnification
---------------
Reference is made to Section (7) of Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed June 1, 1995 as EX-99.B1-
gschart to Post-Effective Amendment No. 20 to the Registration Statement on
Form N-1A*, and to Article IV of the Underwriting Agreement, filed June 1,
1995 as EX-99.B6-gsua to Post-Effective Amendment No. 20 to the
- ---------------------------------
*Incorporated herein by reference
Registration Statement on Form N-1A*; each of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers and
employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant, and except for Mr. Ronald K.
Richey. Mr. Richey is Chairman of the Board and Chief Executive Officer of
Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a holding
company of which Waddell & Reed, Inc. is an indirect subsidiary. Mr.
Richey's address is 2001 Third Avenue South, Birmingham, Alabama 35233.
The address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter to the Registrant.
It is also the principal underwriter to the following investment
companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income 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
- ---------------------------------
*Incorporated herein by reference
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Parts A and B of
this Post-Effective Amendment and listed in response to Items (b)(9) and
(b)(15) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(b) of the Securities Act of 1933 and the Registrant has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 27th day of June, 1996.
UNITED GOVERNMENT SECURITIES FUND, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board June 27, 1996
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director June 27, 1996
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer June 27, 1996
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and June 27, 1996
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director June 27, 1996
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director June 27, 1996
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director June 27, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director June 27, 1996
- ------------------- ----------------
Linda Graves
Director
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director June 27, 1996
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director June 27, 1996
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director June 27, 1996
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B. Schwartz* Director June 27, 1996
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 27, 1996
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director June 27, 1996
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: April 24, 1996 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board April 24, 1996
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director April 24, 1996
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer April 24, 1996
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and April 24, 1996
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director April 24, 1996
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director April 24, 1996
- -------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director April 24, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves Director April 24, 1996
- -------------------- ----------------
Linda Graves
Director
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director April 24, 1996
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director April 24, 1996
- -------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director April 24, 1996
- -------------------- ----------------
Doyle Patterson
/s/Eleanor Schwartz Director April 24, 1996
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director April 24, 1996
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director April 24, 1996
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B2-gsbylaws
UNITED GOVERNMENT SECURITIES 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 dated
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 election directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third 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
that number of Directors named in the Articles of Incorporation, 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. One-third 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. Directors shall be entitled to
receive such compensation from the Corporation for their services as may from
time to time be voted by the Board of Directors.
Section 11. Power to Declare Dividends and/or Distributions: The Board of
Directors, from time to time as it may deem advisable, may declare and pay
dividends and/or distributions in shares of the Fund, cash or other property of
the Corporation, as determined by resolution of the Board of Directors out of
any source available for dividends and/or distributions, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
AMENDMENT OF BY-LAWS
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.
EX-99.B9-gsssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and between
UNITED GOVERNMENT SECURITIES FUND, INC., and Waddell & Reed Services Company
(the "Agent"), as amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, the Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder under a
particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph 1(3) above.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Causing checking accounts to be available and maintained for
shareholders who elect to redeem shares by drawing checks on such accounts,
including accepting or rejecting signatures on all checks drawn on the checking
account and notifying the payor bank to dishonor any check the Agent deems not
to be validly signed;
(f) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(g) 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;
(h) 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;
(i) 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;
(j) 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,
and maintenance of shareholder checking accounts pursuant to Section 3(1)(e)
herein above; (ii) long distance telephone costs incurred by the Agent for
telephone communications and microfilm and storage costs for transfer agency
records and documents; (iii) costs of all ancillary and supporting services and
related expenses (other than insurance premiums) reasonably required by and
provided to the Agent, other than by its employees or employees of an affiliate,
with respect to functions of the Company being performed by it in its capacity
as Agent hereunder, including legal advice and representation in litigation to
the extent that such payments are permitted under Paragraph 7 of this Agreement
and charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's or any Subagent's facilities in accordance with reasonable
procedures at the frequency necessary to assure proper administration of the
Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
The Company, at its expense, will include as part of its insurance
coverages maintained pursuant to Section 17(j) of the Investment Company Act of
1940 fidelity insurance with respect to forgery or alteration of checks drawn on
its checking account referred to in Section 3(1)(e) of this Agreement subject to
such deductible for this particular coverage as it may deem appropriate. The
Agent will maintain at is expense such insurance coverages with respect to the
Agent's duties under Section 3(1)(e) for loss caused by errors or omissions as
it deems appropriate. Any loss to the Company by reason of the deductible on
coverages maintained by it hereunder shall be paid by the Agent.
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, Inc. or 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 GOVERNMENT SECURITIES FUND, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested and $.75 for each check drawn on the
checking account of the Company maintained for its shareholders presented to
the Agent for review during the immediately preceding month.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015196B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $18,500,000
Audit Expense 500,000
On Premises 18,500,000
In Transit 18,500,000
Forgery or Alteration 18,500,000
Securities 18,500,000
Counterfeit Currency 18,500,000
Uncollectible Items of Deposit 25,000
Total Limit 18,500,000
Directors and Officers/ 87015196D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
and Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-gsappca
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office Stamp
Shawnee Mission, KS 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: ________
Date Transmitted: _____
________________________________________________________________________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other:___________________________
(Use this section for
Retirement Plans with
Custodians other than
Fiduciary Trust Co.)
________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new, Plan tear out
page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457 ____________________________________________
(If billing is required, Employer's Name (Do not Abbreviate)
attach form #CUF1417) _____________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________ Amt $______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: _____________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
________________________________________________________________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT:
(Must have same ownership) [][][][][][][]-[]
Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
_________________________
_______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
_________________________ _____________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
____________________________ ______________ ________ ____/_______-______
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS Make check payable to Waddell & Reed
Code Code
621-Income 626-Gold & Government
622-Science and Technology 627-Continental Income
623-Accumulative 628-High Income
624-Bond 629-Vanguard
625-International Growth 630-New Concepts
Code Code
634-High Income II 760-Municipal Bond (not available
680-Retirement Shares for Ret. Plans)
684-Asset Strategy 762-Municipal High Income (not
750-Cash Management available for Ret. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
Fund Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
Total $_________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
$_________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[][][] $__________ $__________ 19_____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
______ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This Purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671) [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___,___,___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time: _______________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_______________________________________________
Name & Address of Bank/Broker/Savings & Loan
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_______________________________________________
Name of Its Commercial Bank
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
___________________________________________________________________________
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents ___
4. Occupation: _________________________ 5. Employer Name: _____________________
6. Employer Address: ___________________________________________________________
7. Savings and Liquid Assets: $___ 11. Investment Objectives (mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $___ [] Retirement Savings
9. Net Worth (Assets minus liabilities): $___ [] Children's College []Income
10. Are you associated with an NASD Member? Yes ___ No ___ [] Other
needs/goals
(specify in
Special
Remarks)
12. Special Remarks/Considerations: _______________________________________
___________________________________________________________________________
13. Residence Address: ____________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGMENT
* I (we) have received a copy of the current prospectus of the Funds selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct and
(strike the following if not true) that I am not subject to tax withholding
because I have not been notified by the IRS that I am subject to withholding
as a result of a failure to report all interest and dividends or I was
subject to withholding and the IRS has notified me that I am no longer
subject to withholding.
* Since a major portion of the sales charge for Variable Investment Programs
is deducted from payments made in the first year, I understand that a loss
will undoubtedly result if I withdraw or discontinue payments during the
early years of the program.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
___________________ _________________________ ___________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ______________________________
Date Representative Signature
[OSJ: (H.O.USE) ] [][][][][]
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the
Custody Agreement:
By:____________________________________________
Fiduciary Trust Company Authorized Signature
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Parntership Confidential Questionnaire (CRP1186)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications _______________________________________
[] Check enclosed # _________________________________
[] Other: ___________________________________________
CAP0001(11/94)
EX-99.B9-gslou
DATE
ADDRESS
Dear:
The purpose of this Letter of Understanding is to confirm our mutual
understanding regarding the establishment of an account in the United Funds on
behalf of [NAME OF INSTITUTION OF PLAN] and our agreement as to subsequent
administrative procedures.
It is our understanding that the Plan wishes to establish an account in the
United Funds for the purpose of utilizing [FUND NAME] as a participant-directed
investment alternative. This Letter of Understanding shall serve as a
substitute application to open the account.
We will establish the mutual fund account upon receipt of the initial share
purchase with the following registration:
The Federal Tax Identification Number to be shown on the account is
.
We will set up the account to have dividend and capital gains (securities
profits) distributions reinvested rather than paid in cash. Exhibit A reflects
the frequency of anticipated distributions.
[The next two paragraphs are included only for employee benefit plan/accounts:]
By approving and signing the Letter of Understanding, you certify that the [PLAN
NAME] is a [401(k) / 403(b) / 457] plan having 100 or more eligible employees,
thereby qualifying the plan to establish an omnibus account, under the terms of
the [FUND NAME] Prospectus, for making purchases of Class Y shares, which are
priced at net asset value (no sales load).
The undersigned trustee on behalf of the Plan also certifies that it has the
authority to open such an account on behalf of [PLAN NAME].
It is our understanding that funds will be wire transferred from your bank for
the purpose of purchasing [FUND NAME] shares. To insure timely investment, any
wire must be received by United Missouri Bank by 2:00 p.m. (Central) on the day
of the wire. The following wire order instructions should be used:
United Missouri Bank, N.A.
ABA #101000695; United K.C.;
For Waddell & Reed Account #000-797-8
FBO (Registration of
Account)
Account No. (To be provided for each
account)
Notify Control Depart. 236-1978
When funds are to be wired from the account to your bank in accordance with your
request, the wire must be received by your bank by 1:00 p.m. Eastern on the day
of the wire. The following wire order instructions are to be used:
We offer to provide an enhanced level of service to ...your institution / the
Plan... and its authorized representatives. Contained in Exhibits B and C
hereto is information provided to allow us to provide this service. We cannot
overemphasize that our ability to serve the institutional client is dependent
upon the Plan's representatives interfacing with the members of our
institutional support staff as identified in Exhibit C.
If any of the above does not conform to your understanding and/or instructions,
or if you have questions or need additional information, please do not hesitate
to call me at the number shown on Exhibit C. We are very much looking forward
to our relationship with [NAME OF INSTITUTION OR NAMES OF PLAN AND TRUSTEE] and
are determined to provide the best possible service.
Sincerely,
SALES REP NAME
SALES REP TITLE
ACKNOWLEDGED AND APPROVED
[If signed by a plan trustee, add next line:]
AS TRUSTEE FOR
By:
Title:
Date:
The above signatory certifies that the following
persons are authorized to instruct transactions in the
account (type or print):
For Waddell & Reed use only:
Accepted:
<PAGE>
EXHIBIT A
FREQUENCY OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
[FUND NAME] ordinarily distributes investment income by way of a dividend once
per [NORMAL DIVIDEND FREQUENCY].
[FUND NAME] generally distributes capital gains (securities profits), if capital
gains are available for distribution, once each year in December, on the same
date as the December dividend distribution.
For the Fund and in the case of reinvested dividend and capital gain
distributions, the record date and the reinvestment date are the same. The per
share distribution amounts are applied to the share balance in the account after
the posting of that day's activity.
For the remainder of [YEAR], the ordinary dividend distribution dates would be
[DATES].
<PAGE>
EXHIBIT B
ADDITIONAL SERVICES WE WILL PROVIDE
The following services can be provided by us on an ongoing basis:
1. Coordinating purchases by notifying Waddell & Reed Services Company of each
incoming wire transfer and verifying the posting of the purchase(s) the
following business morning.
2. Confirming the purchase to you including: the date and dollar amount of the
investment, the purchase price and number of shares purchased, and the new Fund
account share balance.
3. Notifying you of dividend and/or capital gains distributions and
reinvestments including: the per share and dollar amount of distributions, the
date of reinvestment, the reinvestment price and number of shares purchased, and
the new Fund account share balance.
4. Processing redemptions based on your request by notifying Waddell & Reed
Services Company of the redemption, instructing them as to the outgoing wire
transfer, and verifying the posting of the redemption the following business
morning.
5. Confirming the redemption to you including: the date and dollar amount of
the redemption, the selling price and number of shares redeemed, and the new
Fund account share balance.
6. At the end of each month following the initial investment, we will provide
a report, if desired, which reflects all transactions in the account during the
previous month, and the share balance, net asset value per share and total
market value of the account.
Each of the confirmations, notifications and reports identified above will be
made available at your request, by telephone or facsimile transmission, as
appropriate to whomever you request.
<PAGE>
EXHIBIT C
LIST OF WADDELL & REED CONTACTS
During the period of account setup and initial wire transfer, your contacts at
Waddell & Reed are the following:
PRIMARY SECONDARY
Cynthia LaGree James McCroy
913-236-1722 913-236-1744
On an ongoing basis once the account is operational, your contacts are as
follows:
PRIMARY SECONDARY
Julie Herrick Dana Arth
913-236-1854 913-236-1853
BACKUP
Cynthia LaGree
913-236-1722
Our fax numbers are:
Primary: 913-236-1801
Secondary: 913-236-1888
EX-99.B11-gsconsnt
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 21 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated May
10, 1996, relating to the financial statements and financial highlights of
United Government Securities Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Class A Shares Prospectus and the Class Y Shares Prospectus which constitute
part of this Registration Statement. We also consent to the reference to us
under the heading "Custodial and Auditing Services" in such Statement of
Additional Information and to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in the Class A Shares Prospectus and
the Class Y Shares Prospectus.
Price Waterhouse
Kansas City, Missouri
June 27, 1996
<TABLE>
1FDCSY2 PAGE 25
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD GOVERNMENT SEC 000000000000053
<S> <C> <C> <C> <C> <C> <C>
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
3128F4QK0 FHLMC GOLD D64958 MORTGAGE 0.00 6.50000000 NO PAYDOWN
3128F6AC0 HFGLMC GOLD POOL# D66303 MORTGAGE 55,004.19 7.00000000
31283GDD6 FHLMC GOLD G00100 MORTGAGE 22,781.50 8.00000000
312908X43 FHR 1228 G MORTGAGE 28,225.81 7.00000000 NO PAYDOWN
31340MVC6 FHLMC POOL 181511 MORTGAGE 1,207.95 7.50000000
31345PXY4 FHLMC 500695 SWAP ..MORTGAGE 911.03 44 11.00000000 NO GAIN/LOSS
31358LU61 FNR 1992-25 J ..MORTGAGE 30,241.94 21 7.50000000 NO PAYDOWN
31358MPS7 FNMA REMIC G92-23 E ..MORTGAGE 1 20,491.94 46 7.50000000 NO PAYDOWN
31358TYZ6 FNR 93-24-PM ..MORTGAGE 37,935.48 00 7.00000000 NO PAYDOWN
31359BEF0 FNMA REMIC 93-131 D ..MORTGAGE 24,193.55 6.00000000 NO PAYDOWN
31359LKU8 FNMA 94-M5 B ..MORTGAGE 33,870.97 68 8.40000000 NO PAYDOWN
31362WLJ3 FNMA DUS MF #73229 MORTGAGE 37,397.89 7.42000000 NO GAIN/LOSS
313627DN8 FNMA-MF #80209 MORTGAGE 33,296.84 8.50000000 PAGE 19
31363WBL8 FNMA PASS THRU #100042 MORTGAGE 50,462.32 11.00000000 NO GAIN/LOSS
31373TWR7 FNMA MEGA PT 303156 SEMORTGAGEIS 55,594.55 UR 7.00000000 IL
36203K2Q6 GNMA 351883 MORTGAGE 4,945.30 7.50000000 PAGE 20
36203LER9 GNMA #352144 MORTGAGE 4,694.67 7.50000000 NO GAIN/LOSS
36203L4U3 GNMA #352835 SEMORTGAGEIS 24,771.12 UR 7.50000000 IL
36203P6G3 GNMA #355571 MORTGAGE 3,893.47 7.50000000 PAGE 21
36203RZT9 GNMA POOL 357254 MORTGAGE 26,539.33 7.50000000 NO GAIN/LOSS
36203UC59 GNMA #359292 SEMORTGAGEIS 4,663.14 UR 7.50000000 IL
36203UUK6 GNMA 359786 MORTGAGE 4,885.69 7.50000000 NO GAIN/LOSS PAGE 22
36214M3N5 GNMA II POOL 110705 MORTGAGE 104.96 9.50000000
362165MM1 GNMA #184064 SEMORTGAGEIS 24,624.80 UR 7.00000000 IL
36218Y6V4 GNMA 221D4 236784 MORTGAGE 23,257.21 9.75000000 PAGE 23
36219MTU6 GNMA223F #253563 MORTGAGE 15,038.58 8.50000000
36219RYA3 GN221D4 257305 MORTGAGE 8,772.77 10.50000000 PAGE 24
63252FAA7 NATL ARCHIVES FACILITY TR YTM 27,849.86 7.44133530 STANDARD YTM INC BASED ON EFF DT
761157AG1 RESOLUTION FUNDING CORP SEYTM IS 23,295.09 UR 6.88949440 ILSTANDARD YTM
83162CGA5 US GOVT GUAR SBA 95-20F FOYTM RI 28,622.38 HR 7.01396320 STANDARD YTM
871924AA4 HSYN OTR TREAS YTM 32,556.00 6.64470170 STANDARD YTM
912810ES3 US TREASURY BOND YTM 10,449.79 6.75955190 STANDARD YTM
912827G55 US TREASURY NOTE YTM 33,434.01 6.26190450 STANDARD YTM
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 1,136.55 5.30000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 595.47 51 5.28000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 587.32 06 5.24000000
912827RPA REPURCHASE AGREEMENT JOM..ACTUAL 561.87 40 5.16000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 547.54 00 5.10000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 1,626.64 5.13000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 592.10 48 5.18000000
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 22.08 5.30000000
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 14.44 5.20000000 PAGE 25
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 2,542.93 5.12500000
912827RPA REPURCHASE AGREEMENT JPMSEACTUAL IS 856.59 UR 5.24000000 IL
1FDCSY2 PAGE 26
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD GOVERNMENT SEC 000000000000053
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
912827RPA REPURCHASE AGREEMENT JPMFOACTUAL RI 837.06 HR 5.20000000
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 941.11 5.50000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 928.68 44 5.37500000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 2,660.67 21 5.20000000
912827R87 US TREASURY NOTE ..YTM 1 69,671.72 46 6.39216040 STANDARD YTM
912833GC8 US TREASURY STRIP ..YTM 50,934.09 00 6.86785550 STANDARD YTM
1FDCSY2 PAGE 27
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD GOVERNMENT SEC 000000000000053
0 S U M M A R Y D A T A CLASS 01
0 TOTAL INCOME.................. 865,871.07
0 TOTAL EXPENSES................ 78,305.06-
0 AVERAGE SHARES................ 27,626,083.5358
0 MAXIMUM OFFERING PRICE........ 5.560000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 6.232230
0
1FDCSY2 PAGE 28
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD GOVERNMENT SEC 000000000000053
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
3128F4QK0 FHLMC GOLD D64958 MORTGAGE 0.00 6.50000000 NO PAYDOWN
3128F6AC0 FGLMC GOLD POOL# D66303 ..MORTGAGE 55,004.19 51 7.00000000
31283GDD6 FHLMC GOLD G00100 ..MORTGAGE 22,781.50 06 8.00000000
312908X43 FHR 1228 G ..MORTGAGE 28,225.81 40 7.00000000 NO PAYDOWN
31340MVC6 FHLMC POOL 181511 ..MORTGAGE 1,207.95 00 7.50000000
31345PXY4 FHLMC 500695 SWAP ..MORTGAGE 911.03 11.00000000 NO GAIN/LOSS
31358LU61 FNR 1992-25 J ..MORTGAGE 30,241.94 48 7.50000000 NO PAYDOWN
31358MPS7 FNMA REMIC G92-23 E MORTGAGE 20,491.94 7.50000000 NO PAYDOWN
31358TYZ6 FNR 93-24-PM MORTGAGE 37,935.48 7.00000000 NO PAYDOWN PAGE 25
31359BEF0 FNMA REMIC 93-131 D MORTGAGE 24,193.55 6.00000000 NO PAYDOWN
31359LKU8 FNMA 94-M5 B SEMORTGAGEIS 33,870.97 UR 8.40000000 ILNO PAYDOWN
31362WLJ3 FNMA DUS MF #73229 MORTGAGE 37,397.89 7.42000000 NO GAIN/LOSS PAGE 26
313627DN8 FNMA-MF #80209 MORTGAGE 33,296.84 8.50000000
31363WBL8 FNMA PASS THRU #100042 SEMORTGAGEIS 50,462.32 UR 11.00000000 ILNO GAIN/LOSS
31373TWR7 FNMA MEGA PT 303156 FOMORTGAGERI 55,594.55 HR 7.00000000
36203K2Q6 GGNMA 351883 MORTGAGE 4,945.30 7.50000000
36203LER9 GNMA #352144 MORTGAGE 4,694.67 7.50000000 NO GAIN/LOSS
36203L4U3 GNMA #352835 MORTGAGE 24,771.12 7.50000000
36203P6G3 GNMA #355571 MORTGAGE 3,893.47 7.50000000
36203RZT9 GNMA POOL 357254 MORTGAGE 26,539.33 7.50000000 NO GAIN/LOSS
36203UC59 GNMA #359292 FOMORTGAGERI 4,663.14 HR 7.50000000
36203UUK6 GNMA 359786 MORTGAGE 4,885.69 7.50000000 NO GAIN/LOSS
36214M3N5 GNMA II POOL 110705 ..MORTGAGE 104.96 44 9.50000000
362165MM1 GNMA #184064 ..MORTGAGE 24,624.80 21 7.00000000
36218Y6V4 GNMA 221D4 236784 ..MORTGAGE 1 23,257.21 46 9.75000000
36219MTU6 GNMA223F #253563 ..MORTGAGE 15,038.58 00 8.50000000
36219RYA3 GN221D4 257305 MORTGAGE 8,772.77 10.50000000 PAGE 27
63252FAA7 NATL ARCHIVES FACILITY TR YTM 27,849.86 7.44133530 STANDARD YTM INC BASED ON EFF DT
761157AG1 RESOLUTION FUNDING CORP SEYTM IS 23,295.09 UR 6.88949440 ILSTANDARD YTM
83162CGA5 US GOVT GUAR SBA 95-20F FOYTM RI 28,622.38 HR 7.01396320 STANDARD YTM
871924AA4 GSYN OTR TREAS YTM 32,556.00 6.64470170 STANDARD YTM
912810ES3 US TREASURY BOND YTM 10,449.79 6.75955190 STANDARD YTM
912827G55 US TREASURY NOTE YTM 33,434.01 6.26190450 STANDARD YTM
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 1,136.55 5.30000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 595.47 07 5.28000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 587.32 06 5.24000000
912827RPA REPURCHASE AGREEMENT JOM..ACTUAL 561.87 58 5.16000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 547.54 00 5.10000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 1,626.64 5.13000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 592.10 30 5.18000000
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 22.08 5.30000000
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 14.44 5.20000000 PAGE 28
912827RPA REPURCHASE AGREEMENT JPM ACTUAL 2,542.93 5.12500000
912827RPA REPURCHASE AGREEMENT JPMSEACTUAL IS 856.59 UR 5.24000000 IL
1FDCSY2 PAGE 29
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD GOVERNMENT SEC 000000000000053
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
912827RPA REPURCHASE AGREEMENT JPMFOACTUAL RI 837.06 HR 5.20000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 941.11 00 5.50000000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 928.68 5.37500000
912827RPA REPURCHASE AGREEMENT JPM..ACTUAL 2,660.67 48 5.20000000
912827R87 US TREASURY NOTE YTM 69,671.72 6.39216040 STANDARD YTM
912833GC8 US TREASURY STRIP YTM 50,934.09 6.86785550 STANDARD YTM PAGE 25
1FDCSY2 PAGE 30
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 UTD GOVERNMENT SEC 000000000000053
0 S U M M A R Y D A T A CLASS 03
0 TOTAL INCOME.................. 3,199.92
0 TOTAL EXPENSES................ 268.53-
0 AVERAGE SHARES................ 102,074.7661
0 MAXIMUM OFFERING PRICE........ 5.320000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 6.565808
0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000702331
<NAME> UNITED GOVERNMENT SECURITIES FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 145,246,267
<INVESTMENTS-AT-VALUE> 146,405,431
<RECEIVABLES> 4,387,648
<ASSETS-OTHER> 10,540
<OTHER-ITEMS-ASSETS> 10,392
<TOTAL-ASSETS> 150,814,011
<PAYABLE-FOR-SECURITIES> 2,731,142
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 946,719
<TOTAL-LIABILITIES> 3,677,861
<SENIOR-EQUITY> 276,809
<PAID-IN-CAPITAL-COMMON> 150,297,504
<SHARES-COMMON-STOCK> 27,680,949
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,597,327)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,159,164
<NET-ASSETS> 147,136,150
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,903,880
<OTHER-INCOME> 0
<EXPENSES-NET> (1,260,734)
<NET-INVESTMENT-INCOME> 9,643,146
<REALIZED-GAINS-CURRENT> 1,906,921
<APPREC-INCREASE-CURRENT> 3,688,092
<NET-CHANGE-FROM-OPS> 15,238,159
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,643,146)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,927,264
<NUMBER-OF-SHARES-REDEEMED> 6,036,172
<SHARES-REINVESTED> 1,617,872
<NET-CHANGE-IN-ASSETS> (2,396,791)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 625,544
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,260,734
<AVERAGE-NET-ASSETS> 152,200,594
<PER-SHARE-NAV-BEGIN> 5.13
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> (.34)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.32
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B18-gsmcp
UNITED GOVERNMENT SECURITIES 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 Government Securities Fund, Inc. ("Fund"). This
multiple class structure was approved by the Board of Directors of the Fund on
February 8, 1995, under an order of exemption issued by the Securities and
Exchange Commission on January 11, 1995. Subsequent to such approval, Rule 18f-
3 under the 1940 Act was adopted. It was determined that the Fund operate under
Rule 18f-3, and this Plan was adopted pursuant to Rule 18f-3. This Plan
describes the classes of shares of stock of the Fund -- Class A shares and Class
Y shares -- offered to the public on or after July 31, 1995 ("Implementation
Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 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 Rule 12b-1 fee. Class Y shares are designed for
institutional investors and will be available for purchase by: (i) participants
of employee benefit plans established under section 403(b) or section 457, or
qualified under section 401, including 401(k) plans, of the Internal Revenue
Code of 1986 ("Code"), when the plan has 100 or more eligible employees and
holds the shares in an omnibus account on the Fund's records; (ii) banks, trust
institutions, investment fund administrators and other third parties investing
for their own accounts or for the accounts of their customers where such
investments for customer accounts are held in an omnibus account on the Fund's
records; (iii) government entities or authorities and corporations whose
investment within the first twelve months after initial investment is $10
million or more; and (iv) certain retirement plans and trusts for employees and
sales representatives of Waddell & Reed, Inc. and its affiliates.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class A shares
and Class Y shares of the Fund differ with respect to the applicable shareholder
servicing fees. Class A shares pay a monthly shareholder servicing fee of
$1.0208 for each Class A shareholder account which was in existence during the
prior month, plus $0.30 for each Class A account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class of shares;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
These expenses may, but are not required to, be directly attributed and
charged to a particular Class. The shareholder servicing fees and other
expenses listed above that are attributed and charged to a particular Class are
borne on a pro rata basis by the outstanding shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class A shares of the Fund may be exchanged for corresponding shares of any
other fund in the United Group of Mutual Funds.
Class Y shares may be exchanged for Class Y shares of any other fund in the
United Group of Mutual Funds.
These exchange privileges may be modified or terminated by the Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the Fund's multiple class structure.
Adopted: June 1, 1995
As Amended: December 5, 1995
Effective: January 9, 1996
June 27, 1996
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Government Securities Fund, Inc.
Post-Effective Amendment No. 21
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:mmd
