Waddell & Reed Advisors
Government
Securities
Fund, Inc.
ANNUAL
REPORT
-------------------------------------------
September 30, 2000
<PAGE>
CONTENTS
3 Manager's Letter
5 Performance Summary
8 Portfolio Highlights
9 Investments
12 Statement of Assets and Liabilities
13 Statement of Operations
14 Statement of Changes in Net Assets
15 Financial Highlights
19 Notes to Financial Statements
24 Independent Auditors' Report
25 Income Tax Information
26 Directors & Officers
This report is submitted for the general information of the shareholders of
Waddell & Reed Advisors Government Securities Fund, Inc. It is not authorized
for distribution to prospective investors in the Fund unless accompanied with or
preceded by the Waddell & Reed Advisors Government Securities Fund, Inc. current
prospectus and current Fund performance information.
<PAGE>
MANAGER'S LETTER OF GOVERNMENT SECURITIES FUND
-----------------------------------------------------------------
SEPTEMBER 30, 2000
Dear Shareholder:
This report relates to the operation of the Waddell & Reed Advisors Government
Securities Fund, Inc. for the fiscal period ended September 30, 2000. The
following graphs and tables provide you with information regarding the Fund's
performance during the period, while the following discussion provides you with
information regarding the Fund's performance during the twelve months ended
September 30, 2000. The Fund's board of directors recently approved a change in
the Fund's fiscal year-end from March 31 to September 30.
Typically, the change in interest rates is the primary barometer for the
performance of bond funds. Over the last 12 months, however, the Fund was most
affected by the shape of the yield curve and the spread between mortgage-backed
bonds and the underlying benchmark Treasury bond yield. During the year, short-
term rates rose almost 1.5 percentage points, long-term rates barely moved and
the spread between mortgage-backed securities to the Treasury rate was a roller
coaster.
Short-term rates rose, but long rates held steady, despite potential
inflationary pressure. The fear of inflation, due to the economy's strength,
prompted the Fed to raise rates from 5.25 percent last October to its base rate
of 6.5 percent today. This, however, did not affect longer-term Treasury rates.
Usually long rates follow Fed-affected short rates, and usually the yield curve
does not invert. The Treasury bond yield curve is the graphic representation of
expected rates of return, for each maturity of bonds, from three-month Treasury
bills to 30-year bonds. In the past century or so, rarely has the yield curve
inverted, i.e. long-term rates drifting lower than short-term rates. This year
it happened.
It happened this year because long rates did not rise as the Fed might have
expected. The U.S. Treasury bought back some of its long-term debt. The U.S.
dollar got stronger, calming inflation fears and luring foreign investment to
the U.S. bond market. And finally, economic productivity seemingly offset
inflation expectations.
What did change -- and this is what caused mayhem in the bond markets, we feel -
- was that so-called bond spreads widened precipitously. In a normal
environment where the Treasury bond yield curve is upward sloping, all other
sorts of bonds (such as bonds issued by U.S. government agencies and mortgage-
backed securities, which comprise about 10 percent and 75 percent, respectively,
of the Fund's portfolio) are measured against a Treasury bond benchmark. But
with the yield curve inverted and with some market participants feeling that
long-term Treasuries were becoming extinct, the "other bonds' anchor" was lost.
Concurrently, mortgage-backed security spreads widened from a low of
approximately 75 basis points in January 2000, to a high of approximately 145
basis points in April. Mortgage rates had similar upward movements during the
year. When interest rates and spreads go up, bond prices and net asset value go
down. These spread movements had the greatest marginal influence on the Fund's
annual rate of return.
During the last year, we have maintained our heavy exposure to higher-yielding
mortgage-backed securities, especially the collateralized mortgage obligations
that have a measure of protection against interest rate swings. We extended the
Fund's exposure to long-term Treasury securities at the beginning of the year
when the Treasury initiated its buyback program. Also, we traded some shorter-
term mortgage securities for intermediate-maturity ones, as we believe that the
"disinverting" yield curve will be beneficial to intermediate securities,
especially in the mortgage-backed arena.
The strategies and techniques we have employed resulted in the Fund
underperforming its benchmark indices over the last twelve months. The Fund saw
an increase of 1.74 percent during the last 12 months, as compared with the
Lipper General U.S. Government Funds Universe Average (which reflects the
performance of the universe of funds with similar investment objectives), which
returned 6.12 percent for the year, and the Salomon Brothers Treasury/Govt.
Sponsored/Mortgage Bond Index (which reflects the performance of securities that
generally represent the U.S. government securities market, including mortgage-
backed securities), which returned 7.28 percent over the same period. As noted
above, our heavy exposure in mortgages made it difficult for us to take full
advantage of the U.S. Treasury buyback program.
During 2001, we believe that the yield curve should return to its more normal,
upwardly sloping shape, and that this will permit corporate and mortgage spreads
to compress. We also feel that longer-term rates may rise a bit after declining
to cyclical lows this past year. This rise may be caused by a slight increase
in inflation and perhaps a decline in the value of the U.S. dollar, especially
against the euro. Thank you for your continuing interest in the Fund and your
ongoing confidence in our organization.
Sincerely,
James C. Cusser
Manager, Waddell & Reed Advisors Government Securities Fund, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment
===== Waddell & Reed Advisors Government Securities Fund, Inc., Class A Shares*
- $18,699
+++++ Salomon Brothers Treasury/Government Sponsored/Mortgage Bond Index -
$20,047
----- Lipper General U.S. Govt. Funds Universe Average - $18,226
Waddell & Reed
Advisors
GovernmentSalomon Brothers Lipper
Securities Treasury/ General U.S.
Fund,Government Spon- Govt. Funds
Class sored/Mortgage Universe
A Shares Bond Index Average
-------------------------- ------------
03-31-91 Purchase $ 9,575 $10,000 $10,000
03-31-92 10,649 11,134 11,014
03-31-93 12,312 12,584 12,406
03-31-94 12,505 12,886 12,616
03-31-95 13,067 13,522 13,010
03-31-96 14,437 14,946 14,266
03-31-97 14,978 15,678 14,759
03-31-98 16,753 17,518 16,469
03-31-99 17,664 18,669 17,360
03-31-00 17,985 19,101 17,500
09-30-00 18,699 20,047 18,226
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Average Annual Total Return+
Class A Class B Class C Class Y
----------------------------------------------
Year Ended
9-30-00 1.74% --- --- 6.64%
5 Years Ended
9-30-00 4.89% --- --- 6.08%
10 Years Ended
9-30-00 7.15% --- --- ---
Since inception of
Class++ through
9-30-00 --- 0.51% 4.64% 6.18%
+Performance data quoted represents past performance and is based on deduction
of the maximum applicable sales load for each of the periods. Class A shares
carry a maximum front-end sales load of 4.25%. Class B and Class C shares
carry maximum contingent deferred sales charges of 5% and 1%, respectively.
Total returns reflect share price appreciation, including reinvestment of all
income and capital gains distributions. Investment return and principal value
will fluctuate and an investor's shares, when redeemed, may be worth more or
less than their original cost.
++10-4-99 for Class B shares, 10-8-99 for Class C shares and 9-27-95 for Class Y
shares (the date on which shares were first acquired by shareholders).
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
-------------------------------------------------------------
Waddell & Reed Advisors Government Securities Fund, Inc.
PORTFOLIO STRATEGY:
GOAL: To seek as high a current
income as is consistent with
safety of principal.(Fun shares
are not
guaranteed by the
U.S. Government or any
government agency.)
STRATEGY: Invests exclusively in debt
securities issued or guaranteed
by the U.S. Government or its
agencies or instrumentalities.
The Fund invests in a
diversified portfolio of U.S.
Government securities, including
treasury issues and mortgage-backed
securities. The Fund has no
limitations on the range of
maturities of the debt
securities in which it may invest.
FOUNDED: 1982
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Fiscal Period Ended September 30, 2000
---------------------------------------------
DIVIDENDS PAID $0.15
=====
NET ASSET VALUE ON
9-30-00 $5.27
3-31-00 5.22
------
CHANGE PER SHARE $0.05
======
Past performance is not necessarily indicative of future results.
AVERAGE ANNUAL TOTAL RETURN (A)
Class A Class B
----------------------- ------------------------
With Without With Without
Period Sales Load(B) Sales Load(C) CDSC(D) CDSC(E)
------ ---------- ---------- ----------- ----------
1-year period
ended 9-30-00 1.74% 6.26% --- ---
5-year period
ended 9-30-00 4.89% 5.80% --- ---
10-year period
ended 9-30-00 7.15% 7.62% --- ---
Cumulative return
since inception
of Class (F) --- --- 0.51% 5.51%
(A)Performance data represents share price appreciation, including reinvestment
of all income and capital gains distributions. Performance data represents
past performance and is no guarantee of future results. Share price,
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(B)Performance data is based on deduction of 4.25% sales load on the initial
purchase in the periods.
(C)Performance data does not take into account the sales load deducted on an
initial purchase.
(D)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at the end
of the period.
(E)Performance data does not reflect the effect of paying the applicable CDSC
upon redemption at the end of the period.
(F)10-4-99 for Class B shares (the date on which shares were first acquired by
shareholders).
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (A)
Class C Class Y(B)
----------------------- ----------
With Without
Period CDSC(C) CDSC(D)
------ ---------- ----------
1-year period
ended 9-30-00 --- --- 6.64%
5-year period
ended 9-30-00 --- --- 6.08%
10-year period
ended 9-30-00 --- --- ---
Cumulative return
since inception
of Class (E) 4.64% 5.64% ---
Since inception
of Class (E) --- --- 6.18%
(A)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions.
Performance data represents past performance and is no guarantee
of future results. Share price, investment return and principal
value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their
original cost.
(B)Performance data does not include the effect of sales charges, as
Class Y shares are not subject to these charges.
(C)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 1.00% which declines to
zero at the end of the first year after investment.
(D)Performance data does not reflect the effect of paying the applicable
CDSC upon redemption at the end of the period.
(E)10-8-99 for Class C shares and 9-27-95 for Class Y shares (the date on
which shares were first acquired by shareholders).
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 2000, Waddell & Reed Advisors Government Securities Fund, Inc.
had net assets totaling $119,066,604 invested in a diversified portfolio.
As a shareholder of Waddell & Reed Advisors Government Securities Fund, Inc.,
for every $100 you had invested on September 30, 2000, your Fund owned:
$31.53 Federal National Mortgage Association Bonds
23.56 Miscellaneous U.S. Government Backed Bonds
21.31 Federal Home Loan Mortgage Corporation Bonds
13.23 United States Treasury
6.79 Government National Mortgage Association Bonds
3.58 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-03 ......................... $ 15 $ 15,570
7.5%, 9-1-07 .......................... 46 46,385
6.5%, 9-25-18 ......................... 2,500 2,431,250
7.0%, 1-15-19 ......................... 4,500 4,483,125
6.25%, 1-15-21 ........................ 3,500 3,423,420
8.0%, 2-1-23 .......................... 1,048 1,063,110
6.5%, 11-1-24 ......................... 1,718 1,661,917
7.0%, 12-1-25 ......................... 5,705 5,594,868
7.5%, 3-15-29 ......................... 3,500 3,487,960
7.5%, 9-15-29 ......................... 3,233 3,162,162
Total ................................. 25,369,767
Federal National Mortgage Association:
8.5%, 8-1-01 .......................... 1,042 1,041,841
7.135%, 6-1-07 ........................ 5,530 5,586,526
7.15%, 6-1-07 ......................... 2,244 2,267,039
8.4%, 2-25-09 ......................... 2,995 3,053,210
6.09%, 4-1-09 ......................... 3,944 3,731,552
6.147%, 4-1-09 ........................ 3,005 2,858,436
0.0%, 2-12-18 ......................... 2,500 763,550
7.0%, 9-25-20 ......................... 500 497,340
6.5%, 8-25-21 ......................... 7,000 6,807,500
7.0%, 12-1-23 ......................... 5,091 4,986,227
7.42%, 10-1-25 ........................ 5,984 5,953,522
Total ................................. 37,546,743
Government National Mortgage Association:
7.0%, 7-15-23 ......................... 2,361 2,327,762
7.0%, 8-20-27 ......................... 650 636,916
9.75%, 11-15-28 ....................... 2,893 3,138,995
7.75%, 10-15-31 ....................... 1,952 1,977,067
Total ................................. 8,080,740
United States Treasury:
7.5%, 2-15-05 ......................... 3,500 3,710,560
6.5%, 8-15-05 ......................... 2,500 2,562,900
7.0%, 7-15-06 ......................... 1,000 1,051,250
11.25%, 2-15-15 ....................... 3,800 5,648,928
6.125%, 11-15-27 ...................... 2,750 2,775,355
Total ................................. 15,748,993
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Miscellaneous United States Government
Backed Securities:
Federal Agricultural Mortgage Corporation
Guaranteed Agricultural Mortgage-Backed
Securities,
7.066%, 1-25-12 ..................... $ 6,582 $ 6,404,119
Tennessee Valley Authority,
5.88%, 4-1-36 ....................... 7,750 7,487,895
United States Department of Veterans Affairs,
Guaranteed REMIC Pass-Through Certificates,
Vendee Mortgage Trust:
1998-1 Class 2-B,
7.0%, 6-15-19 ....................... 3,000 2,987,790
1998-3 Class B,
6.5%, 5-15-20 ....................... 1,500 1,467,645
1999-1 Class 2-B,
6.5%, 8-15-20 ....................... 3,000 2,901,540
2000-2 Class 2-D,
7.5%, 9-15-26 ....................... 3,250 3,291,632
United States 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%, 6-1-15 ........................ 3,616 3,510,871
Total ............................... 28,051,492
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 96.42% $114,797,735
(Cost: $115,775,571)
TOTAL SHORT-TERM SECURITIES - 2.63% $ 3,136,080
(Cost: $3,136,080)
TOTAL INVESTMENT SECURITIES - 99.05% $117,933,815
(Cost: $118,911,651)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.95% 1,132,789
NET ASSETS - 100.00% $119,066,604
Notes to Schedule of Investments
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>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $117,934
Cash ............................................ 32
Receivables:
Interest......................................... 1,352
Fund shares sold ................................ 146
Investment securities sold ...................... 1
Prepaid insurance premium ........................ 12
Other assets ...................................... 18
--------
Total assets .................................. 119,495
--------
Liabilities
Payable to Fund shareholders ..................... 308
Dividends payable ................................ 57
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 25
Accrued service fee (Note 2) ..................... 19
Accrued accounting services fee (Note 2) ......... 4
Accrued distribution fee (Note 2) ................ 4
Accrued management fee (Note 2) .................. 3
Other ............................................ 8
--------
Total liabilities ............................. 428
--------
Total net assets.............................. $119,067
========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 226
Additional paid-in capital ...................... 122,204
Accumulated undistributed loss:
Accumulated undistributed net realized loss on
investment transactions ....................... (2,385)
Net unrealized depreciation in value of
investments ................................... (978)
--------
Net assets applicable to outstanding units
of capital ................................... $119,067
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.27
Class B .......................................... $5.27
Class C .......................................... $5.27
Class Y .......................................... $5.27
Capital shares outstanding
Class A .......................................... 21,681
Class B .......................................... 289
Class C .......................................... 135
Class Y .......................................... 483
Capital shares authorized .......................... 3,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
(In Thousands)
For the For the
fiscal fiscal year
period ended ended
September 30, March 31,
2000 2000
------------- ----------
Investment Income
Interest and amortization (Note 1B) $4,094 $9,004
------ ------
Expenses (Note 2):
Investment management fee ........ 294 618
Transfer agency and dividend disbursing:
Class A ......................... 137 336
Class B ......................... 2 1
Class C ......................... 1 ---*
Service fee:
Class A ......................... 132 301
Class B ......................... 1 ---*
Class C ......................... 1 ---*
Accounting services fee .......... 21 40
Distribution fee:
Class A ......................... 10 25
Class B ......................... 4 2
Class C ......................... 2 ---*
Audit fees ....................... 7 10
Custodian fees ................... 4 9
Shareholder servicing - Class Y .. 2 3
Legal fees ....................... 1 7
Other ............................ 39 112
------ ------
Total expenses ................. 658 1,464
------ ------
Net investment income ......... 3,436 7,540
------ ------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on investments ... (102) (739)
Unrealized appreciation (depreciation)
in value of investments during the
period ........................... 1,220 (4,577)
------ ------
Net gain (loss) on investments ... 1,118 (5,316)
------ ------
Net increase in net assets resulting from
operations .................... $4,554 $2,224
====== ======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the For the fiscal
fiscal year ended
period March 31,
ended ---------------
9-30-00 2000 1999
-------- ---- ----
Increase (Decrease) in Net Assets
Operations:
Net investment income .......... $ 3,436 $ 7,540 $ 7,892
Realized net gain (loss) on
investments .................. (102) (739) 1,192
Unrealized appreciation
(depreciation) ............... 1,220 (4,577) (2,312)
-------- -------- --------
Net increase in net assets
resulting from operations ... 4,554 2,224 6,772
............................. -------- -------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A ........................ (3,328) (7,397) (7,788)
Class B ........................ (24) (10) ---
Class C ........................ (13) (3) ---
Class Y ........................ (71) (130) (104)
............................. -------- -------- --------
............................. (3,436) (7,540) (7,892)
............................. -------- -------- --------
Capital share transactions
(Note 5) ....................... (1,843) (11,340) 4,219
-------- -------- -------
Total increase (decrease) ... (725) (16,656) 3,099
Net Assets
Beginning of period ............. 119,792 136,448 133,349
-------- -------- --------
End of period ................... $119,067 $119,792 $136,448
............................. ======== ======== ========
Undistributed net investment income $--- $--- $---
............................. ==== ==== ====
*See "Financial Highlights" on pages 15 - 18.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
fiscal For the fiscal year
period ended March 31,
ended--------------------------------------
9-30-00 2000 1999 1998 1997 1996
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.22 $5.43 $5.46 $5.19 $5.32 $5.13
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.15 0.31 0.32 0.33 0.33 0.34
Net realized and
unrealized gain
(loss) on
investments ..... 0.05 (0.21) (0.03) 0.27 (0.13) 0.19
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.20 0.10 0.29 0.60 0.20 0.53
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.15) (0.31) (0.32) (0.33) (0.33) (0.34)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $5.27 $5.22 $5.43 $5.46 $5.19 $5.32
===== ===== ===== ===== ===== =====
Total return* ...... 3.97% 1.82% 5.44% 11.84% 3.75% 10.48%
Net assets, end
of period (in
millions) ........ $114 $117 $134 $131 $129 $146
Ratio of expenses
to average net
assets ........... 1.12%** 1.12% 0.96% 0.89% 0.91% 0.83%
Ratio of net investment
income to average
net assets ....... 5.85%** 5.77% 5.82% 6.14% 6.17% 6.34%
Portfolio turnover
rate ............. 15.79% 26.78% 37.06% 35.18% 34.18% 63.05%
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal from
period 10-4-99*
ended through
9-30-00 3-31-00
------- -------
Net asset value,
beginning of period $5.22 $5.25
---- ----
Income from investment
operations:
Net investment
income .......... 0.13 0.13
Net realized and
unrealized gain (loss)
on investments .. 0.05 (0.03)
---- ----
Total from investment
operations ....... 0.18 0.10
---- ----
Less dividends declared
from net investment
income ........... (0.13) (0.13)
---- ----
Net asset value,
end of period .... $5.27 $5.22
==== ====
Total return ....... 3.56% 1.88%
Net assets, end of
period (in millions) $2 $1
Ratio of expenses
to average
net assets ....... 1.92%** 1.85%**
Ratio of net investment
income to average
net assets ....... 5.04%** 5.19%**
Portfolio turnover
rate ............. 15.79% 26.78%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal from
period 10-8-99*
ended through
9-30-00 3-31-00
------- -------
Net asset value,
beginning of period $5.22 $5.23
---- ----
Income from investment
operations:
Net investment
income .......... 0.13 0.12
Net realized and
unrealized gain (loss)
on investments .. 0.05 (0.01)
---- ----
Total from investment
operations ....... 0.18 0.11
---- ----
Less dividends declared
from net investment
income ........... (0.13) (0.12)
---- ----
Net asset value,
end of period .... $5.27 $5.22
==== ====
Total return ....... 3.48% 2.08%
Net assets, end of
period (000
omitted) ......... $714 $269
Ratio of expenses
to average net
assets ........... 2.06%** 2.07%**
Ratio of net investment
income to average
net assets ....... 4.90%** 4.98%**
Portfolio turnover
rate ............. 15.79% 26.78%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
fiscal For the fiscal yearperiod from
period ended March 31, 9-27-95*
ended --------------------------- through
9-30-00 2000 1999 1998 1997 3-31-96
------- ----- ----- ----- ----- -------
Net asset value,
beginning of period $5.22 $5.43 $5.46 $5.19 $5.32 $5.33
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.16 0.33 0.33 0.34 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments ..... 0.05 (0.21) (0.03) 0.27 (0.13) (0.01)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.21 0.12 0.30 0.61 0.21 0.16
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.16) (0.33) (0.33) (0.34) (0.34) (0.17)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $5.27 $5.22 $5.43 $5.46 $5.19 $5.32
===== ===== ===== ===== ===== =====
Total return ....... 4.16% 2.20% 5.71% 12.02% 3.99% 3.04%
Net assets, end of
period (in
millions) ........ $3 $2 $2 $2 $1 $1
Ratio of expenses
to average net
assets ........... 0.77%** 0.75% 0.68% 0.66% 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ........... 6.20%** 6.15% 6.10% 6.37% 6.41% 6.40%**
Portfolio
turnover rate .... 15.79% 26.78% 37.06% 35.18% 34.18% 63.05%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Advisors Government Securities Fund, Inc. (the "Fund"),
formerly United Government Securities Fund, Inc., is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to seek as high a current income as is
consistent with safety of principal. Effective for the fiscal period ended
September 30, 2000, the Fund changed its fiscal year end for both financial
reporting and Fedeeral income tax purposes to September 30 from March 31. 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 accounting principles generally accepted in the United States of
America.
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 pricing service or 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 and post-1984 market discount on the purchase of
bonds are amortized for both financial and tax reporting purposes over the
remaining lives of the bonds. 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 Subchapter M of the Internal
Revenue Code. In addition, the Fund intends to pay distributions as
required to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
D. Dividends and distributions -- 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 as of the close of the preceding business day. Net
investment income dividends and capital gains distributions are determined
in accordance with income tax regulations which may differ from accounting
principles generally accepted in the United States of America. 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 carryovers.
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.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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
is payable by the Fund at the annual rates of 0.50% of net assets up to $500
million, 0.45% of net assets over $500 million and up to $1 billion, 0.40% of
net assets over $1 billion and up to $1.5 billion, and 0.35% of net assets over
$1.5 billion. The Fund accrues and pays the 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 $ 11,000
From $ 25 to $ 50 $ 22,000
From $ 50 to $ 100 $ 33,000
From $ 100 to $ 200 $ 44,000
From $ 200 to $ 350 $ 55,000
From $ 350 to $ 550 $ 66,000
From $ 550 to $ 750 $ 77,000
From $ 750 to $1,000 $ 93,500
$1,000 and Over $110,000
In addition, for each class of shares in excess of one, the Fund pays
WARSCO a monthly per-class fee equal to 2.5% of the monthly base fee.
Prior to September 1, 2000, the Accounting Services Agreement was as 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, Class B and Class C shares, the Fund pays WARSCO a monthly per
account charge for transfer agency and dividend disbursement services of $1.6125
for each shareholder account which was in existence at any time during the prior
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of 0.15% 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.
Prior to September 1, 2000, for Class A, Class B and Class C shares, the
Fund paid WARSCO a monthly per account charge for transfer agency and dividend
disbursement services of $1.3125 for each shareholder account which was in
existence at any time during the prior month, plus $0.30 for each account on
which a dividend or distribution of cash or shares had a record date in that
month.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$115,609. During the period ended September 30, 2000, W&R received $758 and
$341 in deferred sales charges for Class B shares and Class C shares,
respectively. With respect to Class A, Class B and Class C shares, W&R paid
sales commissions of $90,480 and all expenses in connection with the sale of
Fund shares, except for registration fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed 0.25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
Under the Distribution and Service Plan adopted by the Fund for Class B and
Class C shares, respectively, the Fund may pay W&R, on an annual basis, a
service fee of up to 0.25% of the average daily net assets of the class to
compensate W&R for providing services to shareholders of that class and/or
maintaining shareholder accounts for that class and a distribution fee of up to
0.75% of the average daily net assets of the class to compensate W&R for
distributing the shares of that class. The Class B Plan and the Class C Plan
each permit W&R to receive compensation, through the distribution and service
fee, respectively, for its distribution activities for that class, which are
similar to the distribution activities described with respect to the Class A
Plan, and for its activities in providing personal services to shareholders of
that class and/or maintaining shareholder accounts of that class, which are
similar to the corresponding activities for which it is entitled to
reimbursement under the Class A Plan.
The Fund paid Directors' fees of $1,745, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Security Transactions
Purchases of U.S. Government securities aggregated $18,022,326 while
proceeds from maturities and sales aggregated $23,562,937 Purchases of short-
term securities aggregated $321,812,734 while proceeds from maturities and sales
aggregated $319,100,000.
For Federal income tax purposes, cost of investments owned at September 30,
2000 was $119,168,664, resulting in net unrealized depreciation of $1,234,849,
of which $1,012,707 related to appreciated securities and $2,247,556 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses of
$116,063 during the fiscal period ended September 30, 2000. Capital loss
carryovers aggregated $2,132,809 at September 30, 2000, and are available to
offset future realized capital gain net income for Federal income tax purposes
but will expire if not utilized as follows: $515,470 at September 30, 2002;
$343,196 at September 30, 2003; $690,258 at September 30, 2004; $467,822 at
September 30, 2007; and $116,063 at September 30, 2008.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class B,
Class C and Class Y, each of which have equal rights as to assets and voting
privileges. Class Y shares are not subject to a sales charge on purchases, are
not subject to a Rule 12b-1 Distribution and Service Plan and are subject to a
separate transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of each class are
offered is contained in the Prospectus and the Statement of Additional
Information for the Fund.
Income, non-class specific expenses, and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of their
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
Transactions in capital stock are summarized below. Amounts are in
thousands. For the
fiscal period For the fiscal year
ended ended March 31,
September 30, --------------------------
2000 2000 1999
------------ ---- ----
Shares issued from sale
of shares:
Class A ............ 1,575 4,386 6,970
Class B ............. 192 179 ---
Class C ............. 89 67 ---
Class Y ............ 94 57 351
Shares issued from
reinvestment of dividends:
Class A ............ 587 1,282 1,303
Class B ............. 4 2 ---
Class C ............. 2 1 ---
Class Y ............ 12 229 19
Shares redeemed:
Class A ............ (2,854) (8,120) (7,387)
Class B ............. (22) (66) ---
Class C ............. (9) (15) ---
Class Y ............ (29) (202) (521)
------ ----- -----
Increase (decrease) in
outstanding capital
shares .............. (359) (2,200) 735
====== ===== =====
Value issued from sale
of shares:
Class A ............ $ 8,197 $23,155 $38,397
Class B ............. 998 929 ---
Class C ............. 465 349 ---
Class Y ............ 492 1,387 1,930
Value issued from
reinvestment of dividends:
Class A ............ 3,053 6,736 7,154
Class B ............. 23 10 ---
Class C ............. 12 3 ---
Class Y ............ 61 115 102
Value redeemed:
Class A ............ (14,823) (42,553) (40,510)
Class B ............. (115) (344) ---
Class C ............. (46) (78) ---
Class Y ............ (150) (1,049) (2,854)
-------- -------- --------
Increase (decrease) in outstanding
capital ............ (1,843) $(11,340) $ 4,219
======== ======== =======
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Advisors Government Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Waddell & Reed Advisors Government Securities
Fund, Inc. (formerly United Government Securities Fund, Inc.) (the "Fund") as of
September 30, 2000, and the related statements of operations for the fiscal
period then ended and the fiscal year ended March 31, 2000, the statements of
changes in net assets for the fiscal period ended September 30, 2000, and each
of the two fiscal years in the period ended March 31, 2000, and the financial
highlights for the fiscal period ended September 30, 2000, and for each of the
five fiscal years in the period ended March 31, 2000. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation
of securities owned as of September 30, 2000, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Waddell & Reed Advisors Government Securities Fund, Inc. as of September 30,
2000, the results of its operations for the fiscal period then ended and the
fiscal year ended March 31, 2000, the changes in its net assets for the fiscal
period ended September 30, 2000 and each of the two fiscal years in the period
ended March 31, 2000, and the financial highlights for the fiscal period ended
September 30, 2000, and for each of the five fiscal years in the period ended
March 31, 2000, in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
November 3, 2000
<PAGE>
INCOME TAX INFORMATION
September 30, 2000
Dividends are declared and recorded by the Fund on each day the New York
Stock Exchange is open for business. Dividends are paid monthly usually on the
27th of the month or on the preceding business day if the 27th is a weekend or
holiday.
The dividends are not eligible for the dividend received deduction.
The tax status of dividends paid will be reported to you on Form 1099-DIV
after the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the
tax treatment of dividends and distributions from the Fund.
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, San Mateo, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
James C. Cusser, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Kristen A. Richards, Vice President and Secretary
Daniel C. Schulte, Vice President
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
The Waddell & Reed Advisors Group of Mutual Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Global Bond Fund, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
Waddell & Reed Advisors Vanguard Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, KS 66201-9217
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1011A(9-00)
For more complete information regarding any of the mutual funds in Waddell &
Reed Advisors Funds, including charges and expenses, please obtain the Fund's
prospectus by calling or writing to the number or address listed above. Please
read the prospectus carefully before investing.